A CEO’s revenue target is only the beginning. The real question is whether your market, sales organization and sales process can realistically produce it.
One of the most common conversations I have with CEOs goes something like this:
“We’re doing $75 million today. We want to get to $100 million in three years. What do we need to do with our sales organization to get there?”
The instinct is often to start with the sales team.
Do we need more salespeople?
Should we increase quotas?
Do we need more leads?
Should we hire a new sales manager?
Those may eventually be the right questions. But they’re not the questions I would start with.
I would start with the market.
Is the market opportunity actually there?
Before deciding whether you need more salespeople, you need to understand where the additional revenue is going to come from.
Start with your existing top tier customers.
Which customers have the potential to double or even triple their purchases from you?
Which customers are likely to remain relatively flat?
Which customers are likely to reduce purchases?
And, perhaps most importantly, what resources will be required to capture the additional business from your best customers?
Your largest customers may require substantially more account management, executive involvement, technical support or other resources.
At the same time, you may have lower-value customers consuming far more sales resources and time than they deserve.
The objective isn’t to treat every customer equally.
The objective is to allocate your resources according to the opportunity.
Then determine how much new business you really need
Once you have a realistic projection for growth from existing customers, you can determine the amount of net-new business required.
That’s where the conversation about your sales organization becomes much more meaningful.
Now you can ask:
- Which market segments offer the greatest opportunity?
- Which types of customers should we be targeting?
- Who are the decision makers?
- What is our go-to-market strategy?
- Which marketing channels should generate conversations?
- What prospecting activities should salespeople be responsible for?
- How many opportunities do we need to create?
- What sales are required to successfully capture that market share?
Now you can make sales-force and resource decisions based on the gaps in your go-to-market plans, account coverage, and activities required rather than simply on affordability or a percentage of revenue.
Sales-force sizing shouldn’t be based on a rule of thumb
I often see sales organizations sized using formulas such as:
“Sales compensation should be X% of revenue.”
Or:
“Each salesperson should have a territory worth $X million.”
Or:
“We can afford two more salespeople.”
Those may be useful financial considerations, but they don’t tell you whether your sales organization is capable of achieving your growth objective.
Sales-force sizing should begin with the amount of market opportunity you need to capture and the activities required to capture it.
For example, you may discover that your existing account managers are spending so much time servicing large customers that they don’t have enough capacity to pursue new business.
The answer may not be to replace them.
It may be to move some account-management responsibilities to other people so your hunters can spend more time hunting.
You may discover that you need dedicated sales development resources.
You may need additional high-level closers.
You may need more marketing support.
Or you may discover that you don’t actually need more people—you need your existing people spending their time differently.
Do you have the right salespeople?
This is another question CEOs frequently ask me:
“How do I know whether I have the right salespeople?”
I don’t think you can answer that question simply by looking at someone’s personality, years of experience or historical sales.
First, you have to define what the salesperson needs to accomplish.
What is their role?
What types of customers should they be pursuing?
How much time should they spend with existing customers?
How much time should they spend prospecting?
What activities lead to success in their position?
Then measure what is actually happening.
How many new opportunities are they creating?
How many first meetings are they having?
How many proposals are they generating?
What is their proposal close rate?
How long does it take them to move opportunities through the process?
Where are they getting stuck?
Once you have this information, the conversation changes.
Instead of saying, “John isn’t performing,” you can determine whether John has a problem generating opportunities, converting meetings into proposals, closing proposals—or simply doesn’t have enough capacity because of the customers he is already managing.
That’s a much more productive conversation.
Sometimes the salesperson isn’t the problem
This is one of the most important lessons for CEOs.
A salesperson can appear to be underperforming when the real problem is the role they’ve been given.
A salesperson who spends most of their time managing a large base of existing customers may not have the time to generate enough new business.
A salesperson operating in a mature market may have less opportunity than someone operating in a rapidly growing segment.
A salesperson may be expected to hunt for new business while simultaneously managing a territory that requires extensive account management.
In those situations, replacing the salesperson may not solve the problem.
Changing the sales organization might.
The real question CEOs should ask
Instead of asking:
“Do we have the right salespeople?”
I’d ask:
“Have we designed the sales organization so that the right people can succeed?”
That means understanding the market opportunity, determining where your growth will come from, defining the activities required to capture it, measuring performance at each stage of the sales process, and then determining where the gaps actually are.
Only then can you make intelligent decisions about hiring, territories, roles, compensation and performance.
Your revenue goal tells you where you want to go.
Your market analysis tells you whether the opportunity exists.
Your sales strategy tells you how you’re going to capture it.
And your sales organization determines whether you have the capacity to execute the plan.
Don’t start by asking how many salespeople you need. Start by asking what the market opportunity requires.
