The biggest challenge for sales teams today is maximizing the yield on sales capacity. Too often we see firms that are content with adding more sales people and getting fewer returns per salesperson. We’ve heard all of the excuses: “we’re in a growth phase, and this is necessary for growth,” “we beefed up our team because we’re trying to break into a new geographic market, so this just natural,” and so forth.
Adding more sales representatives should have a linear function to the amount of revenue brought in, but we usually see diminishing returns. If the best sales person can bring in $100,000 of revenue, each additional sales person should bring in another $100,000. Too often we see companies that hire additional sales force only to get diminishing returns on each extra person. Overlooking this leads to an underperforming team that hurts the company’s bottom line.
To find the current yield on sales capacity, we use this exercise with our clients. First, we find the maximum revenue capacity of the organization. This is the highest potential revenue per sales rep multiplied by the number of sales reps.
[maximum revenue capacity = (highest potential revenue/sales rep) x # of sales reps]
Then, we use this number to calculate the actual yield on sales capacity as follows:
[yield on sales capacity = actual revenue produced/maximum potential revenue capacity]
The maximum revenue capacity of a company with a potential of $1M in revenue per sales rep and 5 sales reps would be: ($1M potential revenue/sales rep) x 5 reps = $5M maximum revenue capacity.
If this same company was actually bringing in $2.5M in revenues, we could calculate the yield on sales capacity as: $2.5M/$5M = 0.5, or a 50% yield on sales capacity. This company could have been making double the revenue, but because of poor yield on sales capacity, they are leaving half of that potential revenue on the table.
With a poor yield on sales capacity, companies that are already struggling might not be able to survive down the road as competition gets more and more intense. In addition, without good sales performances, companies will generally lack the needed cash flow to stay competitive through investments (such as mergers & acquisitions, research & development, marketing efforts, and etc.)
When VizQuest was first formed, we understood that poor yield on sales capacity was a crippling problem for many companies. It was because of this problem that we created the Revenue Factory to transform sales performance, deliver greater results in less time, and do it all at a lower cost than traditional sales models. This has resulted in maximum ROI on business development investments for over 400 companies that we’ve worked with.
The revenue factory does this specifically by creating Validated Sales Opportunities, or VSOs. Put simply, a VSO is: the right company, with the right person, in the right situation, with serious intent to investigate your solution. Unlike a typical lead, which closes at 1-3%, a VSO closes at 30-50%. VSOs increase time selling to closable sales opportunities, accelerate sales cycles, and have the potential to increase transaction values. By producing VSOs instead of leads, a company can improve sales efficiency, reduce resource requirements, and reduce the cost of sales resulting in an increase in sales capacity yield. (We’ll explain more about VSOs in the coming posts!)
Yield on sales productivity is the most important problem companies face today. A poor yield can paralyze a firm, while a good yield ensures healthy revenue growth. This is the reason we created the Revenue Factory. As we take this month to explain how it works, you’ll be able to understand the unique processes that we use to run the Revenue Factory and eliminate this problem.