Sales White Paper: ROI On Sales Effectiveness


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Sales White Paper: ROI On Sales Effectiveness

  1. 1. Return on Investment (ROI) in Sales Effectiveness WHITE PAPER
  2. 2. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 1 CRITICAL SUCCESS FACTORS Before you assess the likely ROI on a sales effectiveness project, you need to be sure what success looks like for the project, because your ROI model will need to reflect the success metrics to use. Critical Success Factors, or‘CSFs’, are the metrics against which you judge the efficacy of initiatives designed to address your business drivers (see the section on Project Goals inTheTAS Group’sWhite Paper called AutomatingYour Sales Performance – Build or Buy?). Return on Investment (ROI) in Sales Effectiveness INTRODUCTION Few major business investment decisions are made without an attempt to assess the likely business results of the venture. With a range of projects competing for limited time and money, many businesses look to rank- order the candidates, using a wide range of financial, legislative, emotional, political or other factors to help them. It is unlikely that financial factors will not be taken into account. When they are taken into account, often the number you end up with can look disappointingly low, or else so enormous it stretches credibility. The options open to the business decision-maker on the financial front are numerous, most of which attempt to measure the‘time value of money’. Typical examples of this might be Internal Rate of Return (‘IRR’) or Net PresentValue (‘NPV’) for projects. Total Cost of Ownership (‘TCO’) can be used when the return, or revenues, can be hard to define, such as in IT security when you are protecting the business against threats to your business continuity. TCO is also a useful ally in a ‘build or buy’technology decision (seeTheTAS Group’s White Paper called AutomatingYour Sales Performance – Build or Buy?). ThisWhite Paper concerns itself with Return on Investment (‘ROI’), which defines as‘the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested.’ ROI is usually expressed as a percentage, but can also be described in time, the period by which payback on the investment is achieved. In thisWhite Paper we shall explore some of the key facets to assessing ROI on a sales effectiveness investment. We shall also offer two possible ways of arriving at an expected ROI figure, one simpler, one more involved, but both of which focus the reader on the key levers that affect sales performance. As with any of ourWhite Papers, there will be a big variance in the seniority and experience of the readership. ThisWhite Paper aims to provide something for the complete range of requirements, but if you want to dig deeper or move wider, we urge you to get in touch with us individually. You can do this via email to: Dealmaker fromTheTAS Group solves three business drivers for our customers: • My revenue falls short of potential • My forecast isn’t accurate • I’m not seeing lasting return on my sales training investment
  3. 3. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 2 Some example measures include: Qualitative (behavior) Internal • Increase in pipeline quality • Level of Relationship • Linkage to your Initiatives • Penetration and coverage in pipeline Qualitative (behavior) External • Linkage of solutions to business • Initiatives • Value propositions • Relationships with key players • Leveraging resources and partners Quantitative (results) Internal • Account penetration, coverage and pipeline value • Account retention • Wallet-share • Win rate and productivity • Competitive encroachment Quantitative (results) External • ROI realized by the account • Incremental revenue • Cost savings • Additional profit • Competitive Advantage It follows that if you successfully meet the CSFs, you will achieve the ROI that you have modeled for your project. Based onTheTAS Group’s experience of work with over 850,000 sales people and leaders, we make the following recommendations for a sales effectiveness program: 1. Easy to use for the sales team 2. Effective learning must be tested 3. Preparation and alignment sessions must be completed from the executive team down 4. Clear communication from the leadership concerning objectives and expectations 5. Measure usage and results 6. Sales management must manage and coach to the process and methodology 7. Process and methodology must be integrated and aligned to the CRM system 8. Best practices and approach must be proactively reinforced by management and the supporting tools When it comes to measuring your CSFs there is a wide spectrum of metrics to choose from. TheTAS Group works with customers to identify key performance indicators as part of a proposed project, to ensure the desired behaviors and actions take place within the sales organization. Metrics can be identified as internal to the customer and external from the customer and can be categorized as qualitative or quantitative.
