Creating a Predictable Revenue Stream

Four Ways to Smooth the Waves

Anyone in sales knows what it’s like. One month the company hits a new sales record, the next month it misses the revenue target by a wide margin, then the next month strong revenues appear again. The ups and downs are enough to make you seasick. In fact, we call it the wave theory. By contrast, our goal in sales management is to create a predictable revenue stream. That is, create a positive growth curve without the ups and downs of monthly fluctuation in revenue.

From a marketing perspective, your sales program must include a strong mix of direct mail, trade show and other promotional activities to build a foundation of potential business, qualified leads and hence less revenue fluctuation. However, it’s up to sales managers to ensure that the sales force actually gets the orders, closes the deals. To do that you must refine several elements of the sales program in order to eliminate the Wave and build a predictable revenue stream. Here are the major points you should consider:

1. Build the Recruiting Pipeline

We often overlook the importance of the recruiting process as a key step on the road to predictable revenue. It’s important to understand the revenue that you can reasonably expect a salesperson to generate. Then, you must have an interviewing and recruiting program, (a subject for a future article) that ensures the quality and, equally important, the quantity of people on staff to meet the company’s revenue goals.

It’s not enough to simply plan to add salespeople at specific times of the year. You must plan the strategy and activities necessary to add these salespeople prior to your assumed date of hire. Also, don’t assume that all the existing salespeople will remain with your company. If you’re short on salespeople, you can hit a wave, so build the recruiting pipeline.

Hint: Hire several additional salespeople earlier than you have planned, build turnover ratios into your recruiting plans, hire in groups of two or more and recognize that each salesperson will not perform exactly as you predict.

2. Develop Measurement Tools

Every company should determine at least four key indicators to measure sales success on an ongoing basis. These may include by salesperson: 1) monthly forecasted revenue ratio to actual monthly revenue achieved, 2) number proposals/quotes per month, 3) number of new accounts added to the pipeline each month, and 4) direct mail sent per month. For example, one of your indicators could be the time it takes a new person to become productive. Is it 90 days, 60 days, 30 days? If it takes the sales person longer to achieve productive revenue than you expect, you may need to consider retraining or releasing that person.

Simply increasing the level of activity or increasing the quantity of prospects does not necessarily mean an increase in sales, so ratios serve as important measurements. The sales leader must develop closing ratios for each salesperson; i.e. how many prospects does it take to attain the monthly quota or your company’s revenue expectations.

Analyze these ratios by salesperson then roll them into a combined sales team ratio.

Each sales manager must know the specific ratio of the revenue forecast to the percentage of actual revenue achieved. Graph this forecast-to-actual performance ratio monthly for each salesperson and for the entire sales team.

Find your four indictors, set the standards and track them. Graphing them and letting the team see everyone’s trends will show what it takes to be successful. These graphs can be great coaching tools.

Hint: The most important benefit for a sales leader to learn is that declines in certain indicators will project potential downturns in future revenues. These trends, caught early enough, may allow the sales manager to take the necessary actions to reverse the potential down turn and eliminate the WAVE.

3. Forecast with Commitment

Most organizations have a forecasting procedure and an annual sales plan. Typically, each salesperson completes some sort of forecasting form (paper or electronic) each month. Some forecasting tools are simpler than others, but they generally provide a list of potentially active accounts to close for the current month and next 3 months, their prospective dollar value, actions that have taken place and the probability of closing the sale.

I have found that this process serves a purpose beyond just to telling the sales manager what revenue to expect for the month. More importantly, the forecasting process should provide the individual salesperson with an opportunity to review his or her progress, develop account strategy and take responsibility.

With forecasting, the sales leader sets the tone and can increase the chances of predictable revenue by performing several activities. First, change the forecast tool to a monthly revenue commitment. This simple rewording changes the process. Second, when reviewing the monthly revenue commitment form with the salesperson (individually or in a group) evaluate each account that has the potential to close within the next 60 days not just in the current month. Third, it is important that the sales leader review the commitment forms from the previous two months at the same to time they review the current month’s commitment.

Through this review both the salesperson and the manager begin to see important trends. You will uncover accounts that may not be moving through the sales cycle, accounts committed but not closed and new accounts that appear each month but then disappear from the salesperson’s list. It is the Sales Manager’s responsibly to understand and question why each account has appeared on the Commitment Form and why they no longer exist. Developing a good account Won/Lost Reporting process can provide valuable insight into sales strategies. This detailed approach will also assist the salesperson review his or her account development process and understand the importance of accurate forecasting.

4. Find the Influencers

Nothing beats word-of-mouth promotion for your company or product. A good referral from a vendor or organization that is aware of your company’s products and solutions may add up to the equivalent of one salesperson’s quota. Creating a network of "influencers" who can put in a good word for your company will increase your opportunities to develop predictable revenue, balance your sales efforts and may allow you to open new accounts.

Hint: How can you develop these relationships? Finding and developing the key influencers is an ongoing process. First, ask your key accounts who are the key organizations or individuals within their industry, Second, review all seminar and magazine contributors, and Third, look for Trade Show participants. These people maybe on the Board of Directors of Associations, partners of accounting/consulting organizations or retired executives from your industry. Once certain individuals are identified a directed campaign to these groups would be developed to create an aware of your position within the marketplace, individual meetings set, and then an ongoing contact process determined. Providing credibility of your expertise to provide certain levels of service/product within the common market to these individuals or organizations will become the key component of long-term trusting relationship.

Ken Thoreson
Acumen Team
9051 Neill Lake
RoadEden Prairie, MN 55347
(612) 944-7438
kthoram@aol.com