PRELIMINARY CONSIDERATIONS
One of the first considerations is the determination of the sales revenue required by the company to meet its payroll, expenses and desired profit. Are we expecting sales from other revenue streams? Do we have inside sales and outside sales groups? Do we have revenue from areas with no assigned salespeople?
Regardless, a company-wide budget should be drawn up in order to set the company goals. As part of this budget, a separate sales and marketing budget should be determined so that everyone knows the guidelines for spending in these areas as well.
With a budget in place, we must make an accurate determination of the Overhead Recovery Rate since this is the most critical factor in pricing our services. It is hard to sell profitably not knowing your expenses.
Next comes deciding if we will apply the Overhead Recovery Rate to materials and labor or only to labor. In most cases, we choose to charge the Overhead against the labor cost.
The profit desired on every service or bid will most certainly require a qualified estimator or owner of the Company to decide what is the most suitable formula for that particular job once the Cost of Goods and Overhead has been applied.
HIT RATIO
Once the goals have been determined (budget) we then need to discern the steps necessary to reach projected revenue. In other words, how many sales calls do we need to make before someone gives us a Request For a Quote. Then, how many total RFQ’s submitted before we actually obtain an order or a sale.
If we have good records of projects that had been awarded and a history of the number of estimates that were submitted we can calculate a ballpark “hit ratio.” For example, our revenue last year was $1,000,000 if over the course of the year we provided 200 bids and got 20 jobs we have a 10% hit ratio. Our average job was $50,000. If required revenue is $1,500,000, we will need to add 10 more jobs at our customary average and 100 bids to get those jobs. If we have records for more than one year, we can take a historical average of jobs awarded versus the number of bids. We can gather most of the this directly from QuickBooks if that is the system you are using.
If the estimates and the number of jobs are not readily available, then we will need to do some digging. In construction, we need to see how many projects we billed for over the course of the year and how many letters, emails, phone calls were made with quotations where we never got the job. So, if our new projected budget requires 30 total jobs (10 additional), we will need to bid 300 total jobs assuming that we average the same $50,000 per job. If not, we will need to adjust our number of bids up or down based on the value of the awarded jobs. Another factor may be whether we “negotiated” any of these jobs. In other words, did we lower our bid to get the job and take it away from a competitor?
If we are strictly doing direct selling, we need the records of the salesman’s calls and how many were needed before we actually got an order.
The utilizing of these ratios will help set expectations for the salespeople in terms calls needed; daily, weekly and monthly in order to achieve our required revenue.
STRATEGIES
- Target Market– What business or project should we go after? Using our previous example, we need to categorize the number of jobs over the $50,000 average and how many were under par, Now, we need to break them down according to profitability. Which size job brought us the most profits? Was there any pattern or was it the job foreman? This may help us to decide which size job we want to pursue. If it is manufacturing we are trying to sell to, we may want to track the types of businesses who buy our products or their size which may help in determining our target market.
- NAICS CLASSIFICATION– Once we have settled on a target, we need to have a method for discovering new leads. In construction, it might be word of mouth or invitation. However, also in contracting, or in the seeking of new customers in any industry, you can use the North American Industrial Classification to help find new leads. Every sector is assigned a code number, and depending on the sub-classifications the number may be as much as a 6 digit code classification. These numbers are readily available on the internet under NAICS.
- LIBRARY REFERENCE DATABASES– Most libraries use reference databases that can be accessed online using your local library card. Three well-known systems are Hoover’s, Reference USA and Mergent. Most libraries have one or the other. The databases will allow you to locate businesses in geographical areas from cities, counties, and states using the NAIC Code numbers. Generally, it will tell you the ownership, revenue, location, number of employees, etc. This will enable us to identify those businesses that fit our previously determined target market.
- MAILINGS/PHONE CALL– Do we have a well thought out means of approaching prospects? Once we have selected companies from the databases, we need to have a plan for “getting our foot in the door.” Some prefer to just show up at the prospect’s door, with the hope to get an appointment. However, there is often a gatekeeper whose job it is to screen all callers and visitors and whom will likely turn you away. Another approach might be to have a company brochure or pamphlet to mail to the appropriate person. One that outlines the services that the company provides and how the target company might use those services. This could be accompanied by a personal letter which mentions companies you have done work for as well as any mutual acquaintances (prior approval of the person). Mail both in a first class envelope so as not to appear to be junk mail. This mailing should then be followed up with a phone call several days later to try and get an appointment to meet with the individual.
- THE APPOINTMENT– Once we have the appointment, we need an approach that will accomplish several important things. One methodology of selling your services to the prospect is a question-based selling approach. In some cases, it might be called S.P.I.N. selling ( Situation, Problem, Implication, and Need-payoff), which is often used for projects that may take several months or even years to obtain a sale. Conversely, it might just be questions you ask to foster doubt in the prospect’s mind that he currently is using the best products or services. The object is to put doubt in the prospect’s mind as to why he isn’t using your product or service already. Some tips to get started:
- Know the prospect’s business inside and out. (see #3 Databases)
- Don’t waste the prospects time.
- Explain your company in 1 minute or less.
- Do ask engaging questions.
- Do determine nature of the prospect’s customers.
- Are they experiencing any problems with their current suppliers?
- What improvements would you like to see from your suppliers?
- Do your current suppliers provide this service?
- Do they fill your orders 100%?
SUMMARY
Developing a basic sales plan starts with the formulation of the company budget which incorporates the sales and marketing budget as well. Determine where you need to be. Determine your “hit ratio.” Then research your leads and begin your quest for an appointment.
At Cogent Analytics, we never stop looking for ways to improve your business and neither should you. So, check out some of our other posts for helpful business information:
