Sometimes the desired outcome from a business improvement programme is not so much top line growth but rather stable, predictable income. Predictable income provides a stable base from which to grow, cover your overheads, it allows you to make longer-term strategic decisions and gives you more time to work on your business as opposed to constantly fire fighting in it.
Predictable income comes from:
• A business model with residual income built into it
• A strong sales pipeline with accurate forecasts
In fact, one of the KPIs equity partners, city investors and company boards look for when evaluating the effectiveness of a company’s sales engine, is the accuracy of its sales forecasts. A weak sales pipeline, with unpredictable forecasts, is one of the signs that your sales team needs a fine tune (or potentially a complete overhaul!). And the chair of a London-based equity house again confirmed this point to me only last month.
So how can you improve the predictability of income in your business?
First off, are you unsure your business model includes a strategy to bill recurring income? For example, we all know that the profit does not come from the purchase of a new printer, but from the recurring income from the sales of the ink toners to keep it running over its lifetime. Likewise, a large regional car dealership, during a project with us in 2010, confirmed that 50 per cent of the overall lifetime value of a car sale comes from the servicing of that vehicle thereafter.
And my favourite example is a local business success story, a high-growth start-up. A company offering SEO services that I worked with four years ago when they were only a two and a half man band. Unlike many service-based businesses in their sector, who are still basing their business models on the good ‘ole fashioned model of exchanging time for money; this new and innovative business offered a different proposition.
Their service includes an initial project then an on-going monthly maintenance fee. Over the past four years this organisation has experienced explosive growth and now employs more than 45 people.
They’ve been able to achieve this growth, as their business model is exponential. Every new sale brings initial revenue but then sustainable on-going revenue, renewable annually, which covers their basic overheads and helps to fund the next stage of growth. Their MD tells me that 60 per cent of their monthly sales is derived from retained revenue.
I’ve worked for organisations where all sales were 100 per cent new business and it’s exhausting. Every month you start on zero and have to work your way up. In this type of business you can never switch off, even on holiday.
Bank Holidays reduce your trading capability (unless you’re in retail of course) and Christmas is just a write off! If your business model is based solely on one- off transactions or single projects billed once, then you need to think about how you could add value in return for a regular income.
Now to sales forecasting. In order to be able to deliver strong and accurate sales forecasts in your business you need to master a couple of key elements;
• Record your information, including each and every new opportunity, in a central and real-time resource, ideally a top notch CRM which is designed to manage these types of relationships.
• Understand the lead times of your average sale, as well as control your opportunities at every stage of your pipeline.
• Have skilled and efficient sales resource (i.e. your sales people or as is the case in smaller businesses – people who do sales!) to maintain a consistent pipeline momentum. Feast and famine in sales activity will not deliver a consistent feed of new business.
• Understand your ideal sales process, and execute it efficiently and consistently.
Every business should be able to systemise their sales division just as you would a manufacturing, finance or operational team. Sales people, unlike what some folk would have you believe, are not unruly, untrainable and undisciplined. They actually respond really well to systems and structure, providing you then allow them some freedom within the system to exert their egos!
In the book The E-Myth, Michael Gerber, he talks about how to create a “systems-dependent business, not a people-dependent business”, apply this philosophy to the Business Development Engine of your organisation just as you would any other part of your business.What do you do currently to win sales, how can this be documented, duplicated and replicated by people of varying personalities, motivations, skills and expertise?
Find a way to systemise this, together with a plan to generate residual income through exponential growth and increased revenue and predictability of income is the only possible outcome!
Nicola Cook is director of Aurora Consulting and author of two international best-selling books: A New You and The Secrets of Success in Selling. Contact her on (0191) 478 8377, web:www.succeedwithaurora.com, Twitter: @nicolacook, Facebook: facebook.com/succeedwithaurora