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# Sales Math Workshop

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The half-day workshop is designed to help anyone that creates proposals, quotes, or RFQs to customers, or manages Distributors, Rep’s, or VARs. The typical attendees include the: Sales, Marketing, and Finance functions.

How can it benefit you? By providing new skills for your job today, or the one you want tomorrow.

For most - it provides new skills to solve everyday business challenges. For some - it may be a refresher of skills you already have. For all - you will leave having gained some new skill.

What does the workshop cover? Everyday challenges for sales, marketing and finance:
1. GM, Cost, and Price Relationships
2. Income (Expense), Profit (Loss), and GM Relationship
3. Calculate Compound Annual Growth Rate (CAGR)
4. How to create a Price Model
5. The impact of price changes on Revenue and Profit
6. Pareto Analysis (the 80/20 Rule)
7. Calculate Monthly Quota for an Annual Forecast
8. Calculate Quarterly Prices for a Step Price Proposal

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### Sales Math Workshop

1. 1. Power-Up Sales with theMath Workshop
2. 2. Topics Everyday challenges for sales, marketing and finance: 1. GM, Cost, and Price Relationships 2. Income (Expense), Profit (Loss), and GM Relationship 3. Calculate Compound Annual Growth Rate (CAGR) 4. Creating and using a Price Model 5. The impact of price changes on Revenue and Profit 6. Pareto Analysis (the 80/20 Rule) 7. Calculate Monthly Quota for an Annual Forecast 8. Calculate Quarterly Prices for a Step Price ProposalImproving Performance Page 2
3. 3. Scenario’sImproving Performance Page 3
4. 4. Scenario 1 Cost, ASP, and GM Problem 1: Distributor says the competition is selling the product for \$3.25, and his cost is \$1.50. What is his GM? Problem 2: Distributor says he can’t charge more than \$4.00, and he needs to make 25% GM on this deal. What does his cost need to be? Problem 3: The distributor cost is \$7.25, and you know he is getting 25% GM. What will his selling price be?Improving Performance Page 4
5. 5. Scenario 2 Income, Expense, and Profit Problem 4: Our GM is 50% and we want to buy a printer for \$1,000, what amount of incremental income is required? Problem 5: Our GM is 5% and our ASP is \$10, how many units do we need to sell to generate a profit of \$2,000? Problem 6: Our income was \$25M and COGS was \$18M, what is our GM in percent?Improving Performance Page 5
6. 6. Scenario 3 Compound Annual Growth Rate (CAGR) Problem 7: CEO wants CAGR data in your report to the BOD (Note: each year referenced to 2000) \$300,000 \$240,000 Revenue \$180,000 \$120,000 \$60,000 \$0 2000 2001 2002 2003 2004 2005 2006 Revenue \$76,627 \$111,389 \$82,821 \$136,111 \$187,442 \$256,620 \$251,487Improving Performance Page 6
7. 7. Scenario 4 Price Model Problem 8: Marketing provided this Price Model, and you need to determine the GM for the missing unit quantities for your Price Book. GM vs Units 80.0% 70.0% GM 60.0% 50.0% Price Model 1 10 100 500 1k 5k 10k 20k 50k 100k 1,000k 82% 82% 80% 78% 70% 55% 45% 40.0% 1 10 100 1,000 10,000 100,000 1,000,000 UnitsImproving Performance Page 7
8. 8. Scenario 5 Price Drop – Maintain Revenue Problem 9: Our Super Widget had a subtle, but constant price erosion of 5% in the second and third year after it was introduced. How many more units must be sold to meet the same revenue as when the SuperWidget was introduced?Improving Performance Page 8
