Imagine you’re on a flight, 30 minutes after takeoff, when the captain comes on over the loudspeaker. He says, “Folks, this is your captain speaking. We’re off and flying at what I hope is 500 miles per hour and about 35,000 feet off the ground. At least, that’s my best guess, since none of my instruments are working. We have fuel, but I don’t know exactly how much. I think we’ll be okay. We’re headed north-ish, and my intention is to get us to our destination, but without knowing how fast I’m flying and without the altitude or flight instruments working, I can’t confidently say we’re on track. However, we’re making great time up here, so sit back, relax, and enjoy your flight.”
As scary as this would be for you as a passenger, this is exactly how the majority of smaller MSPs run their business, specifically their sales and marketing departments (if they even have them). For starters, they have not defined clear goals for themselves about what they want and when they expect to get it. They’re headed “north-ish” with no final destination in mind and no reasonable time frame for getting there. Even if they do have goals, many don’t have accountability or tracking of milestones to determine if they are actually making progress. As Zig often quipped, they’re “wandering generalities.” Is it any wonder they’re frustrated by how long and hard they have to work for such little pay?
While I don’t have the space in this article to get into all the aspects of hitting a company’s goals, what I can provide you with is a blueprint for how to track your sales activities and pipeline so that you have credible, trustworthy metrics that allow you to accurately and confidently execute a marketing plan to hit any sales goal you’ve set for yourself — or to quickly determine you’ve overshot on your expectations and need to dial in the goals a bit. You’ll also be able to hire sales reps with confidence, knowing you can get them up and selling fast or quickly determine if they’re not going to make it and fire them fast to avoid paying them for months with no return.
Begin With The End In Mind
Covey was right when he made “Begin with the end in mind” one of the habits of highly effective people. One of the primary reasons people don’t hit their goals is simply because they haven’t clarified them. Do you want to generate more sales or (more specifically) a 20% increase in new MRR by June 2020? The latter is, of course, far more specific and focuses your efforts and your sales team’s efforts.
With a clear goal, you are able to work backward from that goal to create milestones and metrics that reveal if you’re on track or off track and (more importantly) determine where your progress may be in trouble. Without a clear goal and a plan to hit it, you’ve simply got a wish — and if you’re a leader in your organization, you don’t want to be wishy-washy, unfocused, or unclear about where your company is headed and how you are going to get there. That’s your job. None of your good employees will take you seriously or rally behind you if you fail to have clear goals and standards that you ruthlessly pursue. Only the duds will be happy you’re unfocused and sloppy because they’ll blend in and get away with mediocre performances. Only top performers crave a challenge and a fearless leader who will push them to get better, perform at a higher level, and win.
However, my experience has shown that many people lack confidence in their ability to set goals. They feel like they’re simply throwing a dart or making a wish. They don’t know if they’re setting their goals too big — which sets them up for failure — or too low so they hit them but are still unhappy with their progress. Here are some general guidelines.
Profitability comes first. If your business is not profitable and you start adding more clients, you’re throwing gasoline on a fire. A 10% EBITA is the new breakeven, and that 10% is not what you pay yourself. If you are a CEO, you must pay yourself a fair market salary first, then shoot for at least 10% net profit. (Visit PayScale.com to see what the average salary and compensation are for a CEO of a small business in your city.) More mature MSPs may get to 20%-plus EBITA due to efficiencies of scale, operational efficiency, and a productive sales and marketing team. Smaller MSPs may choose a lower EBITA because they are feeding the fire of marketing to acquire new clients, which is the most expensive and difficult aspect of running any IT services business (or any business, for that matter). The levers that move profitability are 1) pricing your services correctly, 2) operational efficiency, and 3) a labor efficiency ratio (LER), of at least 3–5 on your techs and 6–10 on management. For simplicity, if you pay a tech $50,000, they need to be generating at least $150,000–$300,000 in gross margin. Managers should be generating a higher LER. (For more on this, go online to see a video of Greg Crabtree, our recommended accounting consultant and author of the book “Simple Numbers.” You can get it at MSPSuccessMagazine.com/crabtree.)
After profitability, look at an increase in revenue. Right now, our industry is growing at roughly 10%. Therefore, if you generate a 10% increase in sales year over year, you’re essentially standing still because the market demand and spend is increasing by that much. I recommend a goal of 15–20% increase year over year (or quarter over quarter if you’re really aggressive).
Of course, this is not just any revenue by any means. Specifically, I’d look to see services that have a recurring revenue element to them as opposed to one-off projects. Almost every project can have some type of recurring element to it if you’re creative in your thinking. Some of our application development clients include a monthly maintenance fee with their program to ensure it’s always working as it should (improvements and enhancements). It doesn’t have to be a huge chunk of money, but a small recurring fee keeps you involved in the client’s world and feeds you additional revenue. I would also focus on getting every client to spend more money with you to increase sales. Don’t just focus on new clients. A majorly overlooked area of opportunity is seeking to sell additional services to clients who already know, like, and trust you.
