Effective Revenue Planning for 2016 in the US

FirstStrike LLC
www.firststrikesales.us

Your investors are expecting that you will sell $2,000,000 in the USA next year and not interested in excuses. Your best protection is a logical plan utilizing historical or industry metrics and agreed upon by the whole management team.

Both you and your investors will sleep better after a realistic planning process. The most important by-product of this exercise is a realistic forecast that takes into account both the people and financial resources required. Secondly, it insures that all of your key senior managers are aligned with the goal and what will be required of each department.

Plan on three full days of uninterrupted time for your CEO and all the direct reports. You might want to include other key members of your team as well. If possible find an off site location. Begin by establishing some meeting rules and the first one should be everyone shutting off the cell phones, there will be breaks for that.

Start with what you “think” should be the objective. Don’t worry about being accurate. The process will confirm the realism of your plan based on history, existing resources, and industry averages. If you have already committed to your investors then use that number.

Just about every manager will need to offer up an estimate of some sort during this dialogue. The best result is achieved if they taken in without any haggling because these are the very people that will need to make all this happen in 2016.

So let’s begin. The CEO told your investors that you would receive $2,000,000 from new customers in 2016.

Step One — Average Transaction Size

What is your average deal size? The best way is to look at your historical data and use that. If all your transactions were under $75,000 in 2014 and 2015 it is not realistic to use $100,000. Alternatively, if you do not have a lot of history, research the pricing and deals of your competitors as a secondary source. Remember this is a critical metric that will impact all of the numbers going forward so credibility is essential. Let’s use $100,000 for our example. So your company will need 20 new customers in 2016.

Step Two — Average Sales Cycle Length

How long does is your average sales cycle – contact to contract? Let’s say six months minimum. That means any account you plan to close in 2016 you will need to start by June 2016. Use the same historical and competitive data as in Step One. If you do not have any data use a 6-9 month sales cycle because that is an industry average for enterprise software in the US. A brief caution, using six months is extremely aggressive and I would not advise committing to revenue timing based on it, go with nine months if you have no history.

Step Three — Sales Cycle Conversion Metrics

Start by answering the following questions.

1. How many new customers in the last twelve months?
2. How many Proofs Of Concepts in the last twelve months?
3. How many demonstrations in the last twelve months?
4. How many leads did we need to find those opportunities?

Having these numbers will allow us to pragmatically assess whether we have the resources to reach the number we projected. It will also tell us what is really feasible based on current staffing. For this example I am going to use industry averages tempered by my own experience of over thirty years.

Our Example:

2014/2015 History

1. Five Customers
2. Ten Proof Of Concepts (50% Close Rate/Industry Average Is 40%)
3. 100 Demonstrations (10% Is Industry Average)
4. 1000 Leads (If You Can Get One Demo For Ten Leads That Is Great)

Sales Step Calculation For 2016 – Based On The Projection

1. 20 Customers
2. 40 Proof Of Concepts
3. 400 Demonstrations
4. 4000 Leads

Step Five — Building Towards Consensus — Open Discussion

This is where it gets fun and where you really need the whole team in the room together. In many instances people want to change the metrics above when they see what they are being used for. Don’t let them!

Start at a high level.

• Does the VP of Services think he can handle twenty clients and keep them happy?
• Does your PreSales VP have the people to handle 40 Proof Of Concepts? Remember that most of them need to be completed in the first six months if you are going to close them in 2016. And what about the 400 demonstrations? Let’s assume one-hour demonstrations with thirty minutes preparation. Proof of Concepts can range anywhere from three to ten man-days. Using five days as an average is probably safe in my experience.
• And how does the VP of Marketing feel about 4000 leads based on his current headcount and budget? What about salespeople?
• The average enterprise salesperson representing a product that costs more than $100,000 is lucky to do five transactions. What does the VP Sales think?

At this point you may decide to look at the objective as a team and temper it. If not, you will want to dive into the details and start consider some dependencies that impact not only human resources but financial as well.

Step Six — Resource Discussion

Expected Resources Required (Example)

1. 20 Customers — Three Salespeople (Optimistic)
2. 40 Proof Of Concepts — 200 Man Days
3. 400 Demonstrations — 75 Man Days
4. 4,000 Leads — No Idea

Questions To Discuss:

• You will need to do 40 PoCs in the US in 2016. If your intent is to be really successful on large accounts a good percentage of this activity needs to be onsite. The PoC is your best opportunity for your personnel to bond with the prospect and in the USA this is critical.
• Do you have the pre-sales resources in the US to pull this off?
• Have you estimated the travel costs from Israel if you do not have folks here?
• Do you have competent outside sales personnel with proven success at the enterprise level to close these deals?
• Consider the salary and benefit costs for additional sales and pre-sales people.
• You will need to do 400 demonstrations, most of them before June, in 2016. Who is going to do all these demos?
• How many raw leads result in a demonstration? Let’s say 10%, (Very Optimistic) then you’ll need 4,000 “quality” raw leads before June. Do you have something in place to source this either internally or through a third party?
• Once you receive a lead will you have enough people follow these up and qualify them?

Reaching Realistic, Mutually Agreed Upon Plan

At this point folks are either in shock, panic, angry, or hopeful, some even supremely confident. The key is getting everyone to that same happy place because every department will need to contribute to meeting the objective. This is where the bulk of the time is spent and the most value achieved. It also is where having an experienced third party can be extremely helpful, especially someone that has been through a similar process with an Israeli startup.

Its here where you think about changing the number, the staffing model, or more creative solutions like rebalancing the resources, hiring third parties, recruiting partners, or even staggering the quarterly quotas differently. If you know you are not going to close anything until June you might want to take a lot of that quota and put it in December. At least you then have a theoretical chance to making the initial quarter goals. Having an impossibly high quota early in the year only demoralizes everyone. There are many other ways to navigate around these challenges and this is where an American resource can be helpful, one that is aware of the options available.

Once you are through this process your next step is to formalize it and roll it out to the troops. You’ll know that you have the backing of your entire management team and that it is realistic, achievable one. Now all you need to do is go execute, a topic for another blog.