9. 9. Scenario 6 Price Drop – Maintain Profit Problem 10: Our GM was 15%, and we decreased our ASP by 5%. How many more units must be sold?Improving Performance Page 9
10. 10. Scenario 7 Pareto Analysis, the 80/20 Rule Problem 11: Determine the vital few for new Key Accounts Program Cust Rev 1 P \$350 2 F \$25,180 3 K \$7,885 4 L \$5,285 5 M \$4,327 6 D \$105,118 7 C \$116,038 8 A \$225,767 9 N \$3,840 10 I \$10,809 11 J \$8,770 12 E \$57,021 13 H \$11,456 14 B \$169,793 15 Q \$200 16 O \$856 17 G \$12,153 \$764,848Improving Performance Page 10
11. 11. Scenario 8 Forecast Problem 12: CEO wants a \$10M annual quota with 14% growth. Calculate the monthly quota amounts that total \$10M, and reflect the required growth.Improving Performance Page 11
12. 12. Scenario 9 Step Pricing Problem 13: You agreed to sell the client 2MU @ \$4.00 each, but he will not commit to taking all 2M units. Determine quarterly prices, so that if he buys all 2M units his average price will be \$4.00, but if he buys fewer units his price will be higher.Improving Performance Page 12
13. 13. AnswersImproving Performance Page 13
14. 14. GM, Cost, and Price Problem 1: Distributor says the competition is selling the product for \$3.25, and his cost is \$1.50. What is his GM? Solution: 53.85% Problem 2: Distributor says he can’t charge more than \$4.00, and he needs to make 25% GM on this deal. What does his cost need to be? Solution: \$3.00 Problem 3: The distributor cost is \$7.25, and you know he is getting 25% GM. What will his selling price be? Solution: \$9.67Improving Performance Page 14
15. 15. Income, Expense, and Profit Problem 4: Our GM is 50% and we want to buy a printer for \$1,000, what amount of incremental income is required? Solution: \$2,000 Problem 5: Our GM is 5% and our ASP is \$10, how many units do we need to sell to generate a profit of \$2,000? Solution: 4,000 Problem 6: Our income was \$25M and COGS was \$18M, what is our GM in percent? Solution: 28%Improving Performance Page 15
16. 16. Compound Annual Growth Rate \$300,000 50% 1 Yrn n \$240,000 CAGR 1 x100 40% Yr1 \$180,000 30% Revenue CAGR \$120,000 20% \$60,000 10% \$0 0% 2000 2001 2002 2003 2004 2005 2006 Revenue \$76,627 \$111,389 \$82,821 \$136,111 \$187,442 \$256,620 \$251,487 CAGR 45.37% 3.96% 21.11% 25.06% 27.34% 21.91% Problem 7: CEO wants CAGR data in your report to the BOD (Note: each year referenced to 2000) Solution: See data tableImproving Performance Page 16
17. 17. Price Model y = -0.0362Ln(x) + 0.65 Problem 8: Marketing provided this Price Model, and you need to determine the GM for the missing unit quantities for your Price Book. Solution: See equation y=mx+b (for logarithmic x axis)Improving Performance Page 17
18. 18. Price Drop – Maintain Revenue Price Erosion, Units to Maintain Revenue \$ 100% 95.31% Problem 9: Our Super Widget had a subtle, but constant price 80% 62.83% erosion of 5% in the second and Unit Increase 60% third year after it was 37.17% 40% introduced. How many more 16.64% 20% units must be sold to meet the 0% same revenue as when the -5% -10% -15% -20% Price Erosion in % SuperWidget was introduced? Yr 1 Yr 2 Yr 3 Solution: 16.64% Note: A small price erosion, compounded over time, can amount to a large difference for the sales team to overcome.Improving Performance Page 18
