article | November 17, 2012
How CEOs Can Teach the Board to Evaluate Sales Performance
According to Spencer Stuart, the average age of a board member in corporate America is 62.4. Many of these individuals made their fortunes in their 40s. When they were running businesses, life was vastly different. They used the information available to them to make decisions about the future of the business. Today, some of those metrics can be deceiving.
Here are 3 examples:
1. Bookings – This is a lagging indicator. Say you have a lead cycle of 6 months and a sales cycle of another 6 months. By the time you have the data, it’s already a year old. Using this information to evaluate the future strength of sales is dangerous.
2. Sales Headcount Increase – Boards view sales headcount growth as a leading indicator of revenue increase. However, if the number of leads isn’t growing in parallel, the new reps will have nothing to sell. More feet on the street doesn’t always correlate to more revenue.
3. New Products – New products are fantastic, so long as you have an audience and a plan. An audience requires a clear line of sight to potential revenues the product will generate. A plan suggests marketing and sales can execute on the revenue goal. Otherwise, it’s just shelf-ware.
So how do you modernize the board’s way of thinking for them to properly evaluate your sales performance? One way to do this is to conduct an account segmentation analysis of your markets. The goal is to determine things like:
Account Penetration – Product vs. Customer Growth
Your product revenues should be growing with your customers. The company shown is only growing 20% of its customers faster than the customers themselves. Meanwhile, 50% of product sales are lagging behind customer growth.
Conduct the same analysis on your opportunity funnel. The leading indicator of success is a pipeline filled with opportunities inside growing customers. Companies that are contracting are unlikely to make purchases of your product. When revenues decline, companies cut costs. Your sales team is chasing its tail.
Board Talk Track:
1. We have a funnel full of opportunities inside healthy organizations. Sales results will improve.
2. We’ve identified areas of priority for next year. Our marketing efforts are directed at course correcting and stimulating demand inside these customers.
New Markets – Product vs. Industry Growth
The second step is to assess which industries your sales and marketing team are pursuing? If you made your annual number on call centers and media this year, will it deliver next year? The leading indicator is a focus from marketing on stimulating demand into growing industries.
Sales teams that focus on broad industry categories often miss the return. Pick the key industries of focus and show the board how next years’ results will come from the growth.
Board Talk Track:
Our product is broadly applicable across many industries. With limited resources, focus is our strength. We are pursuing these industries because they are growing. They are spending money on technologies to enable them to scale.
Likelihood of Winning – Propensity to Buy
Now, you understand which customers and industries are outpacing their peers. Use your data to understand what factors compel your customers to buy from you. This consists of both quantitative and qualitative factors. To determine the quantitative factors, look at things like:
Stopping here is the mistake many companies make. They forget to layer in qualitative factors. Examples of qualitative propensity to buy factors are:
You can only focus sales and marketing on a few key areas next year. This exercise will give them clear focus. In this example, technology companies with 1-5K employees are 50% more likely to buy from you than healthcare organizations with 5K+ employees. You can direct your resources to the right accounts to increase your chances of success.
Board Talk Track:
The team is focused on areas where we win. When we sell into these organizations, we win more deals. Marketing is filling the funnel with deals that up our chances of success.
You’ve moved away from a focus on lagging indicators. Your board has a roadmap for success in the coming year. In your board meetings, you can evaluate the performance of the team against this strategy. Your conversations will focus on specific performance indicators, rather than the usual numbers review.
Call to Action:
Download a copy of the free Propensity to Buy Tool to help prioritize your areas of focus.
Top line revenue is elusive. It often feels like forecasting the number is more art than science. Teach your board how to evaluate sales performance by conducting account segmentation.
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