Insights

08/08/2011 | Tell tale signs

One of the early tasks post investment is to get the board pack to provide the information you need without all the stuff you don’t. Under previous ownership the management may have reported on a variety of issues that the new board no longer feels relevant and it will doubtless have to get used to providing KPIs in a format it is unfamiliar with. Whilst these are fairly well understood from a financial perspective we regularly see non-exec board members struggling to reach the same position with respect to the sales and marketing functions.

One of the reasons for this is that the true indicators of on-target performance are so rarely understood and often not managed within a business pre-deal. As a result, getting the sales and marketing management to develop and report against such statistics is often laborious and painful and in the meantime of course the only pieces of information you have to work from are the pipeline and order book.

However it needn’t be this way. If the sales department applied the same backward planning approach that most operations departments do, they could very quickly reach the numbers that matter and assess their performance accordingly.

As an example if they work back from the overall target, dividing it by the average order value (stripping out the effect of any large, atypical orders) they can establish how many orders they need for the year to deliver it. Using the conversion ratio from proposal to order they can they work out how many proposals are required. Further back in the sales process they should understand what has to happen to create the need for a proposal (enquiries, leads, telephone contact, meetings etc) and what the conversion ratios for these steps are also. Comparing their actual performance against these ‘norms’ for on plan performance will let them understand how far off track they might be at any one time since these are the inputs to the sales process rather than its outputs i.e. orders.

However, these numbers aren’t quite the whole story. The sales cycle has various inbuilt timescales and these must also be included if they are to measure the size of the pipeline correctly and know what it should be at each stage in the year, not just what it is.

Finally there is the sales capacity itself. Since each sales person should have their own mini version of such a sales plan, the management should be able to establish the maximum rolled up capacity for the sales operation to deliver the quantities of sales activity required. If they can’t deliver it then the resource isn’t big enough and the case for recruitment is crystal clear.