By Garry Hojan
Our Solution
I really like questions like this. It shows that you’re thinking about something that many don’t think about or do.
I like tackling revenue goal-setting through a relatively quick process.
Start by looking at historical financial results. Things to look at gross sales, net sales, gross profit, gross profit margin, average revenue per sale, the average number of sales, the average number of sales per customer, and average number of repeat sales per customer per period. You can keep this top level or break it down by location, product segment, etc. What were sales in the last three years? Go back even further to see if it will help reveal any trends. What are the trends? Have we been increasing revenue, flat, or declining, and by how much year over year? Notice any cyclic and causal trends, i.e., a seasonal, election year, etc. Hopefully, you will find you’re increasing your gross profit margin year over year.
Here’s an example of why this step is so important.
I had a client who did very well. They had great sales and sales trends year over year, great gross profit, and great profit margins. What’s not to like, right?
I started to analyze those trends for them and found something subtle and sinister in the ten-year review.
Their gross profit margin trend was very slowly shrinking. Sales revenue and overall gross profit increased, but the overall gross margin on individual sales decreased slightly.
Why is this an issue? You have to sell and do more for the same amount of profit, which eventually affects overall gross profit and financial viability.
The cause was that their business was slowly moving away from selling standard equipment and towards customized equipment and not adequately assessing margins on customization costs.
Eventually, the profits would have shrunk to the point where someone would take notice, but in this case, it was averted well before that point.
It was a very subtle aspect that the client wasn’t aware of, but by finding the trend, we could help correct the sales pricing mechanisms to address the closing gap between revenue and gross profit margin.
The easiest revenue goal is the status quo goal, a hypothetical goal based on the averages identified. For example, if your revenue has increased on average 5% year over year for the last three years, doing nothing else and assuming there are no major unforeseen events (black swans), the thought is that all things considered, it’s relatively safe to set a 5% increase to revenue goals assuming your market is still there. It becomes more challenging if you are trying to increase your standard growth rate. If you want to jump from 5% to 20%, growth requires, in my experience, more than just saying, “Go sell more,” especially if you want to execute well and meet the goal. Setting goals is relatively easy. Execution is another matter.
Begin with the end in mind; keep it as simple as possible. If I want to increase new sales revenue by a million dollars and my average sale per customer is $10,000, then I need to make 100 unit sales at that number. It’s never exact, if you need to, break it down into “average” categories that work for you. If you are going after business, you should know your ideal customer profile, how many are out there, how many you contact, how many contacted prospects turn into customers, how many “touches” (calls, emails, meetings, messages) from first contact to sale, average size of sale, number and size of repeat sales. This helps you pick average numbers and apply them to your sales team’s revenue goals.
If I know it takes, on average, ten “touches” to turn a prospect into a customer. Then I know that to get to $1M, I will likely need to accomplish 1000 touches for 100 new $10K sales. That’s about four touches per day, 20 per week (50 weeks). Keep in mind your sales cycle time; if it takes three months from first touch to sale, then you need to increase your touches per week to account for the 3-month lag in order to make an annual revenue goal. Measure your touch progress daily, weekly, and quarterly, and adjust to make revenue goals. These will be leading indicators and can be tracked on a simple spreadsheet. There are plenty of ERP/CRM tools for this, but I prefer simple. If you do this, you will increase sales. If you don’t, good luck, it’s guessing.
Identify any foreseeable changes or threats to reaching your revenue goals. This could be anything, but some areas to consider are market shifts like regulatory changes, competition changes, technological changes, geopolitical changes, supply constrictions, etc. There may also be constraints to meeting revenue goals internally, like systems, labor, space, etc. Can any of these be mitigated? Make sure to include those mitigations in your goals if they affect the revenue goal.
Assess your sales team. Is it just you? Are the revenue goals reasonable, based on past performance and resources required, so that your team can achieve the goals set? Do you need to make changes?
Communicate your revenue goals. I am an open-book kind of guy. If I expect the team to help meet revenue goals, I share those goals team-wide, not just with sales. I’ve found that getting everyone involved in high-level financials and being transparent helps improve efficiency, communication, decision-making, and better resource utilization.
Need help setting revenue goals and getting to them? Let’s chat.
