Right Revenue vs. Wrong Revenue - Do Your Sales People Know The Difference?
Not all revenue is created equal. Believe it or not, there is such a thing as “bad revenue” and it can impact your business in all kinds of bad ways:
- Lower profit margins
- High opportunity costs (i.e. missed opportunities for better work)
- Creating a drag on operational efficiency
- Lower team morale
- Lower Net Promoter Scores (NPS)
- Slower growth
- Lack of focus throughout your business
We’ve seen many situations where sales people (and sales managers) are so focused on booking new business -- any new business -- that they never stop to consider whether or not the revenue they are pursing is “good revenue” for the business.
In many cases, this challenge is compounded by poorly designed compensation plans.
In order to improve your sales team's ability to drive good growth, they need a better understanding of what that means for your business. They need to know who to target for optimal profitability, the types of challenges your prospective customers face that you can solve exceptionally well, and when they should walk away from a potential opportunity because it won’t hit your target profit levels.
Part of this comes down to understanding exactly who your sales team should target (and whom to avoid). If you’re not sure where to start, I recommend reading Bob Bloom's book Inside Advantage. It will help you understand your “who” so your sales team can start building a base of ideal clients. And when you have a strong base of ideal clients – people you can serve exceptionally well and who are willing to buy your product or service at optimal profit – you should see your NPS improve as well.
And of course when your NPS improves and your strong base of ideal clients begins telling their friends and colleagues about how great you are, the number of referrals and introductions your sales team receives should go up dramatically. This creates a virtuous cycle of stronger and stronger revenue growth, rather than the vicious cycle we see when sales teams target whatever revenue they can get.
Action Questions for Leaders to Drive Good Revenue
1. Does everyone in your sales organization – especially sales leaders – understand who your most profitable clients are (top 20%), what makes them profitable, and what problems they have that your firm solves exceptionally well so they can identify similar situations and sell with great stories and examples?
2. Does your compensation plan consider gross profit margin? If not, do you have strong controls in place to make sure your sales people are focused on opportunities that will hit your margin objectives?
3. Is everyone on your sales team capable of serving/selling your ideal target accounts? If not, where do they need to improve? Is it a skill gap issue? Is it a Sales DNA issue? Will they improve with coaching and development? Do you need to reconsider your approach to recruiting and developing sales people?
4. Are there operational bottlenecks created by sales people booking “bad revenue” just to make a sale? How do your managers in operations communicate that to your sales organization? How aligned are your operational managers and your sales managers? How often do they meet to share feedback and brainstorm ideas to get better?
5. As a leader are you part of the problem? Are you ignoring the impact bad revenue is having on your business? What would happen if you focused your time and energy on making sure every new piece of business aligns with your ideal client targets? When can you get started?