CEOs have broad, big-picture responsibilities. While responsibilities will vary from firm to firm, CEOs typically rely on a number of division heads to manage the details while they take a wide, long-term view.
Why A Granular Approach to Sales is Important
While being a good manager and delegator is key, there’s a valid argument that CEOs need to take a more granular view of sales. McKinsey, a global management consulting firm, concludes that “CEOs who prioritize sales management outstrip their peers by as much as 80% in terms of revenue and profitability.”
80% — that’s quite a margin. What fuels this success?
Predict Revenue More Accurately
A CEO who takes a hands-on interest in monitoring the sales pipeline will be better positioned to predict revenue more accurately, and more effective at taking action to improve sales outcomes or revise expectations. Sustainable growth depends on both of these factors. Further, having firm numbers to reflect sales functions is crucial to attracting interest from venture capital.
What Sales Number Does a CEO Need to Track?
Every leader needs to resist falling down the rabbit hole of micro-managing, so what sales numbers does a CEO need to closely track?
Michael Sala, managing director at private equity firm LLR Partners, identified four sales pipeline metrics CEOs should monitor in a recent article.
His advice: Know the answer to these four questions:
- What’s our average deal size?
- What’s our average sales cycle?
- What’s our conversion rate?
- How many leads do we need in the sales pipeline?
What’s our average deal size?
Calculate the average deal size of your closed won deals over the last 12 months. Let’s say the average deal size is $50,000 and you intend to hit $2 million ACV. In July, the sales team would have to close 40 deals to hit the target.
What’s our average sales cycle?
Asses the time it takes to move from creating a qualified sales prospect to actually closing the deal. Check out data from your CRM and calculate the average from the last 12 months. Apply that number to what’s actually in your sales pipeline to anticipate what is likely to close in the year.
What’s our conversion rate?
Once again, rely on your CRM to assess your past conversion rate. If your rate is 10% and you want to close 100 deals, you need 1,000 opportunities in the pipeline.
How many leads do we need in the sales pipeline?
This one’s a bit trickier, because it varies across different lead-generation channels. Client referrals might have a high conversion rate, while leads generated by automated emails might be a fraction of the rate. So apply the conversion rates channel by channel—you ARE tracking how you got your leads, right?—to calculate how many leads you need to get the conversions you require.
Revenue Forecasts Based on Concrete Data
By having a handle on these metrics, you demonstrate to potential investors and buyers that your revenue forecasts are based on facts and past performance, not wishful thinking. Keep an eye on these figures, and you’ll know when the pipeline isn’t supporting projections, at which point you can step in to correct the situation.
When buyers have confidence your revenue is predictable, that translates into confidence in your business. When CEOs can state specific figures backed up by fact, they’re in a much stronger position than if they offer general ball-park figures.
Even if you’re not focused on attracting investors, it’s still a valuable strategy for scaling up your business. If you’ve got questions about buying or selling your business or how a granular approach to sales can help increase your business valuation, please give us a call!