  4. 4. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 3 Then for the period after the sales effectiveness project has been established, you need to set targets against which you can measure the effectiveness of the project. We recommend the following metrics: • Target net recurring revenues for subsequent quarters • Percentage change (if any) in the total quota (it is helpful for you to know how much greater the total quota figure is over the plan, because then you can measure true quota uplift) • Target uplift in number of qualified opportunities being worked on • Target uplift in average deal size (recurring amount only) • Target uplift in percentage close rate for the qualified opportunities • Target reduction in average sales cycle length • Target number of quota-bearing heads For guidance, reasonable targets for number of deals, deal size, close rate and sales cycle length, are in the 5-10% range. Some of the figures above are interdependent, so when you come to do the calculations there are some useful sanity checks built in. Furthermore, for you to gauge true ROI and effectiveness, you need to get a sense of your own internal costs as well, apart from those which you pay out to your sales effectiveness vendor. The following pre-project information completes the picture: • Average operating margin • Percentage of business which is recurring (as opposed to one time business such as set-up or services) • Average retention rate on recurring revenue • Your internal costs for supporting the sales effectiveness system (typically administration or IT department time) DOINGTHE HOMEWORK Calculating ROI and then assessing actual return against anticipated return requires discipline from both you – the customer – and your sales effectiveness vendor. This is a partnership that should be born well before the project commences and continue through the life of the project. Otherwise you will not be able to judge the true return on your investment over time. Some independent commentators argue that you should not involve a vendor in helping you calculate the likely ROI of a project that they will be delivering, and it is easy to see how a conflict of interest might skew the results. It is more a question of the trust between the two parties, whether your consultant is aTrusted Advisor to you. It is also a question of basing your calculations on factors that are completely vendor-agnostic, and therefore objective. Before you start to calculate the ROI, you need to know how your business currently stands along some key parameters. Furthermore, after you have invested and the project is underway, you must be prepared to regularly take the same measurements so that you have ongoing concrete insight into performance against target. These are the recommended‘pre-project’numbers so you can set targets for the project and then measure the success. For the immediately preceding quarter: • Total net revenues (split between recurring and non- recurring, depending on your business model) • What percentage of plan were the revenues • Average quota achievement by the sales force • Total number of qualified opportunities worked on during the period • Average deal size (including one-time/services fees) • Percentage close rate for the qualified opportunities • Average sales cycle length • Number of quota-bearing heads Once you have these figures established, this forms your ‘steady state’. If you feel that the preceding quarter was slightly anomalous, then you can mitigate this by getting figures for the previous half year.
  5. 5. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 4 Similarly, when a company is focused on cost reduction, the sales effectiveness disciplines could result in maintaining the same velocity while reducing headcount. If the number of #Deals is set to 75% as a consequence of sales force reduction, and each of $Value and %Close are increased while decreasing the Length of Sales Cycle by 10% – velocity can be maintained and cost of sales can be reduced by at least 25%. It’s worth exploring how a sales solution like Dealmaker can positively affect the four key levers. Increase the number of qualified deals Successful selling organizations are not just working on the deals that come their way. They are not just communicating value, they are creating it for their customers. Dealmaker’s Account Management methodology provides a framework for planning, finding and creating more opportunities for the customers. Conversely, Opportunity Management methodology also ensures that you are only working on the right opportunities, and this may mean reducing the number if you never should be engaged on some deals in the first place. It is far more productive to win 4 out of 7 deals, than 3 out of 10. Dealmaker increases the number of qualified deals by: • Profiling and analyzing the customer’s organization to discover the areas of highest mutual value • Creating and executing business development plans • Effectively managing and supporting customers, thereby locking out the competition • Managing and winning more opportunities by answering the critical questions • Virtual learning environment to increase selling time while learning and applying new concepts on-the-job • On Demand analysis and reporting tools to point to areas of missed or under-exploited opportunities WHY AND HOW – THE KEY ROI LEVERS The greater your sales effectiveness after a project compared to before, the quicker and greater your