Finding the Magic Number

Finding The Magic Number

Sales are the magic that makes businesses work. Revenue goes into the top of the funnel and, as it flows through the organisation, it’s reduced by operating costs and expenses, leaving profit and cash at the bottom for the shareholders to leverage. Simple.

So we know what shareholders want – consistent profits – but we also know what they don’t want, which are surprises. While the leadership team determines strategic direction, it’s fair for shareholders to expect a return – the business is being fuelled by these investors’ money, after all. And not just any return, but the return that’s stated in the business forecast – commonly known as the business plan.

FORECASTING: WHY THE BIG DEAL? Managing shareholders’ expectations is critical, because if they lose confidence in their investment – either because insufficient sales revenue is going into the top of the funnel, or because unexpected costs and expenses are excessively eroding this income – they will surely react. They could pull their money out, starving the business of capital, slowing its growth and, at worst, killing it off – or they could force a change of leadership.

So, managing the forecast is critical. If the forecast is managed well, with all lines in the profit and loss (P&L) account being closely monitored, surprises can be avoided and the effect of adverse events mitigated. The result will be greater shareholder confidence and increased investment, providing the all-important finance for growth, either through acquisitions or organic growth (more salespeople, marketing campaigns, R&D spend etc.), bringing further sales revenue into the top of the funnel and perpetuating a virtuous cycle of ever-rising profits and expansion.

So everything comes back to creating an accurate forecast – and then delivering against it. Accurate forecasting (and reporting) is needed against specific lines in the P&L document, normally including: l Sales (ie. revenue) l Cost of sales (ie. the cost directly attributable to the provision of the product or service sold) l Gross margin (sales minus the cost of sales) l All other costs (including fixed overheads such as buildings, and support functions such as accounts, HR and marketing l Earnings before interest, tax, depreciation and amortisation (EBITDA), which is essentially profit before tax (PBT), but with some additional complexity l Cash, though cashflow is normally a separately reported item.

All of us in the sales community have a key part to play in this forecasting and management necessity. Not only must we meet the sales targets attributed to our name, but we must also be able to forecast our sales accurately. Why? Because just as our individual sales contribute to the total sales of the business, so our forecast numbers are rolled up to form the forecast of the whole company. If we get our forecasts wrong, we upset every line in our management’s forecast – because every line in the P&L is dependent on the sales number – and ultimately risk damaging investor confidence. HOW TO GET BETTER AT FORECASTING So how then do we play our part and be a better forecaster? To answer this, and contrary to popular belief, we need to acknowledge that forecasting is not an art, but a science.

Let’s consider for a moment two points: to be a great forecaster, we need to be sure our client is

CASE STUDY 1 CATHY

Cathy was recently working on a large deal. She’d successfully qualified how her cloud service offering could add value to the mission-critical priorities of her client, and had identified and met with the key influencers for her proposition. Using the CARATS model as the basis for her engagement, Cathy was able to conclude positively that all bases had been covered, but was told that if the deal was not closed ahead of a pending acquisition it could either be delayed or discarded. Cathy called to arrange a time to meet with the signatory, but was told to call back in a couple of weeks as one of the key stakeholders, her main advocate, had left. She realised that, while she had done a good job qualifying the deal, she should have put the same effort into forging close relationships with all her stakeholders. If she had, she might have known about the pending exit. Not to be beaten, she arranged to meet the other key influencers to understand all the anxieties the remaining stakeholders had. It quickly emerged that the person taking over as the lead on the project was someone Cathy had overlooked during the sales pursuit and so was relatively unknown to her. It was this individual that had pressed the “pause” button, as they had some uncertainty over the long-term commitment Cathy and her organisation had to the technology platform they were proposing and to them as a client. Cathy was quick to connect this stakeholder with another client of hers, and was able to demonstrate her long-term commitment. She secured the order, but learned the importance of ensuring all influencers are kept fully informed. CASE STUDY 2 JOHN

John recently joined a new company and, at the earliest appropriate opportunity, he made contact with a previous longstanding client of his. He and his client had enjoyed a strong buyer/seller partnership for years and had established a very strong trust-based relationship. As John knew his client’s business very well, he was quick to be able to identify and explain how his new value proposition was relevant to one of his client’s key strategic priorities. John knew the way his client liked deals to be structured so, using the CARATS model, he was able to qualify the deal efficiently. The only area that needed some further qualification was around the impact his proposition would have on the wider employee base. This was important, as John was keen to ensure there were no last minute influencers who could delay or stop the deal from completing. John was able to cover this important point off quickly and moved to secure the deal. It was the first time John had moved companies in a while, but on reflection he realised the importance of establishing solid trust-based relationships, as his understanding of his client and their business enabled him to lock his competition out early.

going to place an order; and we need to be sure we’ll be the beneficiary of that order. Each component needs a different qualification approach. Let’s dissect each in turn.

