A Quick Response

After Kim’s last blog, I had a few clients ask about businesses that are operated based on ‘homerun clients.’ These are businesses that will land clients that make up the bulk of their business.

Similar to the formula in Kim’s blog, I recommend these business look at their three-year run rate and find the average. Then look at their pipeline for the first quarter or two and compare it to the previous year’s pipeline. If their pipeline is full – great, they can take on a bigger growth target. If it’s empty, they know they’re going to fall short the first quarter so to set an unrealistic target will simply put them behind the 8-ball from the get-go.

I know it’s a lot more work but these formulas are critical to understanding your business and your industry over the long term. If you have more questions or comments, feel free to email or simply drop me a line! - Kevin

As we near the end of January, you’ve probably set your sales goals for 2012 but how do you know if you’ve set realistic targets? Realistic goal setting is an area where most clients fall down. The issue is that setting extravagant sales targets erodes their value as a business planning tool, for budgeting and forecasting.

Last year we grew by 25%, this year we’ll grow by 40%!
After a good year, it’s human nature that sales managers will want to increase the revenue target.  And why not? Onwards and upwards, right? Wrong.

The catch: Oftentimes a single source of referrals or a one-time client can lead to large amount of business in a single year. Basing your sales targets on a single client or stream is risky. What happens if your client goes out of business or changes direction? Meanwhile your company has spent based on that number…yikes. That’s why it’s important to know your businesses baseline and grow from there.

Here’s the fail-safe formula Kevin uses with Growth Path clients:

1. Review all your business over the last two to three years
2. Delete any one-off projects, business that are downsizing or have shifted gears from your baseline and take an average of what’s left
3. Look at where your business came from over the last two to three years
4. Delete any one-time referrals or sources that have disappeared from your baseline and take an average of what’s left
5. Take a look at how quickly your sector is growing (e.g. 8% nation-wide)
6. List new accounts or sectors you’re targeting and the growth in those areas
7. Take your average baseline (step 2 and 4) and increase it by the average growth in your industry and your client’s industries. Add business you’ve already booked. That should be your new sales target.

This formula eliminates the guess work and provides a reality check for what’s really happening in your business and your industry.

Why shoot for less?
Successful organizations need realistic goals that people believe they can achieve. While it’s true that some sales people respond well to a big audacious goal, many will look at an unrealistic goal as representative of management’s disconnection with reality, and start job hunting.

Making the business case
Most sales staff can’t imagine presenting lower sales target to their managers but there is a way…

It’s important to show management what business or sources of business have disappeared and what’s not replicable. The next step is to immediately show how you’re rebuilding the pipeline in those areas where you’ve indentified steady growth. It’s about working hard to fill pipeline and managing your manager’s expectations.

The important thing to remember is this strategy is great for management.

Consider this: When sales people have realistic targets, management is able to budget and spend properly for the year. So forget about inflated targets. It’s easier to plan based on what we know is going to happen vs. what we dream might happen. This honest approach to planning will keep both managers and staff happy over the long run and that’s key to strategic growth.

It’s the new year, and you know how you did last year. You’ve identified areas for improvement, which likely fall into the major categories below, discussed in the last post. Here are some typical ways to be better this year, for inclusion in your updated business plan.

1) Cash flow. Plan your allocations for both the predictable (taxes, lease buyouts, etc) and responsive (both opportunities and emergencies). This buffer allows you to smooth out the spikes. Implement tight discipline on invoicing and receivable follow-up. Develop a bad debt policy. Adjust your line of credit, as necessary. And examine product/service mix to determine how best to promote cash flow friendly offerings, as needed.
2) Business development. Too many owners tell me that their business is unpredictable, and maintaining a pipeline is makework. I don’t believe this, but even where it may be true, run rate history can be a substitute guide. Add new customer acquisition strategies, carefully targeted, and measurable. Monitor retention rate. Don’t spend significantly on customer service initiatives unless you detect an issue. Even so, determine which customers are leaving – it may be the ones you don’t want/need. If your business requires proposals to acquire new business, prepare a comprehensive template which allows you to customize, yet respond quickly with minimal effort. Target business with your highest close rate. 
3) Gross Margin by product or service. Start protecting your most valuable resources – both in cost and in demand. Adjust processes to outline and delegate responsibilities. Determine if your enabling loss leaders actually result in profitable follow-on business, or if you are better off discontinuing these. Develop service packages which leverage your team’s best skills, and which best utilize plentiful resources.
4) Business Goals. Reduce risk with processes and infrastructure. These can include simple things like insurance & line of credit to new backup or security systems, staff policies and effective HR oversight. Plan your most likely areas of growth, even if you think the time is not yet ripe, because you will know how to respond when the economy or opportunity beckons. Determine easiest places to cut costs if necessary – again not necessarily to implement this now. Plan a new initiative which intriques and scares you at the same time – e.g. online sales, Social Media.

Here’s what Growth Path is planning this year in these categories:
Cash Flow: Develop plan for transitioning contract workers to full time. Increase allocations for emergencies and capital replacements. Review line of credit based on new run rates & staffing.
Business Development: Continue development of service packages. Completely re-design & restructure website to keep it fresh, reflect growing abilities, and meet current/predicted browsing trends. Assign oversight and monitoring responsibilities.
Gross Margin by service: Add new retainer based service packages, which allow effective use of contractors (and build contractor loyalty).
Business Goals: Establish a regular presence in social media - to build relationships, not business. Add new alliances, and implement quarterly reviews of existing ones. Review insurance options. Plan ability to manage transitions, vacations, medical leave, etc.

It doesn’t matter how good or bad last year was, there are always things to do to improve. Let’s get at it!