You walked into the board meeting with a revenue goal for next year carefully prepared by your team over weeks of hard work. You’re confident that the number is realistic—better than last year’s because of the recent major investments your organization made in technology to boost productivity. Now, as you talk through the analyst reports and the sales forecasts, and as you begin to lay out your proposed goal, there is a lot on the line. Everything is going well, the board is following your presentation, a few of the directors are nodding their heads. Your plan nicely balances what shareholders expect with the growth the organization can drive.
But then the conversation takes a turn. “Are we sure we’re pushing enough?” asks one director. “We’ve made some huge investments in the business that should allow us to do more and start to recapture some of that cost.”
Another director agrees. “My sense is that we’re still thinking a little too incrementally about growth,” she says. “This plan seems like last year plus a few percent rather than the paradigm shift we need to truly move ahead.”
Suddenly, you’re looking at a stretch goal, maybe even an aspirational goal. Can you make it?
In my book, “Quotas! Design Thinking to Solve Your Biggest Sales Challenge,” I introduce a problem-solving methodology borrowed from the world of engineering and design, and I show how to use it to take the mystery out of setting and achieving challenging sales goals. Through our work with CEOs and their C-level team members, we’ve seen how this powerful but simple technique can change the way business leaders set and, most important, achieve any corporate goal. The methodology rests on three pillars: people, market opportunity, and sales capacity. Let’s take a look at each to see how they can be used to take the mystery out of setting and achieving corporate goals.
In most goalsetting activities, the human element is the first factor to consider—and often the least understood. Ensuring clear roles, alignment, and rules of engagement is paramount to setting and achieving realistic goals. In the book, I describe how to align leadership and the whole organization around the quota setting process, but it’s really the same for any corporate goal.
In our earlier example, the board of directors was highly engaged in setting and approving the goal. That’s how it works in more than a third of the companies we surveyed. In most companies, the C-suite leads setting the number, which the board then reviews and approves. But either way, how should the board and C-suite engage to make sure that the goal is attainable?
Regardless of whether the C-level sets the goal or executes the board’s goal, as CEO you’ll want to engage your CFO in articulating the vision and the goals across the rest of the organization. The talks at this level are usually around top- and bottom-line accountability, determining things such as how much of the top line should come from recurring revenue and how much from new sales. From there, finance will often play a role in determining revenue margins and budgets. In 60 percent of the companies we surveyed, the CEO, COO or president sets the corporate goal, and the CFO works alongside, leading or supporting this effort in 75% of the companies.
But the conversation shouldn’t stop there. The CFO or COO should work with the senior sales leaders who are assessing opportunities, evaluating the organization’s sales capacity, and determining which resources are required to make the number. With the corporate goal set, senior sales leadership leads the allocation of the goal to the next level 77 percent of the time in our respondent companies.
Finance primarily plays a support role with this next level allocation. These conversations often involve the marketing team, which can provide insights like competitive analyses and market intelligence.
Even closer to the action on the ground are the divisional and regional sales leaders who direct the front-line sales teams. For many companies, the C-suite gets important, granular bottom-up input from these leaders. Sales operations is engaged in providing this bottom-up input in 56 percent of companies. Sales operations also provides insights on market planning, account strategy, sales talent development, and compensation.
A well-informed people process is a constant dialogue, a virtuous circle, where bottom-up feedback informs top-down expectations.
The second pillar, market opportunity, defines the organization’s total market. It addresses the overarching question: Is there a there there? Companies that don’t look closely at market opportunity when setting goals tend to rely on history or broad assumptions; and they may spread the number evenly across territories that are expanding or contracting and shouldn’t be held to the same expectations. But these methods are fraught with problems and may be quite unreliable. With rapidly changing markets and developments in technology, for example, looking back won’t help you move forward, and spreading the number evenly across different territories can result in frustration and missed opportunities. Again, depending on the organization, analyzing market opportunity should also include an analysis of territories. After the field gets its numbers, bottom-up feedback may help executives fine-tune the goal by territory. You can get a better picture of the whole market if you receive field input on what each territory is capable of.
When organizations set goals that are based on deep knowledge of market opportunity (and, as previously noted, when the right people are providing input up and down the chain), the goals will be aligned with reality, not with aspirations or guesswork. Unless little has changed year over year and the organization is satisfied with the status quo, setting a goal based on history, which about 40 percent of companies do, could incorporate inaccurate views of future opportunity and end up allocated to the wrong markets (without the necessary potential) or result in unachievable expectations for the organization in total.
As I mentioned in the people section, an effective way for senior management to assess market opportunity is to seek out bottom-up input from the field, as well as unbiased market data. Since every organization is different structurally and culturally, the CMO or COO will need to evaluate the top-down and bottom-up processes to determine the best flow. By asking questions and reviewing the data, managers can determine the factors that affect market opportunity. These factors could include anything from buyer demands to changes in how customers buy to macro market factors like government policy. Ask your senior leadership to discuss these factors with the team in the field and come back to you with a realistic, comprehensive portrait of the market.
Once your organization has aligned the teams and processes that provide input to the goal, and once it understands its market opportunity, there’s one more pillar upon which to rely: a sound understanding of the capacity to pursue the total addressable opportunity. Don’t confuse sales capacity with simply the number of salespeople. This is more than a headcount. It’s about the interplay of:
- sales time – total time reps spend on customer retention, penetration, or acquisition
- sales workload – the number of hours to manage an account or win a sale through the stages of the pipeline, and
- average revenue or bookings per sale or customer.
As a CEO, you can create the vision for your sales, finance, sales ops, IT, and marketing leaders to understand sales capacity and determine how to improve performance in these three areas. With these insights in hand, sales leadership can better analyze the organization’s current sales capacity and determine which levers have the greatest potential capacity impact. For example, they can look at sales time allocation and decontaminate roles to provide more time for selling. They can reduce sales workload through more effective role alignment and better pipeline management. Or they can determine the optimal performance profiles for each sales role, take a talent inventory, and upgrade talent through targeted training or recruiting. A mastery of sales capacity gives management the ability to pursue market opportunity.
Better decision making, higher goals
Back to whether your stretch goal is achievable: you can’t know this by looking at history, vision, or broad assumptions alone. You need to work with the three pillars of people, market opportunity, and sales capacity. Building with these pillars helps management set and attain a realistic goal and gain control of its most powerful growth engine: the existing sales organization.
Written by Mark Donnolo.
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