One of the hardest things to do I have found is to set B2B sales goals for a startup or even an established company looking to launch a new product to the market. When your revenue numbers are zero and you have no historical track record to gauge success such as close rates, sales call conversion rates and so forth it can definitely be challenging. Ultimately, you need to start somewhere and select a goal that seems reasonable by some measure. In many cases, if your product was worth $50,000 setting a target for $5,000,000 or even $1,000,000 in year 1 when you have a staff count of two or three may not make sense. For a large company with established product lines it can be a bit easier to find a starting point as past successes with other products could be used as a guide.
Let’s do a quick review of key terms as we dive into this:
- Lifetime value of a client- the amount of revenue a client can generate for you over the course of your business relationship with them
- Client churn – how many clients leave you annually>li>
- Average sale size – total sales revenue divided by your number of sales (number of customers)
- Closing time – how long it takes a prospect to sign your proposal for services
- Sales conversion metrics – the number of calls/emails and other outbound touches it takes to drive tangible next steps – this could be a meeting, proposal etc.
- Outbound touches – these are sales activities such as calls, emails, InMail, direct tweets, direct messaging on other social media platforms sent to prospects
- Ok, let’s get started. You are a startup or a division with a new product and you need to set some sales goals to get things rolling. You can do this a number of ways but one of the key factors is keeping it realistic.
How we normally do it is look at the average sale price and closing time and estimate in our first year, how effective we believe we will be from a sales conversion standpoint and how that translates into revenue. So let’s put this into an example.
Company A has developed a new industrial solution and are ready to go to market. The value of the solution is $100,000 – so lets use that as an easy average sale price too. We decide to set a target of 5 new clients in year 1. This would make a total annual revenue target of $500,000.
Over the course of year we estimate it will take 20 outbound touches (calls/email/InMail) to get two proposals – to get 1 new client. WE are estimating a 10% conversion rate from outbound touch to proposal and a conversion rate of 50% from proposal to close. So to hit the 5 new clients in the year, we are estimating we will have to make 100 outbound touches (calls/email/InMail). As we progress through the year, we will have to continuously revisit our sales conversion numbers and adjust the number of outbound touches and our overall goals accordingly.
Company B, an established software provider, has developed a new solution as an add-on to their current product. After numerous conversations with existing customers and prior to product release, it is assumed that 20% of current customers will go with the new solution. Based on this information you can define your target number of customers and revenue goals in year 1.
In year 2 and onward we want to look at what sort of growth we can achieve and build new targets based on that. This also means we need to take into consideration churn rates and the lifetime value of a client as that forms the underpinning of your base numbers annually which we are expecting to grow from.
Company A’s industrial solution is used annually by clients so we know that if we can keep customer churn low (or retention high), we have a solid base of revenue annually to start with and can forecast out revenues over years and generate a solid lifetime value. Let’s estimate churn rates of 10%. Therefore, we know that in year 2 at least, we are planning on having a base of $500,000-($500,000*10%) which equals $450,000 to start with from final revenue figures in year 1.
We then need to set a goal for new sales. Assuming the initial five went well, then let’s look to double our first-year target in year 2, to 10 new clients while maintaining our existing client base. This is based on having the resources and assets in place to tangibly make that happen. From a sales conversion standpoint, we learned in year 1 that it takes 20 outbound touches to close 1 new customer. So, we know that we will need to make 200 outbound touches to close 10 new clients. Every year we can run similar forecasting and goal scenarios leveraging current historical data to keep the targets relevant. There is nothing worse than firms that simply add 20% or 30% or 100% growth to their revenue numbers and have no idea how that is to be achieved.
In Company B’s case, we can look at year 1 revenues and then based on conversion metrics look to identify sales targets that make sense leveraging both existing business and new business. In this case, if at a certain point you saturate your existing client base and need to look at new markets you will have to revise your goal setting as your sales conversion metrics may be different outside of your core customer base.
I hope the above information even at a basic level is helpful when setting realistic sales goals. It is not an exact science, but it can definitely be well thought out and based on sound reasoning.
If you are in need of assistance from a sales and marketing perspective feel free to contact me. I would be happy to see if we can help. Alternatively, if you are simply looking for a source of excellent sales and marketing information, please feel free to sign up for our newsletter or follow us on Twitter.