Revenue forecasting is a hassle for most organizations, not to mention an inexact science. Most people don’t have a formula to forecast growth. They make up a number (usually a fairly optimistic number) and try to manage to that number.
Years ago, I had a sales manager whose method of revenue forecasting was simple. He’d take the revenue number he had to produce, divide it by the amount of sales he thought each rep could generate, and end up with a number that told him how many new reps he needed to hire. He didn’t spend time considering what the market share potential was for the firm with their existing product and services mix. His job was to deliver a number. Sound familiar? So he put a few more people on the payroll and told them to reel in as many fish as they could, but without adding a new fishing pond or bait or going after any new types of fish.
That kind of math never works. If, for example, all of those reps were selling in the same geographic region, as was the case in that situation, he could be over-saturating the market by adding the new sales reps. If you find yourself in this scenario, before you jump to the same conclusion, step back and analyze the situation.
To make things more interesting, all of the quotas for the existing sales team were bumped up significantly—at least 35% across the board. So what happened when new reps were added? Anxiety over higher quotas. Infighting. Turf wars over prospect lists, zip codes and company names.
In this digital age of selling, the quest for any company should be to significantly increase the sales revenue per employee. To do that, though, you need to have an effective lead generation system that intelligently maps out your engagement process and cultivates prospects through your funnel.
4 questions that matter
Let me share four great questions we ask our clients in the revenue forecasting process. The answers to those questions will define your marketing tactics.
Before we get to those questions, first you’ve got to determine how much you want to grow—either in terms of a percentage growth rate or a dollar amount of revenue. Ideally, lots of external factors should weigh into arriving at that number including your market, the relative strength of your competition, and your product mix and any new products that you have in your pipeline just to name a few. However, most organizations find it easier to pick a number (e.g. 20% growth rate) and then back into that number. That’s okay too—we can work with that.
After you’ve figured out your growth target, these questions will begin to outline where your growth will come from. Here are the questions: Are you going to…
- Sell more of the same stuff to the same people?
- Sell new stuff to the same people?
- Sell the same stuff to new people?
- Sell new stuff to new people?
You’ll employ different tactics for each scenario. I’ll explain.
#1: Sell more of the same stuff to the same people
In this scenario, you need to focus on penetrating more deeply into your existing clients with the same products. To succeed in this scenario you need to either (1) have a better sales force, (2) do a better job of execution (delivery, timeliness, etc.), (3) be cheaper, or (4) have a better product or one that is more uniquely suited to your prospects. Your marketing should support which of these items is your means of differentiation. If you’re differentiating on cost, don’t jump in before you’ve thought through your decision. Being cheaper doesn’t create long-term brand loyalty. If you’re putting your faith in your sales force, attract the best, pay them well, and give them tools to win.
#2: Sell new stuff to the same people
In this scenario, we’re looking at adding revenue by introducing new products into your mix. If this is where some of your growth will be found, you need to have marketing and sales activities to encourage adoption of your new products by your existing customers. Keep in mind that that unless you’re adding an entirely new product they don’t currently use, you’re going to have to displace a current vendor.
Plan your marketing tactics accordingly. Some customers might switch to you if you have a better relationship with them. Others will demand a better product: one that is more perfectly suited for their needs, is less expensive, or any of the other ways that a product differentiates itself.
One last thing to keep in mind as a marketer. A keen sales rep won’t want to put the relationship of the client at risk if selling an new, unproven product could cause them to lose the account. Your first step should be to sell the product internally and do whatever it takes to make those initial sales incredibly successful. Plan your marketing tactics accordingly. Bundle your products, when appropriate, to encourage adoption and avoid saddling your new products with the label of being cheap.
#3: Sell the same stuff to new people
You’re saying it’s time to expand into new territory. Decide if that expansion means that: (1) you’re growing your market share in your existing territory with the same profile of clients you’re been currently selling to, or (2) moving up or down the food chain for customer size in your current marketplace, or (3) expanding to new territory.
Your tactics should be different for each scenario. Whether it’s brand building or gaining credibility as you move up or down the food chain, make sure you’re focused on the right activities to generate leads and sales.
#4: Sell new stuff to new people
This is the most tricky scenario because your expanding into new realms with new products. Most of the time, this is the most difficult type of growth because you have few, if any, existing relationships to leverage in propelling your growth. Every established company started out this way at one time, so if you’ve done it once you can do it again. But in some ways, you’ll have to think like a startup, and for many companies this stage was so long ago that they’ve forgotten what it’s like.
Your first step should be to establish your brand and define your strengths. Remember, the first few clients will be the most challenging to find. Thrill them with your product or service and they’ll lead to more and more business.
To wrap it up, if you’re going to grow, it’s by picking one or more of these scenarios. Ideally, your mid-term growth plans should have a plan for each scenario. Every business should always be looking for new customers in new areas with the right new products to ensure their long-term viability. That creates energy and vitality within every company and gives you momentum. One critical thing, though, is to make sure that your marketing plans and sales rep compensation plans are aligned so that both marketing and sales have the right incentives to produce the same outcome. Once you define how you intend to grow, your tactics will fall into place.