Annual planning is on the horizon. The process begins in much the same way it did last year for many organizations. Oftentimes the interchange between the senior management and sales leadership is the same. From year to year there is little to no change.
Here’s a scenario that plays out often. The CEO hands a revenue number to the sales and marketing leaders and says, “This is what I need from you this year.” The revenue figure is calculated in a vacuum without input from sales and marketing. Worst yet, the figure was arrived at without a realistic approach to account potential.
Sales leadership sought input from the field but didn’t validate against the way particular accounts are trending. Sales reps can be notorious for having “happy ears,” that is, only hearing what they want to hear.
There is an alternative to “wishful” forecasting. It involves the Customer Health Method which is a predictor of an account’s strength based on your own criteria.
The logic is that the better your customers are doing in their business, the better you will do with them. When your customers succeed, they have more funds to purchase more of your products. Conversely, when your customers struggle, they have fewer funds to purchase your products. This is a case of common sense but not necessarily common knowledge.
If you’re new to using the Customer Health Method, download SBI’s Account Attractiveness Tool to weigh and rate your existing accounts. You customize the tool with the criteria most relevant to your company and customers. The tool calculates a score based on your inputs.
In addition to the tool, you should consider registering for our annual research workshop. It’s titled How To Hit Your Number in 2015 and provides additional insights into sales revenue planning. You can register here to participate in the one-on-one workshop.
The Account Attractiveness Tool focuses on three key attributes to determine the score. They are:
- Account Strength: Pertains to current growth, future growth, potential profit and stability.
- Account Fit: Relates to price variance and the level of product mix/service offerings purchased by the customer.
- Account Relationship: Pertains to the overall strength of the relationship between your organization and the customer.
The goal in scoring accounts is to observe trends which might otherwise go unnoticed. We often find that companies continue to call on accounts based on past sales and history rather than potential and reality.
Here’s an illustration to help explain the concept:
What can we learn?
- The example company’s top customer, ABC, is in trouble. There is an inverse relationship between the company’s growth with ABC and the customer’s revenue which is down by 7%. This inverse relationship indicates a future sales problem. Sales growth is unsustainable.
- In contrast, sales with Western are down by 8%, yet Western’s revenue grew by 26%. This trend indicates that the customer must be increasing it’s spend with a competitor.
Negative trends, such as with ABC above, don’t always mean it’s time to cut bait and move on. However, these trends should be taken into account when forecasting and developing revenue plans.
Questions to ask are:
- How sustainable is this source of growth?
- Are the trends indicative of bigger problems?
- How will the trends affect our revenue?
Applying the Customer Health Method to your planning process will help add perspective that might be missing. While it’s not an exact science, the process does help to remove emotion and wishful thinking.