return on investment. Sales effectiveness revolves around how quickly you can put business through your sales organization, in other word your sales velocity. The better your sales velocity after the project, the faster you recoup your investment. TheTAS Group invented the SalesVelocity Equation to help companies arrive at this understanding. The measure of that company’s sales effectiveness always translates to revenue generated for a fixed or variable cost. Whether a company is in growth mode, or in cost reduction mode, this fact always remains constant. In the SalesVelocity Equation, #Deals represents the number of qualified sales opportunities being pursued, $Value represents the average value of each sale, %Close represents the ratio of deals won to qualified opportunities, and Length of Sales Cycle is the length of time resources are being applied to a sales opportunity before that opportunity is closed. The level of revenue that is generated by any company in any sales period is proportional to the number of deals or qualified sales opportunities that are being worked; the value of each sales opportunity; the percentage of those deals that are closed; and inversely to the length of the sales cycle. You can see that these numbers are what you have been advised to find out in the previous section, prior to calculating your ROI. To increase sales effectiveness, a salesperson or team must seek to increase the factors above the line, and decrease the factor below the line. For example, for a growth oriented company, the sales leadership might, with appropriate sales effectiveness disciplines, be successful in increasing each of the #Deals, $Value and %Close by 10%, and decreasing the Length of Sales Cycle by 10%. This results in an increase in velocity of 48% without any increase in headcount – which is almost equivalent to adding half the number of salespeople at no cost. #Deals x $Value x %Close Length of Sales Cycle Sales Velocity 10% 10% 10% 10% +48% 110% x 110% x 110% 90% = 148% 75% x 110% x 110% 90% = 100%
  6. 6. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 5 • Uncovering the political landscape and aligning your solution to the‘Inner Circle’ • Adopting the correct relationship strategies • Encouraging sales people to follow a proven process to keep deals on track • Working on high value opportunities created with customers where mutual value exists based on business drivers and initiatives • Automated leading indicators highlight exceptions where intervention is required to manage‘at risk’ forecasted revenue Shorten the sales cycle Dealmaker’s proven ability to shorten sales cycles comes from our sales process approach, which aligns your company’s sales process with your customers’buying process for maximum efficiency. Moreover, the Opportunity Management methodology ensures that your team is working on deals they can win, so less time is wasted on opportunities that shouldn’t be in the funnel to begin with. Dealmaker helps your sales team shorten the sales cycle through: • Consistent objective qualification framework to identify real Opportunities with; -- A Compelling Event and access to funds -- Unique BusinessValue -- Internal support and clear decision criteria -- The optimum competitive strategy -- Timely next best actions • Aligning your customers’buying process to your selling process • Removing administrative overhead from your sales people • Virtual learning environment to reduce training time versus face-to-face sessions, giving you a shorter time to positively impacting revenue • On Demand tools built into daily workflow for instant guidance Increase the deal size In a world where deals are scarcer than ever, you not only have to win as many as possible, but maximize each one. Dealmaker’s Opportunity Management methodology ensures that each specific opportunity is fully aligned with your customers’needs so that you can bring every applicable product and service to bear. Likewise, Dealmaker’s Account Management capability focuses on maximizing account penetration, guiding sales people to develop as large a footprint in each account as possible. Dealmaker increases deal size by: • Clear articulation of Unique BusinessValue helps to take value into the negotiation room • Segmentation of customers to focus on high value business units and opportunities • Mapping key initiatives and all critical success factors to broaden solution range • White space analysis to uncover and expose new areas of potential revenue • Leverage and maximize marketing and partner resource to optimize coverage and route to market • Generate clear objectives, strategies and actions across the entire Account team, available on demand to increase visibility and collaboration Increase the win rate Research shows that companies that integrate sales methodology and process into their CRM system improve qualified opportunity close rate by 20%, and sales proposal close rate by 155% (TheTAS Group Global Sales Effectiveness Benchmark Study, 2007-2009). Dealmaker not only accomplishes this integration, but does so without the need for code-writing or heavy CRM customization. Dealmaker improves your win rate by: • Highlighting weakness in opportunity strategy and providing a coaching mechanism to effectively test and review
