As we are closing out the year, most organizations are finalizing their 2017 annual sales commitment and resource plans. Very few companies realize that this annual process could be costing their company 4% – 5% of additional expense. For a mid-sized company, with $70M – $90M in revenue, this can amount to $2M over two years. This article will demonstrate why you should move from an annual to a multi-year sales planning cycle. It will show where the incremental cost is occurring and provide a solution to recapture it. This will allow you to increase your investment it other functions, or return the savings to your shareholders.
Primary Cause – Sales Turnover
The primary contributor to the increased cost of annual sales planning is the impact of turnover in the sales function over the appropriate time period. In most sales organizations today, the sales budget is approved annually and resources are aligned to the annual goal. Therefore, most people are only planning for 2017, and at this time next year they will repeat the exercise for 2018. When the budget is approved, the sales leader will staff the positions with the correct resource plan to achieve the annual goals.
This process on the surface seems rational, however in certain market segments, like technology, the ramp time to full effectiveness for a salesperson can be 12 – 18 months. This ramp time needs to be factored into your annual planning process. What most Sales managers do not realize is the significant impact of turnover. When combined with a year-by-year sales planning approach, achieving your goals can become quite expensive, or even worse, you will not meet your plan.
For example, if a fully productive salesperson quits on January 1st and you replaced them that same day, it will require between 2.0 – 2.4 people to achieve the orders from the fully productive salesperson. To replace the revenue it will take between 2.1 – 3.6 people to replace the lost revenue based on your revenue amortization schedule. Therefore, if your company loses 5 sales people early in the year you could need as many as 18 new sales people to make up the revenue loss for the 5 departures. This is definitely a significant impact to your sales cost.
You need to match your sales planning cycle length based on your sales productivity ramp periods. At ORM we recommend a minimum of a 2 year planning cycle for sales productivity ramps that take 6 months or longer. In the event your sales ramp is 18 months, then a 3 year sales planning cycle would be recommended. This approach will save your company a significant amount of sales cost and ensure you have a team in place to replace your expected turnover and make achieving your sales goals a lot less stressful.
If you have any questions, or would like to know how we can help you enhance your sales planning process, please let us know at firstname.lastname@example.org.