In the rest of the book, I present a systemized framework for building a selling environment based on the best practices of world-class companies. The framework will show you how to select the right markets, how to select the right channels to reach them, and and how to integrate these channels for maximum resilience. Hence, you will get the same magic as the world-class companies: accelerated revenue growth, broadened market share, reduced go-to-marketing costs and greater customer loyalty.
For now, let’s see how much money you are leaving on the table by doing things as you are doing them today. The book’s website, www.route2revenue.com , has a very comprehensive ROI calculator (drop me a line to get this software) that shows the potential benefits you can gain by implementing the proposed solution. It calculates approximately how much new revenue you can create, how much cost savings you can generate, and what the overall impact on your business value will be within the very first year of doing the things the way world-class companies do. The ROI calculator then allows you to estimate the investments required to implement the solution, hence estimating the Return on Investment (ROI). I encourage you to check it out online.
To explain how the calculator works, I have created a simple version, as shown in Figure 1.4. Let’s first walk you through a worked example of using this calculator
To use this simple calculator, start by inputting your 2008 gross sale number (A) e.g., $23 million, as shown in the worked example, Figure 1.4. Next, enter your all of your go-to-market expenses—salaries, commissions, discounts, website maintenance, advertisements and marketing budget, etc.—as a percentage of sales in field B. The industry average for a consumer goods manufacturer is between 25 to 29 percent.
The first column in the figure shows the different sales channels that world-class consumer goods companies are using today. The second column (C) shows the percentage of revenue that these world-class companies are capturing through each one of these channels. For example, their field sales force is responsible for almost 40 percent of their sales; 39 percent of revenues come from distributors and partners; and another 12 percent comes from the Internet. The rest is captured through other channels like direct-mail catalogs and call center up-selling.
In the third column (D), estimate the percentage of revenue you are capturing by different channels. This is one piece of information that most business find hard to determine. If you don’t know how much money you are making through which channel, you cannot rationalize expenses and hence control them. Just doing this exercise is worth the price you paid for this book. If you are reading the online version, please buy the book!
In the worked example, you can see that the example company is capturing 32 percent of its revenue through its field sales force, 62 percent from distributors and the rest from the Internet.
In the last column (E), calculate the difference between your values and those of world-class operations; subtract your percentage revenue (D) for a channel from the percentage of world-class companies for the same channel (C). In our worked example, this difference is -2 percent for the field sales force, 11 percent for manufacturing reps, -23 percent for distributors, 2 percent for retailers, 5 percent for the Internet, 5 percent for telesales channels, and 2 percent for catalog channels.
Next, calculate P by adding all the differences (E) that are greater than zero. P shows your deficiencies in comparison with the world-class companies in your industry. This is the percentage of revenue that you are leaving on the table because you are not efficiently implementing selling. For the sample company, this comes to 25 percent, meaning if the sample company does nothing innovative but simply adopt the selling strategies of world-class companies, it can easily grow its business by 25 percent!
Calculating field Q is nothing different. Simply add all the differences (E) that are below zero: That is your Q. Q shows where you are spending more than the world-class companies. The sample company is spending a quarter more to generate the same dollar as world-class companies. You can save that same quarter by implementing the system that we are going to introduce in this book. That’s significant.
Now we are ready to calculate the benefits. Multiply P with your 2008 revenue (A) to get a feel for how much revenue you are leaving on the table (X). For our sample company, it comes down to almost $5,750,000. This is a lot of money that the sample organization could have captured last year, but was not able to because it didn’t have the most efficient selling organization.
Similarly, multiplying 2008 revenue (A) with the percentage of SG&A expenses (B) will give you SG&A in dollars. Now multiply it with Q: This will give you Y, which shows the dollar amount of how much more you are spending than the world-class companies. For our sample organization in the worked example, this number comes to almost $1.5 million. This is the amount of money that you spent unnecessarily. World-class organizations could have generated same amount of cash without spending this money. It's a big number. Actually it is really big number, because it is coming out of your bottom line. If our sample company is operating at 10 percent net profitability level, this $1.5 is equivalent to $15 million in sales!
The full benefit for implementing this solution (Z) is the sum of revenue and profitability opportunities. In our worked example that comes to $7.3 million, which is almost 30 percent of gross sales for our sample company. This is an absolutely big number, don’t you agree?
Now, I encourage you to fill in the blank worksheet shown in Figure 1.5 with your own to data to calculate firsthand the estimated impact of this framework on your business.
Did you find your own opportunities? Are you still pessimistic about the benefits of this solution? If your answer is yes, please don’t read further. If you believe, however, that it make sense, than let’s move on to the next chapter, cracking the billionaire code, where I will explain the framework in detail. I promise you will love it.