  7. 7. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 6 A SIMPLER ROI CALCULATION Armed with your sales numbers, your costs and the quoted 3rd party costs of your sales effectiveness vendor, you are now ready to calculate the ROI based on your expectations for the project. Calculating ROI is not an absolute science, but one of degree, and this depends to what detail you want to go into for your analysis. TheTAS Group recommends ROI calculators with varying complexity, and your choice will depend on which is more appropriate for you. We stress that both calculators have no in-built bias towards TheTAS Group. They are simply a function of your current business situation, your targeted improvement, your underlying costs and the costs due to the vendor. The less involved ROI calculation is shown here, complete with some example numbers. This version first takes your average deal size, your operating margin, your revenue splits between recurring and non-recurring type, your retention on recurring revenue, the number of quota-bearing sales people and their expected number of deals. It then looks for your target input on the other 3 levers of the SalesVelocity Equation, namely, the length of the sales cycle, the win rate or close percentage, and the average deal size. Factor in the costs to the vendor, in terms of license fees, number of licenses, integration costs, services, and you own internal costs to administer the solution, and you can then compute your anticipated return. A representative fromTheTAS Group can talk to you about ROI, share with you a copy of this calculator, and work with you to uncover your goals and calculate the ROI of your sales effectiveness investment. SummarySectionfromthesimplerROICalculation
  8. 8. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 7 Baseline figures for large selling organizations can be calculated by team or region, covering, quota, % quota achieved, number of deals, and revenues. You should also record average deal value and close rate by team. For more detailed cost considerations, should also record the gross margins and net profit you achieve across software/licenses, services, hardware, maintenance, or other type of products and services you charge, together with their respective contribution to your overall revenues. This will give you a full baseline that looks like the example below: Performance figures are your targets across the four key levers of the SalesVelocity Equation (# deals, average deal size, % close, length of sales cycle) for each of your teams or regions. A MORE INVOLVED ROI CALCULATION For companies looking to take a more detailed analysis of their expected sales effectiveness ROI, on both the revenue and expenses side,TheTAS Group has developed a more involved calculator which allows in-depth discovery or more factors. This covers 7 sections: • External Costs • Internal Costs • Baseline • Performance • Result • ROI Analysis • Future External costs come from your sales effectiveness vendor, make sure you capture them all. Internal costs are often ignored in assessing the total cost of a sales effectiveness initiative. To accurately calculate the ROI on any such initiative, it is important to factor in the cost of travel to training and other such expenses. You should consider the cost of payroll for the personnel involved in the program, for the days they are not producing. Opportunity cost is another important cost category for calculating ROI on sales effectiveness investment. In this category it is the loss of profit contribution from being out of the field that is the key factor. In other words, what percentage of time at the program is lost selling time? You may decide that being away for 3 days on training is 100% lost selling time, but this is not always the case, as adequate breaks are built into training programs to allow for some work to creep in. Of course, you may also be opting not to send your sales people to a classroom-based training event, preferring to invest in a virtual solution such as that provided by the Dealmaker platform. The DealmakerVirtual Learning System trains remotely in small, bite-sized pieces that are perfect for modern on-the-job learning and dramatically improved absorption. Post-training, Dealmaker software can be integrated with your CRM system to offer on-demand training content at every step of the sales cycle to achieve daily reinforcement and long-term retention. In this case, your internal costs will be significantly lower. BaselineSectionfromthemoreinvolvedROICalculation
  9. 9. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 8 Result is the summary section which takes the completed input requirements for the more involved calculator, returning expected revenues, gross margin and net profit. The calculator also provides the impetus for investment by presenting the cost to the business of each day’s delay or inaction. ROI Analysis breaks down the analysis in more details across the teams and in total, as illustrated below: ROIAnalysisSectionfromthemoreinvolvedROICalculation
  10. 10. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 9 Future provides you with the format for recording your achievements after implementation, so that you can perform the important task of measuring actual results against expected improvement from the baseline, as the example below demonstrates. FutureSectionfromthemoreinvolvedROICalculation As with the simpler calculator, a representative fromTheTAS Group can talk to you about ROI, share with you a copy of this calculator, and work with you to uncover your goals and calculate the ROI of your sales effectiveness investment.
