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Is your compensation plan or sales goal measured in annual revenue dollars?

Do you sell a product or service that bills an ongoing revenue element monthly?

What is your “time to value” on selling new business?

 

The leaves are falling, the temperatures are dipping, the holidays approach …..and sales leaders and operating executives everywhere are doing the math on closing 2017.  Hopefully, this math is simply counting the already closed business that is waiting to bill.  That’s good math and equals a relaxing holiday!  And, wow, you could even be focusing on new business selling to maximize the rule of 78 for next year!  No idea what I’m talking about?  Read on …..especially if you are in a services business that bills monthly and you’re on an annual billed revenue compensation plan.

 

I am writing this in early November in the offices of Sales Enablement Partners LLC in Grapevine, Texas and I am thinking in terms of a calendar year.  If you work with end-March fiscal year, fantastic, you have some time.  In fact, based on your timeframe from “quote to cash” you might be right in the zone that you should be emphasizing as the most important time to capture the revenue tailwind of the rule of 78.

 

The rule of 78 states that a dollar in January is worth 12 times a dollar in December.  Really simple if you think about it in the correct terms.  You bill a single dollar if your first month of billing is the last month of the year.  You bill 12 dollars (one per month) if your first month of billing is the first month of the year.  Simple.  However, if you build on this math, a very powerful multiplying effect occurs.  Look at the chart below and the twelve months across the x-axis.  You can clearly see (reading laterally from the x-axis) the 12 dollar reward for January being the first month of billing.  Do the same for February and you can see the 11 dollars reading across.  Plot laterally from June and you count 7 boxes of billing.  October yields 3 month ……you get the picture.  There 78 boxes in the chart.  Hence the name, right!  12+11+10+9+8+7+6+5+4+3+2+1=78

Sales Enablement Partners© 2017 All Rights Reserved

Look at the blue shaded boxes in the chart (now above).  What is this telling us?  Assume that “close” means first month of billing.  Terrifyingly, it means that if you are on an annual revenue plan, more than 50% of your opportunity to bill is in the first 4 months of the sales year! 

12+11+10+9=42

8+7+6+5+4+3+2+1=36

42 is greater than 36

 

Now assume that “close” does not mean first month of billing.  On average, how long does it take your sales organization to bill after a deal is “closed”?  Whatever it is (and you REALLY should know) you need to factor this timeframe backwards.  Let’s say it takes 3 months for you to see revenue, then you should have already had your peak selling month in September 2017 to maximize the rule of 78 for 2018!

 

Most sales organizations must also deal with negative elements of the revenue sales plan.  There are numerous ways a negative can hit.  Maybe you lost a client and their billing totally went away, maybe you had to lower your price compared to last year in order to not lose their business, or maybe you had a service level issue and you had to issue a credit to a client.  Here’s how that rule of 78 requirement looks when you are dealing with a billing run rate start point and a negative element (where the total area in the Trapezium object on the left side below is the annual revenue plan):

Sales Enablement Partners© 2017 All Rights Reserved

I implore all sales leaders, operating executives and business owners that task their sales teams through revenue based compensation to coach them on the multiplier effect of the rule of 78 with plenty time to affect an outcome.  Don’t do it at the sales kick off two months in to the sales year.  Do it in a timeframe that allows sales strategy to focus on the peak selling time given your quote to cash timeframe.

 

David Aspinall is the President and Chief Sales Officer of Sales Enablement Partners LLC.  Sales Enablement Partners a full-service sales effectiveness consultancy that will assess, design and build the organizational disciplines needed to start your growth engine.  David engages with both Private Equity and Company CEOs and is veteran of the complex sales environment having enjoyed 20 years as sales leader, proposal manager, product manager and marketing guy.  David just wrote a blog with the word Trapezium in it.  David does not like sales kick offs two months in to the sales plan year.

 

www.salesenablementpartners.com

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