IS THERE A DEAL TO BE HAD? To be certain there is a deal to win, we need to qualify the following points: l Has the person we’re mostly engaging with got the gravitas and credibility to convince their peers that they need to invest in whatever it is we’re selling? Think “Credible” – C l Have we met everyone with the collective 44% influence and authority to make the decision? Think “Authority” – A OF SALESPEOPLE l Is there a demonstrable saving from

HAVE AN 80% investing in our product or service? Or, PROBABILITY THEY are we able to demonstrably increase

WON’T CLOSE the sales of our client? Think “Return”

THE SALE on investment – R

Source: www.Hubspot.com l Is our product or service affordable? Is there budget, or could budget be made available – perhaps from one or several departmental budgets or the capex (capital expenditure) and/or opex (operating expenditure) budgets? Think “Affordable” – A l Is there anything happening in our client’s organisation that may prevent a deal happening

anytime soon, such as a change-freeze (common in retail organisations in the run up to Christmas), a pending acquisition, merger or de-merger, year-end etc? Think “Time” – T l And finally, is there an identified mission-critical or strategic priority that our product or service aligns to? Clearly, we want it to be aligned, because if it’s not aligned there won’t be a desire for the deal to happen when we want it to. Think “Strategic” priority – S.

So, to remember these six vital components we can use the word CARATS – Credible, Authority, Return, Affordable, Time, Strategic.

Everything we sell is bought as an investment, never a cost. Whether it’s stationery, software or storage, our clients are expecting a return for their investment. To work out how we’re relevant we just need to ask “So what?” a few times when thinking about how our product or service helps increase or protect the profits of our clients.

We’ve established that before we can win a deal, there has to be a deal, and that CARATS is a good qualification model to weigh up the odds of a deal happening when we think it might. Now let’s turn our attention to qualifying the likelihood that we will be the beneficiary of the order. WILL WE WIN THE DEAL? To win a deal, we need to be trusted. That’s all. Sounds simple, and it is, but for 20 years I’ve heard sales and marketing professionals use the term trusted adviser without proper thought. A thorough understanding about how to establish trust leads to rapid behaviour change and actions that result in a state of trust being forged, but unfortunately far too few people really think about what trust is. As an aside, Charles Green was a pioneer on this front and established Trusted Advisor Associates (www.trustedadvisor.com) back in 1997, which is well worth a visit.

Trust is the glue between buyer and seller. Without trust deals won’t stick. So, what is trust and how can we, as a sales and marketing community, forge lasting trust-based relationships with our clients?

For me, to be trusted we need to demonstrate (demonstrate is the key word here) that we, and the organisation that we represent are all (another key word) of the following: l Credible l Reliable l Commercial (so we can put together deals in the way our clients want them to be structured) l Interested in building lasting relationships (buyers want to work with people who are interested in their long-term success).

Unless and until we have demonstrated all of the above, our clients will always be looking to work with someone who is more trustworthy. DEAL OR NO DEAL?

The forecasting matrix illustrated is a simple model to help salespeople improve their forecasting accuracy:

The forecasting matrix asks two simple questions: 1) Is the deal CARATS-positive (so are we, as a sales and marketing function, satisfied there is a deal to be had? 2) Have we demonstrated that we can be trusted? If both responses are positive, we will win the deal. If, however, the deal is CARATS-positive but trust-negative, then we’ll have failed to be at least one of the following: credible, reliable, commercial or interested in forging a long-term relationship. We can’t be 100% sure the deal is ours until all four conditions are positive.

THE ROLE OF SALES AND MARKETING IN ESTABLISHING TRUST Marketing departments have a key role in the trust journey, as that journey starts long before a salesperson is engaged. The case studies we use, the whitepapers we share, the events we run, and the way we interact with incoming calls before they reach a salesperson are among the factors that contribute to the trust journey. If we can’t efficiently transfer a call, for example, how can a client be sure we’re going to be reliable at handling and managing their investment, ie. their order?

If all our case studies feature new clients, how can potential clients be sure we are capable at keeping clients for a long period of time and forging lasting relationships with them?

If our salespeople lack business acumen and struggle to understand the difference between opex and capex, or the different drivers and buying behaviours of an acquisitive client versus one pursuing an organic growth strategy, how can their clients have confidence that the deal offered will be structured the way they need it to be? How are our salespeople demonstrating themselves to be commercially minded?

DARREN SPENCE is founder of Sales Gym 360 and author of the SalesGym360 App on iOS and Android. Contact him at: darren.spence@salesgym360.com or on 07771 598578, or visit: www.salesgym360.com or www.4eyedsalesguy.com