How to set quotas and improve the yield from Sales

What’s a normal quota per sales rep? Half a million, 1.5 million per annum? Or is that revenue or gross profit? Is it lifetime value or one time value? Or somehow a one year value? If we want to improve our yield per rep, do we decide better ones? To me, quota setting is all a bit well kind of looking over the shoulder. Isn’t there some better way to do it than that?

When you look at what a normal sales quota is, and for a start I want you to think about sales value not revenue. I have argued in previous blogs that when we think about revenue, half or even three quarters of this year’s revenue, might be from deals we did last year. So, why would you reward me with them again? That’s customer service’s job or deliveries’ job. Reward me on what I bring to the table this year. So let’s look at sales value, not revenue. But if I was to shift you to looking at inputs and I will explain shortly why and I’ll show you how to use inputs, compare them to the outputs that you need to run the business and to eat around between the two to form a smart quote. Most important input that we need to take into account when we’re allocating a quota for a sales person is the number of meetings that they can do and that they need to do. We’ll look at both. So I know that these days a meeting is a kind of nebulous concept a lot of the meetings we conduct are over the phone or even with phone and web-share. So I am going to talk about meetings but really I mean a meaningful interaction something that you’ve got to plan for, book, conduct, follow-up. Now, if you do that by jumping on a plane and then flying somewhere, you do that by driving in a car to somewhere you do that by walking down the road or you do that by putting on a headset, I kind of don’t care. The concept is meaningful in interactions and how many of those meaningful interactions does a sale take? And we’re going to compare that to how many meaningful interactions a normal sales person can do and that’s how we’re going to work out what we can get per rep.

So it’s simple right, 10 sales people, and 200 meetings a year per sales person. That gives me 2000 meetings of inventory. Five meetings per deal, means that from those 2000 meetings I can probably look to close 400 deals or 40 deals each. Well it is true, but only if we close and who does? Even if they’re as good as closing every second deal, then in that scenario we’ll probably look to get 20 not 40 deals per rep. That’s kind of a big difference. But that scares me a bit. There are two really big questions around that for me. Firstly, do you really lose every deal at the half way point? Or even the same point? Don’t you lose deals at different points depending on the deal and the day? The second question is how do I use such a simple model to work out what my capacity could be or should be if I don’t trust it? I am going to show you how to build a model of sales capacity in a spread sheet and I am going to invite you to receive more blogs like this.

Let’s take a look at the sample model using a spreadsheet first. To build a basic model of our resource capacity, and what kind of quota we can set people, we want to start first with our inventory. How many sales people do we have and how many meetings do we think they can conduct in a typical year? Be a bit cautious with that latter number though by the way because you have to remember trainings, sick days, leave all of these other elements. So how many meetings can they conduct year in year out? That’s the number that we want. Together the number of sales people times the number of meetings gives us our inventory and then we want to take a look at what we actually require. Work out how many buyers need to reach each point in the buyers’ journey. So, as you know in the buyers journey we a moving from one stage to the next but we don’t always succeed in fact failure is kind of key and it is baked into the way we work. Let’s apply a leakage value for each point. So, if we were trying to achieve let’s say the 400 decisions we were using before, then you can see how many progression we would need to successfully navigate from the stage on the left to the stage on right in the given year. Now let’s work out how many meetings are needed for each of those progressions. We’ve got a total of four meetings that we need for this sale in this example but half a meeting just to explain, half a meeting means that every second sale needs a meeting at that stage. So four meetings all up to achieve a sale but we use them up at each stage as allocated. Well that lets us work out how many meetings will be consumed. For example, 1200 progressions from interest again and half a meeting per progression means that we use up 600 meetings in that year. All up we need 2680 meetings in order to make our 400 sales again, we had 200 reps doing let’s try again. 10 reps, 200 meetings per annum we have 2000. So our utilisation is going to be 143% you can’t do that. You can’t build for failure if you like. So what we need to do is either change the number of sales people or the number of meetings required to get that right. When we do have it right and we have the right number of sales people, multiply that by the number of deals that we can achieve, times the average sales value deal, and there’s your quota. This is based on science, not on looking over your shoulder.

Now, if that’s our model, how do we actually improve our performance against that model? Well I would suggest that you make sure that you get buyers as cooked as they can be before you hand them over from marketing to sales. Have them as progressed as they really can be meaningfully progressed and that’s really a negotiation between marketing and sales. How done do you want them? I can give you fewer that are more cooked or I can give you more that are less well cooked and that’s a negotiation between marketing and sales neither side should get bullied by the other, but in the end if you want more buyers, they’re going to be less cooked if you want them more cooked, I can give you fewer that’s the trade off. Negotiate that trade off. But, the net effect of that is that marketing needs to step up and to progress buyers further through the journey that used to be the case.

Well I promised you I’d show you how we do that in funnel plan the funnel plan section that this is going to affect is our velocity model and in particular, our utilisation. You may also want to see an earlier blog that I did on Resource Modelling. So, using those same values that I showed you before in my simple model plus recycling and evaporation you can see we have a similar but slightly different and I would argue a slightly refined conclusion. The benefit is that it is dead easy. I didn’t have to build the model and adjust it. It’s all been calculated for me but we can see there in this example that over the 3 years based on an assumption that we are going to grow every year then we are actually going 60 percent overcapacity with our 10 reps. Remember we were about 40 percent overcapacity beforehand. So, over the three years we are going to be 60 percent overcapacity so we’re clearly going to need to have more reps or a modern marketing function. Now I’ll show you how that modern marketing function needs to work on another day.

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