When’s the last time your boss asked about your goals? Probably, today. In fact, you probably get the goal question every day. Here’s a very typical conversation between a Sales Manager and one of his Sales Reps.
SM: “Hey Joe, what’s your goal for the year?”
SR: “Ha, to make a lot of money!”
SM: “Yeah, that’s right. Let’s make that money. How much do you want to make?”
SR: “As much as I can.”
SM: “Ok, how much is that? What will make you happy?”
SR: “If I had to give you a number, I would say at least $100,000.”
SM: “Cool. That’s what I want to hear. How are you going to do that?”
SR: “How? Sell a shit load of product.”
SM: “I know you can do it. How many products do you have to close?”
SR: “I don’t know exactly. I imagine it would have to be a lot.”
Welcome to the world of Sales Goal planning. The above conversation is a very typical encounter between a sales manager and a rep. There are some cases where the sales manager and sales rep are both highly skilled in goal setting and can come up with a concrete figure and plan without much hassle. In my experience, that doesn’t happen too often. And if you are one of the few that can tell your boss an exact number accompanied with a concrete plan, then I will be the first to applaud you. Kudos to you!
Goal setting is too common in sales. The truth of the matter is that many salespeople are motivated by money. They set a money value on how much they want to make in year.
What’s not too common is setting the plan to achieve the goal. Many salespeople I have encountered whether they are my peers or my employees, have no clue what it takes to make a certain money goal. They don’t understand how many phone calls it takes to hit a goal or how many proposals you need to send to close a deal. They rather do the tasks then understand it. I believe if they can understand it, then they will be able to be more efficient and productive overall. Similar to the conversation above, when asked how many deals they need to close to make their number, most will answer “a lot” and not narrow down on a specific number.
Let me take it a step further by asking more questions like “How many meetings do you need to have to hit your goal?” or how about, “How many phone calls will you need to make to set up a meeting?” When asked these questions, almost every person will have a perplexed face and if they are realistic, they will admit to not knowing. This is where the concept of Metrics-Based Goal Setting comes into play.
There is a value in everything we do. Metrics-Based Goal Setting allows us to assign a value to our activities. Here is a simple example of a goal setting exercise using Metrics-Based Goal Setting:
Sales Rep Yearly Commission Goal: $100,000
1) Apply Commission Data
Commission Rate: 20%
Average Closed Deal: $10,000
Net Commission: $10,000 x 20% = $2,000 commission per Closed Deal
As the illustration shows, data is pertinent. The goal of making $100,000 in commission can be any number you want to strive for. The commission rate is normally set by your company. Sometimes you might have a tiered-structured commission scale. In that case, you will have to plug your numbers into an appropriate formula based upon your company’s scale or you can just take an aggregated average based upon historical data, assuming you have worked in the company for some time to calculate the data. The Average Closed Deal Amount will also be an aggregated average of previous closing data. Most companies I have been affiliated with never achieves 100% of their retail price.
2) Apply Activity Data
Sales Rep Avg Closing Rate: 25%
Number of Phone Calls to Set Appointment/Meeting: 20 calls to set 1 meeting
Number of Meetings to Produce an Opportunity: 3 Meetings Produces 1 Opportunity
Most salespeople will need some time to generate these figures because most of them never track their activities to this level. If you have never tracked these figures before, it is safe to provide an estimate. I do recommend that you start tracking your activities to this level. There are many benefits that I will detail on another post. For this exercise, it is ok to guess at the values. Once you start tracking them, you will begin to learn about your process and where you will need to focus.
3) Creating the Metrics
3.1 – Determining number of Deals needed to achieve $100,000 commission
$100,000 (commission goal) divided by $2,000 (Commission per Closed Deal) = 50 Deals
3.2 Determining how many Opportunities needed in pipeline to close 50 deals
50 Closed Deals divided by 25% (Average Close Ratio) = 200 Opportunities
3.3 Determining how many Meetings needed to produce 200 opportunities
200 opportunities times 3 (number of meeting needed to produce 1 opportunity) = 600 meetings
3.4 Determining how many Calls need to set up a meeting
600 meetings x 20 (number of calls to set up 1 meeting) = 12,000 calls
4) Quick Dashboard of Yearly Activity needed to close $100,000 in commissions
Phone Calls (Prospecting) = 12,000 Calls
Meetings (Presenting) = 600 Meetings
Opportunities (Proposing) = 200 Opportunities
Closed Deals (Closing) = 50 Deals
There you go! A quick snapshot of Metrics-Based Goal Setting. The fun doesn’t stop there. It’s now time to break down the data to your monthly and daily activities.
5) Creating Monthly Goals
Take all the Metrics and divide them by twelve. Here’s what you will get:
Phone Calls: 1,000
Closed Deals: 4.17
6) Creating Weekly Goals
Take your Monthly Goals and divide by four
Phone Calls: 250
Closed Deals: 1
7) Creating Daily Goals
Take your weekly goals and divide by five
Phone Calls: 50
Opportunities: 1 (always aim for at least 1)
8) Setting a Value to Each Metric
This is going a bit further than just setting activity goals. Assigning a value for each metric will give you a quantitative feel for each activity and answer this question, “How much is one phone call, one meeting, one opportunity worth?”
It is easy to assign the numbers. Take your commission goal of $100,000 and divide it by the yearly activity metric:
Phone Calls: $100,000 divided by 12,000 = $8.34
Meetings: $100,000 divided by 600 = $167
Opportunities: $100,000 divided by 200 = $500
Every time you pick up the phone, you are making $8.34. Here’s another way of interpreting this data. Every time you don’t pick up the phone, you are losing $8.34. Every time you set a meeting, you are earning $167. Every time you don’t create an opportunity, you are losing $500. You should get the point – activity is the key to success and each activity has its value that compounds with each other.
Time to Set Your Metrics
Now that you have seen the illustration, it’s time for you to start producing your own Metrics-Based Sales Goal. I encourage you to create your personal plan and pick up that phone. I hope this was a helpful exercise. Let me know how it works for you. I will be continuing to coach my team on this concept. It really helps me coach and empower them because they can understand the value in their activities and how it will lead to more success.