Do the Revenue Chain Audit for Your BusinessNovember 3, 2023
A common philosophy for building sales capability in a sales team is to to replicate the top performers. The idea is to try to discover what it is these top performers do and get the rest of the team to copy them. I have yet to see this method work as a way to create a team that predictably and consistently hits the required numbers.
If you want to scale revenue or do “5 years’ growth in 3 years” here’s the question to ask: what’s the measurable standard required that predictably and consistently drives the right numbers by the right dates?
I want to give a standard you can work to. Its called the Green Forecast Standard.
What is the goal of a sales role? It’s to meet certain numbers by certain dates. B2B sales roles primarily exist to guarantee revenue production by certain deadlines, typically, monthly and quarterly.
Suppose a salesperson’s target for the month is 60k. They are asked to submit a forecast each week at the forecast meeting. We’ll use this increasingly universal language for the sales forecast:
Commit Forecast: Deals closing this period (e.g. month) that are late-stage sales cycle and are of salary bet quality. These should convert at 100% in the month.
Upside Forecast: Deals closing this period that are mid-to-late sales cycle and convert at a ratio of usually no more than 1 in 2, or 50%.
Pipeline Forecast: Deals closing this period that are early-to-mid sales cycle, but convert at no more than 1 in 4, or 25%.
The Green Zone Forecast Standard [The Highest]
This is the Green Zone Forecast Standard: The salesperson can guarantee the target by the 15th day of the month based on their Commit Forecast.
The Green Zone has two characteristics:
- The deals must be of salary bet quality, i.e. they can close within the current forecast period, in this case the month.
- The forecast can be confidently committed to by the middle of the month.
Deals in the Green Zone are of “salary bet” quality.
Note: If you measure quarterly, change the measurement date to the 15th of the middle month of the quarter.
What would be the next best standard to the Green Standard?
The Amber Zone Forecast Standard
The next best forecast standard is Amber: The salesperson can guarantee the target by the 15th day of the month based on their Upside Forecast. In this situation, the seller can still make the target, but the odds are lower and more income is at higher risk.The salesperson needs to use up the deals in the mid to late sales cycle, and these deals will only convert at some ratio, which usually needs to be no lower than 50%, or 1 in 2. Amber is still a high standard, but considerably more risky than being in the Green zone.
Deals in the Amber Zone need to convert at approximatelyy 1 in 2, or 50%
There is one final standard, the lowest and the most common.
The Red Zone Forecast Standard
The lowest standard is the Red Zone Forecast Standard: The salesperson tries to guarantee the target by the 15th day of the month based on their Pipeline Forecast. When operating to a Red Zone standard, the seller needs to use up their early-stage deals to make most of or even the entire target. It’s still possible to make the number by month end, but not – at all – probable.
If a statistician were to look at the odds in the red zone they would probably put them close to zero. The Red Standard is a stressful existence.
Deals in the Red Zone convert at a much lower ratio, so more coverage is needed, irrespective of value.
A core principle of the Red-Amber-Green [RAG] model is Distance-to-Revenue. Suppose the salesperson is in the red zone. It doesn’t mean the necessary deals nor revenue won’t close. It means that the deals (opportunities) have too far to travel against the required deadline of the month or quarter. The business might eventually close, but not when we want it.
The RAG approach simply separates out deals and income based on the distance left to travel versus the time available. It’s a powerful way to secure accurate month and / or quarter forecasts (however unpleasant the prediction). Even the most optimistic, well-meaning salesperson finds it hard to argue the “distance”, no matter how well the anecdotes around the deal were explained.
RAG gets rid of “eventually forecasting”, the low quality sales forecasting that chronically de-stabilizes revenue production and undermines the confidence of the business to go after opportunities and to mine the market for growth.
Getting the Green-Amber-Red Blend Right
The examples are simplified. In practice, the forecast will be a blend of green, amber and red forecasts. The goal is to ensure that the majority of the forecast is from the green zone and as early as possible in the month.
The goal for the sales manager is to begin to move each salesperson towards the green forecast standard. That requires we ask these questions:
1 How far away from The Green Standard is each salesperson?
2 What are the skills and behaviours that would move a seller to the highest standard?
3 What can you do in the next 4 to 8 weeks to begin moving sellers towards Green? (The answer is, a lot.)
Check your Forecast Now…
Go to your pipeline now or, at the next weekly (forecast) meeting, try to determine how much of this month’s target is dependent is on a red or amber forecast.
The ongoing goal is to stay in the green forecast zone. This is the safest standard in a B2B sales role.
BTW, you can apply this same measurement to the Quarter, except the key reporting date is the 15th (or thereabouts) of the middle month of the quarter. So, for July-September for example, it’s the 15th of August.
The Green Zone Standard is very high! An initial and still very significant milestone would be to get to Amber / Red at 50/50% split. That gets you out of the Red!
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