  11. 11. Share this White Paper! Copyright ©TheTAS Group. All rights reserved. 10 Second, you should also present the targets you are setting. If you are looking for just a 5% improvement from each of your sales people across the key parameters, this should be viewed as reasonable and achievable by your executive. Third, you should look at the target numbers you are asking each salesperson to achieve. When framed as a number per individual, rather than the roll-up total, it is much easier to see how the uplift can be achieved. For example, continuing the 5% theme, you’re asking each sales person to be working with 21 opportunities per quarter rather than 20, move their average deal size up from $50,000 to $52,500, close 27.5% of their deals instead of 25%, and shorten the sales cycle from 52 weeks a year to 49 and half weeks. If each sales person can make these small inroads, they will move from $1m per year velocity to over $1.25m. Keeping your lever targets conservative, and breaking the end numbers down to the individual sales person level, will maintain the thoroughness of your analysis while also presenting the results in a way that is digestible to your audience. After you have invested in your project and have measured your results, now is the time to present them as organization-wide, top-line revenues. PRESENTING ROI CALCULATIONS FOR APPROVAL When you have run your calculations, you may be left with some extremely impressive numbers. After all, if you can move your top line revenues from $100m per year to $117m per year with a sales effectiveness initiative (17% increase in top line revenues), for a relatively small investment, then the ROI percentages are enormous. This is because when everyone can improve their performance the combined impact across your sales force can be huge. This is itself can present problems when you look to present your recommendations to your executive. Can you really stand behind such impressive numbers? Do they look credible? How can you present them in the right way? There are a number of things you can do to back up your recommendation. First, revisit your target uplift for the four key levers. Are they realistic? Remember that 10% improvement on each lever aggregates to 48% uplift in your effectiveness. 5% improvement across the board is still an impressive result at an organizational level. CONCLUSION Assessing the ROI of an investment in a sales effectiveness initiative involves discipline on the part of both customer and vendor, and a laser focus on the key levers that influence the success of a sales performance automation project. TheTAS Group has devised two different types of vendor-agnostic ROI calculators to match the conditions and requirements of all potential customers. For a free ROI consultation with a representative or Partner ofTheTAS Group, please contact us at We’d be delighted to discuss your specific needs further, and explore how our unique sales methodology, sales process, and Dealmaker can drive sustained sales performance improvement in your organization. If you wish to find out more, please contact us at
  12. 12. ABOUTTHETAS GROUP TheTAS Group helps progressive sales organizations increase their sales velocity resulting in higher win rates, bigger deals, shorter sales cycles, and more qualified deals in the pipeline. Our unique value is deep methodology embedded within intelligent Dealmaker software, 100% native in Salesforce. Smart coaching, delivered just-in-time, improves sales performance and accelerates sales results.We have changed the paradigm of improving sales effectiveness from traditional sales training to delivering sales methodology and insights when and where the sales person is working a sales opportunity. For more information visit Copyright ©TheTAS Group. All rights reserved.This briefing is for customer use only and no usage rights are conveyed. Nothing herein may be reproduced in any form without written permission ofTheTAS Group.