As 2014 draws to a close, does this story sound familiar?
Going into the fourth quarter, a division of a large company had the chance to reach annual sales of $300 million for the first time. In December, the senior vice president of sales told everyone to do what was necessary to achieve that number. The company succeeded in this effort and the entire sales staff received plaques with $308,000,000 proudly displayed.
The next year the division’s revenue target increased to $360 million. But employees had in effect only a 10-month year because the pipeline had been drained in December. First-quarter revenues were disappointing. In April, the CEO and vice president of marketing were fired. The division finished the year with about $300 million in revenue. After taking the first two months of the year to rebuild the pipeline, the company had revenue of $30 million a month.
This company experienced partially positive results in that staffers exceeded the initial stretch goal but paid the consequences the next year. Many organizations and sellers push hard in the fourth quarter and ultimately come up short. Here are a couple ways to minimize the fire drills at year-end:
Sellers should divide their annual quotas by 12 so as to track progress one month at a time. Train wrecks happen over time, so whenever a seller pulls in less than the year-to-date quota, adjustments in activity should be made to compensate for predicted sales shortfalls.
Sellers and managers tend to look in the rear-view mirror. The more important view is through the windshield. Know a seller’s current position and understand what's ahead. Assuming that quality customer-relationship-management software can capture a sales team’s historical rate of closing deals (the number of days, weeks and months it takes from initial contact to signing a contract), a projection can be made for an accurate sales cycle in the future. If this data isn’t available, close rates can be estimated and some simple math done.
Let’s say in January a seller is assigned a $2.4 million annual quota. This salesperson boasts a 25 percent “win rate” and an average sales cycle from initial contact to contract of three months. That means the seller needs to close $600,000 in the first quarter to be on target to hit his annual quota. As the year unfolds, if the seller is not tracking to that goal, the shortfall should be multiplied by four and added to the $600,000 target.
Doing these calculations every month will provide a clearer picture of what needs be accomplished to optimize the chances of making quota.
What if there's a significant shortfall in the fourth quarter? A seller who has achieved 37 percent of quota going into the fourth quarter can usually figure out a way to make the performance club. Often this requires making unreasonably optimistic conclusions about opportunities that have not yet been qualified.
Instead, take a realistic view. For those real sales opportunities that can potentially be closed by the year's end, consider doing the following:
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1. Ask the client with highest amount in play if a transaction can close by the end of the year. If so, map out with the buyer the necessary steps and estimated time for completion. If this is a new account, be aware that delays with contracts and procurement can cause order dates to slip.
Also understand that buyers who close contracts sooner than they had planned are likely to expect something in return. Discounting may be necessary and that would reduce the revenue toward achieving the quota.
2. For each sales opportunity that is needs to be closed, try to establish -- with the buyer’s help -- the potential benefit or savings that a product offering can help the buyer realize. Sellers are always in a rush to receive orders. Suggest the buyer consider the cost of delaying a purchase decision. Putting things in context of monthly savings can increase a buyer’s sense of urgency.
3. Try to assess what impact moving up decisions might have. Have customers, rather than prospects, accelerate buying decisions. If there's a risk of alienating buyers or ultimately scaring them off, you may want to consider letting those sales cycles play out in a more normal fashion.
The fourth quarter can be rough but other times throughout the year vendors or sellers want transactions to occur in short time frames. Ideally doing tracking on a monthly basis and projecting the sales cycle ahead of time will be the exception rather than the rule. Significantly emptying pipelines in a short time frame will usually create future repercussions, so tread carefully.