A common problem our silent revolutionaries face is that they don’t know how to calculate if their new (or reengineered) sales functions are making them money.
A worse problem is that they think they know but end up massively under-estimating their performance.
Consider this scenario.
It’s the end of your calendar year.
This year, you started work building a new (inside) sales function. You added a couple of salespeople in March. A couple more in June and a couple more in September. Over that period, you’ve navigated a number of steep learning curves. You’ve had to learn how to generate effective campaigns. You’ve had to learn how to teach salespeople to function in this strange new environment. And, most importantly, you’ve had to learn how to ramp-up sales activity to at least 20 meaningful selling interactions, per salesperson, per day.
Your board would like to know if you’re making money yet. Simple request right? So, you’re sitting down with your financials (specifically, your profit-and-loss report), trying to figure it out.
I’m guessing you see the problem, here. There’s no way that you can extract the performance of your nascent sales function from your profit-and-loss report.
It’s impossible. Any attempt will yield an answer that’s precisely wrong (rather than vaguely right). Worse still, the error is highly likely to under-report the viability of your sales function.
The primary reason is that you’ve incurred greater costs during this start-up period than you would expect to incur in future years but you’ve booked significantly less revenue because, over that period, you’ve been opening an ever-increasing number of sales opportunities, many of which are still to close.
Another reason is that normal variation in your top-line numbers is likely to be disguising the performance of your nascent team. (More on that here.)
One thing I’ve learned over the last 20 years or so is that attempting to solve impossible problems is not a productive endeavor. So, if you’re in this position right now, my advice is to throw away your profit-and-loss report and return your high school calculus and statistics textbooks to the bookshelf.
Interestingly, it’s not that difficult to provide your board the numbers they’re looking for (there’s no integral calculus required). But it may require you to think a little differently.
Specifically, you need to do some forensic accounting and calculate the unit economics of a single hypothetical (and representative) salesperson. Continue reading “You are probably making a lot more money than you realize!” »