Revenue targets have nothing to do with the targets you want to set for Sales and Marketing. So, how do you figure out your Sales and Marketing targets?
Firstly, you need to know the value of new business that you need Sales and Maketing to generate for you, you also need to know the average size of each deal. Secondly, you need to figure out how many sales need to occur over a specfic time period in order to determine how much revenue you actually need Sales and Marketing to generate.
In this video blog, Hugh helps to clarify this process, as well as the importance of figuring out the correct targets for each department within the organisation.
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Whether you’re doubling your revenue targets for this year, or you’re halving your revenue targets for this year has almost nothing to do with the targets that you want to set for sales and marketing.
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Let’s take an example. If you generated $100 worth of revenue last year, in your first year, and this year ahead you want to generate $200 worth of revenue. You could imagine that we need sales to generate that $200 for us. Here’s a question, how much revenue would you get to enjoy if Sales and Marketing departments were both sacked? Zero? If it’s truly zero, then $200 is the right number. If maybe $70 would’ve come from Customer Service doing a great job of those $100 worth of customers from last year, then that’s Customer Service’s target. That’s not Sales and Marketing’s target.
In that example, the $70 comes from Customer Service. We need to get to $200, so Sales and Marketing’s target now becomes $130, in that example. Now, if the average deal is worth, let’s say, $10 then we need Sales and Marketing to generate for us 13 sales each of average $10. Now, I know some are going to be big and some smaller, but that’s your average.
We really need to turn our whole thinking on its head. Well, not literally, but we need to know the value of the new business that you need Sales and Marketing to generate for you and we need to know the average size of a deal. We also need that same number for the next four years.
Imagine you’ve got a pretty typical B2B sales cycle of six months. Well we know that these days, half of the buying at least is done before you even get invited to the party, so the buying cycle in that scenario is probably more like a year. Can we imagine that all of our buyers will start on the day that we’re ready to begin our sales and marketing? Clearly not and so we need that whole years’ worth of targets, but we need a lot more because you’re going to try and fail, recycle. Try and fail again, recycle. Try and fail again, recycle until your buyers are ready to buy from you. We’re going to need more than a year’s worth and as a rule of thumb, we use three and that’s why we’re standardized on a three year sales and marketing plan in the velocity model.
Why do we need four years? One little twist. If we described three years’ worth of targets, but it actually takes a year for your buyer to buy, then the number of sales that you enjoy in year three will all have come from opportunities you created in year two and so your funnel’s going to look kind of weird. It’s going to look in year three as if you don’t need to start any new conversations, because they’re all going to fall into year four, and we don’t care about year four, so I’m going to have an empty funnel in the top of year three. That’s clearly silly, you’re not going to stop your business after three years. We need a fourth year to make the third year look realistic and that’s why we need four years’ worth of total sales value and average sale value, so we can work out how many sales need to occur over the next three years.
Shortly I’ll show you how to do this in Funnel Plan, but before that, I’m going to do two things. I’m going to share with you my conclusions and I’m going to invite you to receive other blogs like this. Let’s get to the conclusion first.
Let’s not allow the complexity of that calculation to be an excuse for being imprecise. That’s why revenue has almost nothing to do with the targets that you’re going to set for Sales and Marketing.
Well if you enjoyed this blog, then likely you’ll enjoy others. If you haven’t already can I invite you to subscribe to receive this blog? Go to align.me/blog and either subscribe to the twice a week blog, or if you prefer, the once a month which has a recap of all the key blogs for the month. Frankly, what most people do is subscribe to both, and you’re welcome to do that. Now, if you prefer, you can also subscribe to the YouTube channel here and can consume these blogs in that way. Now, if you have already but you’ve got a colleague who hasn’t, then now would be a great time to invite them and I’d be so grateful if you’d do that. Why don’t you do that now, either subscribe or flick along to a friend? Come back and I’ll show you how we do that in Funnel Plan.
Let’s take a look at that in the Funnel Plan. The area that we’re going to focus on now is of course the setting of the objectives. I’m going to log in to Funnel Plan as a regular user, initially with restricted access. That is, I have limited access and I’ll show you then a user with slightly more access.
We’re going to select the plan that we want to edit, so let’s select the video blogging plan. The area that we’re interested in, of course, is the objectives. On the menu here, take a look at objectives. This user is a, as I mentioned before, a restricted user and all they can see is simple objectives. Now, if you’ve been set up in this fashion, perhaps you’re using a free plan or a pre-work plan, then you’ll likewise see only very simple questions.
Three questions. What’s the total value of the cumulative sales target over the three years? How many deals will that take? Now let me stop there. Of course we know that if $900,000 in this case, but it could be $900 is the target, divided by 90 deals, then the average deal size is going to be $10. It’s not listed here, it’s simply calculated. What’s the annual average growth rate? Well for this business it might be in start-up mode, and it’s going to double every year. Those three simple questions unpack a load of value. I can show you more easily that load of value if I log back in as a user with slightly more privileges if I’m in the Funnel Mastery Workshop Training or in a Funnel Camp. Let’s log in now as that more advanced user.
Let’s log in now with a user with slightly more advanced permissions. As we log in, this particular user gets to see a lot more options on the left hand side but again we’re just interested in the plan and we want to find the plan that relates to video blogging. Go now to that plan and we’ll open up the objectives.
Now with these more advanced permissions, I see the same basic data, $900, 90 deals, annual growth rate of 100%, but I can, if I want, be a little more precise in my answers. What the advanced objectives do is they take those simple values and they apply them. If we had 100% annual growth rate, what would we expect month by month, quarter by quarter, year by year?
Let me now slightly edit those. Do remember the $900, $90 and $100 and you’ll see what happens here? Let’s say that our first month our objectives are $10, $10 for the second month, $10 for the third, $30 for the next quarter, $30 for the next quarter and then $40 for Q4. Let’s go for $250. I’m just rounding these out. We’re going to leave the average sale value at $10. We’ve got very similar values to what we had before, but I’ve now been a little more precise in inputting my own answers and I’ve actually taken out some of the rather obscure percentages that we had before.
Whether I’m inputting at this detail level that I’m in now, and from the detail level the simple objectives are being calculated, or I’m starting with my simple objectives and working it out over time, has the same effect and the model will allow you to do either. For example, if I decide, “Look, I still need to achieve that roughly $900 over time, but I really don’t imagine that I can sustain 100% growth.” If I increase this from 96%, as you know very close to 100%, if I increase that to… sorry if I decrease that to 50%, it’s going to require a bigger target in the first year because to reach that $880 I’m going to have to do more in the first year. Let’s reflect that in some now adjusted numbers, we’ve got the calculated numbers but let me adjust those numbers. What I’ve got now is a more gentle growth curve of 50%, still average deal size $10. Again, start with the high level and work down to the detail, or start with the detail and work up to the high level as you prefer. The most important thing is that what you’re setting is the objectives for your marketing and sales function over an extended period of time.
Now whilst I’ve been doing all of that, I could have taken a little bit of help along the way. Whichever field I want a little bit of help on, I can bring the help text out and I can get some help including a How To video on the right hand side here. I can collapse that or bring that help out at any time. Let’s again hide that.
In next week’s show, I’ll show you how we select the right problem to focus on to meet those objectives in the market. For now, may your funnel be full and always flowing.