My first article covered Step 1 and Step 2 of this process. So we will now attack…
Step 3: Determine Market Potential
The end goal for this Third Step is to accurately determine the amount of revenue potential that exists for your organization in a given market, or territory. As a result, this analysis should include potential revenue from existing customers, prospects, opportunities, etc.
Watch out for…
One of the biggest mistakes that sales organizations make when performing these analyses is that they accrue tons of data about how customers have interacted with their sales organization. Customer A ordered x number of products in Q1 of 2011. Customer B spent y amount of dollars on two different contracts in Q3 of 2010. It’s easy to gather loads of information such as this.
That’s all great – and it can be helpful – but you gain minimal information in terms of the overall trends or patterns of your target customer. You learn the very specific trends for Customer A and Customer B. Unfortunately, you learn very little about Customer’s C – Z.
In order to accurately determine market potential, you need to dig deeper than that. You’re going to get the most valuable information from what these customers do in platforms outside of your organization. In these instances, your customers are acting independently of your organization, and thus you may find the analysis to prove more telling of the industry overall.
5 Steps to Determining Your Overall Market Potential
I suggest you follow the 5-step process below to calculating Territory Potential for your sales organization.
- Utilize the formula: (Number of Prospects) x (Potential Customer Spend) = Territory Potential.
- Determine the Potential Customer Spend by: taking a snapshot of your customer universe and overlaying that with the firmographic data discussed in Step 2 (Annual Revenue, Employees, Industry, etc.)
- Record a predictive pattern through one (or a group) of these firmographic data attributes from your current customer base. Correlations found in your existing customer base can be used to project prospective customer potential.
- Further understand these trends or patterns between the firmographic data and customer spend by careful analysis, or performing a regression.
- Input this data into the formula above to determine Territory Potential.
Quick Tip: Personally, I have found Number of Employees and Annual Revenue Size to be the best indicators of overall customer potential.
Step 3 in a Nutshell: You need to do some deeper sales analysis in order to determine what the main driver of potential is for your customer base. When utilized properly, this data can become one of your most effective sales tools.
Once you have determined the market potential that exists, you can then begin dividing that potential amongst your sales territories. This is Step 4 of this process, and will be covered in my next blog.
Be sure to leave a comment if you have questions!