Embrace The Magic Of Backward Planning
So, you’ve got a goal. Now what?
This is where knowing your sales funnel metrics is critical. Let’s take the goal of increasing sales from new clients. That’s always a popular one. To properly create a plan to hit your goal, you need to know what your average client spends with you as well as the following numbers:
How many raw leads are you generating right now per month? This includes all leads, such as inbound phone calls, referrals, web forms, etc. You must have a way of capturing and tracking all of these leads, particularly those that come in offline (call in, hand you a business card at a networking event, etc.). That’s why a CRM is essential to a productive marketing plan, just as a PSA tool is essential to delivering managed services. (Shameless plug: We sell a CRM system fully customized for MSPs. To learn more, go to MSPMarketingCRM.com.)
How many of those leads are qualified? It’s not uncommon for 50% of your leads (general) to be unqualified. They might be out of your service area, need something you don’t sell, not be the decision maker, be too small or too big, etc.
How many of the qualified leads schedule an initial appointment? Inbound leads should be aggressively followed up with and further qualified by a salesperson over the phone. If they are a qualified prospect, an appointment should be set to conduct an initial consultation/assessment. But be careful. You don’t want to get too far into the weeds on the phone prior to meeting with them or you can lose them.
How many of those initial appointments move to the proposal stage? You might be surprised to hear that not all initial appointments should go to the proposal stage. If you’re doing your job well as a salesperson, you should be qualifying them a bit more in that meeting to determine if they truly have the authority, budget, and desire to buy. If they’re just looking or using you to beat up the incumbent provider, why waste your time doing a network assessment and working up a proposal? Further, some of the prospects who initially look good may reveal that they are not the type of client you want after you’ve met with them and had a deeper discussion regarding their needs, budget, etc. I learned a long time ago that you’ll regret accepting a client who is not a right fit for you far more than the money lost from not closing that sale.
How many proposals close? You should also look at your close rate from the initial opportunity so you have an idea of how many opportunities you need to hit your new client acquisition goal.
Now, let me show you how to use these numbers in a practical application. In my business, we have a division that sells advertising and sponsorship for this magazine and various events. We close roughly 56% of the initial opportunities we open when selling sponsor contracts. The average opportunity is $16,282. If a rep has a quota of $100,000 per month in sales, they need seven closed sales to hit quota every month ($16,282 x 7 = $113,974). Given our average close on an opportunity is 56%, they would need 13 new opportunities per month (7 ÷ .56 = 12.5, rounded up to 13). Further, I know our prospecting efforts generate a 10% opportunity rate. Therefore, they would need to prospect 130 companies per month to get 13 opportunities to close seven deals.
Now, when I’m managing a new rep, I can map out what 130 companies they are going to prospect that month and in the subsequent months. Some of those that we initially pick might turn up as unqualified or dead ends. Some will show hope but not in the near future. At the end of that month, we look at how many they want to continue to work and how many net new prospects they need to add to their prospecting bucket to keep the 130ish pool churning.
Now, I have a plan with metrics. If they’re not prospecting 130 companies, I know they’re sliding and may not hit their quota. This is where metrics are critical for managing sales reps and ensuring they hit quota. Most companies do not give their reps a prospecting quota, much less a sales process, so when the end of the month comes and they’ve not hit quota (or worse, zeroed), the manager sits down and asks why.
Of course, the salesperson always has a story about how many prospects they’ve talked to and how many opportunities they’ve got working and how they are going to have a stellar month next month. Their manager, with no way of knowing if the salesperson is full of it or telling the truth, tells them to “work harder” and “prospect more.” Of course, this process repeats itself over and over again until six months or more pass by without a quota being hit, and the owner ends up firing the rep.
If You Want To Avoid That Scenario Repeating Itself, You Need To Do The Following:
- Track your sales metrics so you know exactly how to plan backward to the specific activities a rep must complete to hit quota, as I did in the above example.
- HAVE A SALES PLAYBOOK that teaches the rep how to prospect, WHO to prospect, how to qualify, how to close, etc. This is a living document that will continually need updating and documentation, testing, and improvement. Get it good enough to start because it will never be “finished.”
- Manage your reps to the activity and process, not the end results. Ultimately, you cannot manage to end results when they’re first starting up because there are no results. You can only track and measure activities: how many people they are prospecting, how many are turning into opportunities, and how many of those opportunities ultimately turn into a sale
Without knowing those numbers, it’s very difficult to accurately plan to hit your sales goals. If you don’t know what they are, go back and look at historical numbers. Yes, you’ll have to do some digging. But some idea is better than none. From there, discipline yourself to track these numbers every month so you can spot problem areas, troubleshoot barricades to money coming toward you, and work to improve the overall performance of your sales funnel. n
Want A Free Sales Playbook Checklist For MSPs?
Click this link MSPSuccessMagazine.com/playbook to gain instant access to a free Sales Playbook checklist that details what you need to have, create, and put into a productive Sales Playbook for selling IT support and services.