As we plan for next fiscal year and look to grow our companies, time is spent identifying key strategic initiatives and programs that can drive growth. Most of these fall into the non-incremental or exponential growth category. These are big bets that often require investment, are managed as a program, take time and require change across the organization. Creating a new sales channel, entering a new market, building a new product or redoing packaging and pricing are all examples of non-incremental growth strategies. These big bets can lead to big payoffs and are an important part of driving and sustaining growth.
But, what about incremental improvements? These often get lumped together in annual key initiatives under a catch-all “Improve GTM Productivity” bucket or aren’t included because they’re considered core elements of managing the business. We often don’t set goals around them or create programs around driving these incremental improvements. Although we tend to track them, we typically talk more about wanting to improve them then strategically creating action to actually do that.
Way back in the late 2000s, I created a slide during our sales leadership planning offsite to drive the message home that these incremental improvements can be and are important contributors to our success. I’ve shared some of them in the tables below to demonstrate just how much they can make a difference.
I’ll start with the headline: I evaluated 5 categories for improvement (there are more) and looked at each independently. They do compound and deliver more value if you are able to achieve success in multiple areas. The analysis is for a company with an annual target of $28M in ARR. The sum of the benefits from each category can contribute over 10% towards that target and deliver the equivalent of 3.5 sales reps. Why is this awesome? The investment to achieve these is relatively small leading to a large ROI. How many times have you been so close to hitting your targets where the 10%, or even half of that, would push you over? How much better would your productivity metrics be by getting the lift of 3.5 additional sales reps without having to hire 3.5 additional sales reps?
In the current environment where we’ve moved past growth at all costs and pay far more attention to cost and productivity than we have during any time in the last dozen years, capturing this incremental revenue is so critical.
Hopefully I have your attention now as we dig into the details! A consistent set of assumptions was used for each category above and are in the table below:
The shocking thing here is that the improvements that are needed to drive meaningful value do not need to be a grand slam. They are relatively small, “incremental” improvements and if you and the team maintain focus are very achievable.
How about a 2% improvement in Win Rate to gain an additional $560,000 in revenue or 2% of your annual target? This is not a 2% absolute increase, it is 2% on the current 35% Win Rate for a target improvement to 35.7%. For comparison, a 2% absolute increase to 37% delivers an additional $1,568,000 or 5.6% of the annual target of $28,000,000, so you could also go for that if achievable.
We all know the techniques to capture this improvement. Analyze the win rates and trends across several criteria such as product, region, rep tenure, deal size, competitor and other relevant attributes, identify areas for improvement, create and execute a plan. It may be that you need to put a sales enablement resource on the ground in EMEA, or produce better messaging and differentiators against competitors then train the field or improve deal inspection making sure you have a champion and are multi-threaded. Whatever the plan is, get it started now.
With the software stack rationalization that is happening in this economy, increasing Average Selling Price (ASP) isn’t something that many want to sign up for. But what if you increase ASP by just $600 on a current ASP of $40,000? This 1.5% improvement returns over $400,000 and is the equivalent of a half a reps worth of contribution. How do you increase ASP? How about not approving a crazy discount. Or, just approve one a few points lower than the rep requested. Is a customer going to walk from a 38% vs 40% discount? My personal favorite is to change the internal approval workflows. At a previous company, we wanted to get the average discount below 30% when it was at 34%. At 35%, the CFO’s approval was required. No one wanted to go talk to her to justify the discount as it wasn’t always a pleasant experience. We moved the approval tier for the CFO down to 30% and within 6 months the average discount moved to 29%. And of course, always, always sell value.
Several companies ago, prior to my first day on the job, I joined the mid-year sales leadership offsite with my new colleagues. The VP of Sales for North America gave a presentation titled “Taking Back Sales Cycles.” It was brilliant. He quantified the impact of all the administrative and inefficient internal processes that sales reps had to do throughout the sales cycles. That meant there were less sales cycles, and therefore less closed deals, that a rep could execute during the year. By reducing the administrative burden and addressing the inefficiencies, he showed how a rep would become more productive and deliver more to the business. Maybe even to the point where quotas could be raised. He then pointed at me and said, “glad you're here, this is your first project!” By taking out just two days from the sales cycle, $760,000 in incremental revenue, the equivalent of 1 sales rep, can be returned to the business. This is a project that every RevOps team should prioritize.
Most companies have several packaging tiers of their solution that can be purchased as well as add-on products. Increasing the attach rate of these products and increasing the number of customers that buy at a higher tier will result in increased revenue. Moving from an attach rate of 15% to 20% of deals with an average incremental price of $15,000 can generate over $315,000 in incremental revenue. The sales rep selling 20 deals a year, 3 with an additional product or at a higher package now just has to sell one more. That seems reasonable, doesn’t it? Enablement, better discovery, selling value, engaging higher up in the organization, attaching to a key initiative are all ways in which this can be achieved. Deal inspection, asking on every deal if there is an additional product and if not why not, and a spiff or two should also be part of the plan.
With the gaining acknowledgement of the need for a RevOps team that works across all GTM functions, that team should focus on the full funnel and work their Marketing partners to drive improvements. An improvement in conversions at each stage flows to the next and all the way down to closed won. Since we showed win rate improvements above, the below shows the impact of conversion rate improvements in two areas; Lead to MQL and MQL to SQL. With just a 1% improvement in each, for MQLs 2.5% to 2.53% and for SQLs 20% to 20.2% an additional $562,800 or 2% of the revenue target can be gained.
In order to achieve the above, an initiative and program along with sales and GTM leadership buy-in should be established and executed. It’s not good enough for any of these to be done in isolation or at a grass roots level. The program team should identify the target areas, target improvement goals and create action plans to drive success. These should be talked about and tracked in forecast meetings, monthly meetings, QBRs and all-hands. Sales reps and their managers should be shown the improvements that they can achieve in both their performance and earnings and enlisted to help generate and execute tactics.
This is revenue productivity. These are the basics, but we often run to that shiny object of non-incremental strategies. These collectively are as shiny as any other. Where else can you drive an additional 10% of incremental revenue with minimal costs?
How much incremental revenue can you drive at your company? You can download this incremental improvements calculator with the above calculations and plug in your own assumptions to find out.