19. 19. Price Drop – Maintain Profit Price Erosion, Units to Maintain Profit 100% 90% 80% 70% 60% 50% Units 40% 30% 20% 10% 0% 50% 45% 40% 35% 30% 25% 20% 15% 10% GP 5% PE 10% PE 20% PE Problem 10: Our GM was 15%, and we decreased our ASP by 5%. How many more units must be sold? Solution: 50.0% Note: A small price drop requires much higher volume to maintain profitability with low GMImproving Performance Page 19
20. 20. Pareto Analysis, the 80/20 Rule Cust Rev Rev Cum Rev % Rev % Cum Rev % Cust 1 AP \$225,767 \$350 \$225,767 29.5% 29.5% 5.9% 2 BF \$169,793 \$25,180 \$395,560 22.2% 51.7% 11.8% 3 KC \$116,038 \$7,885 \$511,598 15.2% 66.9% 17.6% 4 DL \$105,118 \$5,285 \$616,716 13.7% 80.6% 23.5% 5 ME \$57,021 \$4,327 \$673,737 7.5% 88.1% 29.4% 6 DF \$105,118 \$25,180 \$698,917 3.3% 91.4% 35.3% 7 GC \$116,038 \$12,153 \$711,070 1.6% 93.0% 41.2% 8 HA \$225,767 \$11,456 \$764,848 1.5% 94.5% 47.1% 9 NI \$10,809 \$3,840 \$721,879 1.4% 95.9% 52.9%10 JI \$10,809 \$8,770 \$730,649 1.1% 97.0% 58.8%11 KJ \$8,770 \$7,885 \$738,534 1.0% 98.1% 64.7%12 EL \$57,021 \$5,285 \$743,819 0.7% 98.7% 70.6%13 MH \$11,456 \$4,327 \$748,146 0.6% 99.3% 76.5%14 NB \$169,793 \$3,840 \$751,986 0.5% 99.8% 82.4%15 QO \$200 \$856 \$752,842 0.1% 99.9% 88.2%16 OP \$856 \$350 \$753,192 0.0% 100.0% 94.1%17 QG \$12,153 \$200 \$753,392 0.0% 100.0% 100.0% \$764,848 \$764,848 Problem 11: Determine the vital few for new Key Accounts Program Solution: Customers A, B, C, and D should be Key AccountsImproving Performance Page 20
21. 21. Forecast Scenario 1 Forecast Given: Quota (\$) Sn 10,000,000 Given: Growth Rate (%) y 14.00% 900,000 887,850 First Term a1 13 877,938 Number of Terms n 12 880,000 868,026 Difference d 9,912 858,114 860,000 848,202 Find: Term 1 a1 778,816 838,289 Find: Term 2 a2 788,728 840,000 828,377 Find: Term 3 a3 798,641 818,465 Find: Term 4 a4 808,553 820,000 808,553 y = 9912.2x + 768904 Find: Term 5 a5 818,465 798,641 R² = 1 Find: Term 6 a6 828,377 800,000 788,728 Find: Term 7 a7 838,289 778,816 Find: Term 8 a8 848,202 780,000 Find: Term 9 a9 858,114 Find: Term 10 a10 868,026 760,000 Find: Term 11 a11 877,938 Find: Term 12 a12 887,850 740,000 Total 10,000,000 Q1 2,366,185 720,000 Q2 2,455,395 a12 a10 a11 a1 a2 a3 a4 a5 a6 a7 a8 a9 Q3 2,544,605 Q4 2,633,815 10,000,000 Problem 12: CEO wants a \$10M annual quota with 14% growth. Calculate the monthly quota amounts that total \$10M, and reflect the required growth. Solution: See table and graph aboveImproving Performance Page 21
22. 22. Step Pricing \$/Mo Units/Mo ASP Step Pricing Find: Term 1 a1 720,721 166,667 4.32 Find: Term 2 a2 710,893 166,667 4.27 Find: Term 3 a3 701,065 166,667 4.21 \$5.20 Find: Term 4 a4 691,237 166,667 4.15 Find: Term 5 a5 681,409 166,667 4.09 Find: Term 6 a6 671,581 166,667 4.03 Find: Term 7 a7 661,753 166,667 3.97 \$4.70 Find: Term 8 a8 651,925 166,667 3.91 \$4.27 Find: Term 9 a9 642,097 166,667 3.85 \$4.09 Find: Term 10 a10 632,269 166,667 3.79 \$4.20 Price Each Find: Term 11 a11 622,441 166,667 3.73 \$3.91 Find: Term 12 a12 612,613 166,667 3.68 \$3.73 Total Price 8,000,000 2,000,000 \$3.70 Q1 \$ 4.27 0 500,000 Q2 \$ 4.09 500,001 1,000,000 Q3 \$ 3.91 1,000,001 1,500,000 \$3.20 Q4 \$ 3.73 1,500,001 2,000,000 Avg Price \$ 4.00 \$2.70 Q1 Q2 Q3 Q4 Problem: 17 Quarters Problem 13: You agreed to sell the client 2MU @ \$4.00 each, but he will not commit to taking all 2M units. Determine quarterly prices, so that if he buys all 2M units his average price will be \$4.00, but if he buys fewer units his price will be higher. Solution: See table and graph aboveImproving Performance Page 22