Calculating and closing a projected gap in sales quota – even with open sales headcount.
The Q3 sprint is underway and so today, we're going to talk about something that's even harder than running a race in dress clothes - managing a sales team to quota when you have open headcount.
Carrying a negative balance into Q4 is a burden that you’d rather avoid with that year-end bonus is in sight. The good news is that there’s time to recover and to overachieve – but you have to be smart about how you manage your team over the next 3-4 weeks. Q4 is often won or lost in the month of September and the purpose of this article is to provide you with the data you need to effectively do so.
Chances are that you’ve had some turnover on your sales team in the past six months and likely still have 1-2 open positions.
You’ve identified a core group of performers, one or two overachievers and a couple of reps that have quit but didn’t tell anyone yet. And even if you are fortunate enough to have a full team, it’s unlikely that the entire team is fully ramped or has over a year of experience. Suffice it to say – it's off to the races!
Did you know a 5% quota gap can require a 130% increase in sales productivity? Read on to find out 1. Why this is 2. How to calculate it and 3. How to close the gap
Regardless of whether you’re ahead of quota, trending towards it or looking to overachieve there’s only two ways to get there – sell to more customers or sell more to each customer. Either one works.
The first step in solving any problem is an awareness of what the problem is. I hope I’m not going too fast for you here, but if you don’t know what you’re solving for, it’s challenging to know if you’ve found the answer!
Since the formula remains constant, let’s address the most critical scenario in the trio – closing a gap in Q3 sales. To do so, you’ll need to be able to:Calculate the projected gap to goal (based on run-rate)
Determine the incremental sales per headcount required
Review the current pipeline and assess the level of activity required
Create an actionable plan to address the gap
Mobilize your team for success (incentives and motivation)
For our example, we will assume that you’re managing a team of account executives – responsible for bringing new customers to your organization. The pure hunters.
Sales Team Structure, Performance and Goal
- Allocated Headcount:12
- # of Open Positions: 1
- Rep Quota: $50,000
- Average Sale: $5,000
- Sales Cycle: 2 weeks
2018 Team Conversion Ratios
- 10 Sales = Monthly Quota (Avg. Sale of $5k)
- 2 Proposals yield 1 Sale
- 2 Demos yield 1 Proposal.
- 2 Discover calls yield 1 Demo
Q3 Sales Performance
- Q3 Sales Quota $1.8M
- July Performance: $605k of $600k
- August Performance: $545k of $600k
- September Quota: $600k + $50k gap ($650K total)
Close the August gap and achieve September Quota
- Open/New headcount
- Increasing average productivity per rep
- Setting and managing the correct activity metrics
- Maintaining margin and avoiding discounting
A Classic Mistake
As a rookie manager, I’d think – simple. I’ll take look at this gap, divide the over-assignment by the number of reps and come up with a number. Even though I was inexperienced, I knew not to include the open headcount and new hire in the equation.
So, $50k/10 = $5k per rep. No problem, right? That’s 1 more deal per rep. Sure, there’d be some incremental activity required and I’d address that during my weekly kickoff meeting/1:1’s. We’d pull together using esprit de corps and my leadership and we’d close the gap in no time!
What usually happened? The reps hit their individual quotas, I missed mine and the team fell further behind.
What’d I forget?
- I’m down two reps.
- The team quota already carries a gap due to loss of headcount.
- And the actual gap to goal is much larger than $50k.
Here’s the trouble:
- Quotas were set at $50k/rep/month and assumed a full team.
- Monthly target for Sales Manager is $600k
- Monthly rollup of all rep quotas is $500k
- My $50k gap just turned into a $150k challenge
A different way to look at it, would be to look at the target from the individual team member’s perspective:
Average Sales Productivity
- July: $50,416 (actual)
- Aug: $54,500 (actual)
- Sep: $65,000 (required) *New hire, month 1 quota is $0)
Average Sales Performance:
- July: 101% of rep quota (Actual)
- Aug: 107% of rep quota (Actual)
- Sep: 130% of rep quota (Required)
In this example, although the team’s number was dropping collectively, individual performance had risen. But this presents unique challenges – for example - how to motivate a team that’s already at plan? And how much effort would actually be required to get each team member to over 130% of goal?
Going to finance and telling them you want more money to further incentivize a group of reps that are already collectively over plan while the team target is trailing can be challenging. But not if you speak their language. And their language is numbers.
Closing the Gap
Alright, now that I’ve got your attention by showing what I’ve done wrong in the past – let’s take an example of what I would do now. (Don’t worry, I’ll provide you with a link to the calculator and a short video when a post this.
- Calculate the average productivity per rep required
- Divide the required monthly performance by the number of fully ramped AE’s.
In terms of the activity, we’ll use the conversion metrics from earlier in the article to determine the required activity:
Some equations we'll use.
- Collective Target – Individual Rep Rollup = Gap to close
- Gap to close/number of reps/number of days = Incremental run rate/day
- Gap to close/number of deals/number of reps = incremental close/new customers per rep
- Number of Deals x conversion activities required per deal = incremental activity required per rep.
Incremental Activity Metrics
- Additional Quota: $15,000/rep
- Additional Deals: 3
- Proposals: 6
- Demos: 12
- Discovery Calls: 24
- $650,000/10/20 =$3,250k per day or
- $650,000/$5,000/10 = 13 deals per month, or 1 more per day (for the team)
Incremental Additional Activity to Manage
- 24 discovery calls/20 days = ~ 1 more discovery call
- 12 demos = 3 per week
- 6 proposals = 2 per week
- 3 deals = 1 per week
To close the gap, you’ll need to collectively manage your team to 130% of their individual goal. Not $5k but $15k. Not 1 extra deal, but 3! Still seem easy?
It’s simple, but not easy. If you’re a bit overwhelmed by all of this math, I’ve created a simple calculator that you can download and use on your own. This calculator can easily be configured for not only September, but also for any period of time, number of reps and gap to quota.
Other ways to close the gap
In tandem with the increased level of activity, I’ve included some additional ways to close the gap quickly. Here are a few of my favorites.
- Protect Price! – a 5% less discounting is the same as selling for 5% more. That adds up quickly. Resist the temptation to drop price. Look for additional value-add benefits to the customer and include these in-lieu of a margin drop.
- Create a team goal and reward in addition to the standard commission/bonus payout. It doesn’t always have to be monetary, but it certainly doesn’t hurt if it is! Use the calculator to show the operations and finance team what you’re facing and then structure a contest around it!
- Review stagnant deals. There’s always a handful of deals that have been sitting in the pipeline for quite some time – create a strategy to incentivize each deal, individually.
- Up-selling recently closed deals.
- Revisiting closed/lost deals from Prior Year Q3. There may be an opportunity to recapture some of that revenue.
- Bundled selling – review each deal early in the sales cycle and ensure that a full discovery has been conducted and a full solution presented.
- Later this week (*spoiler alert) I will release an article, tied to a webinar, tied to a download that will only be available to those who attend the webinar – that includes a handy tool for calculating the impact of attrition on quota attainment.
If you're still over-whelmed and need a quick answer to your problem just reach out and schedule a brief meeting with me. I'll talk you through it and share a handy calculator that you can use.