My last column was about those macro factors in your company which influence your likelihood of surviving in the Sales team, and which have less to do with what you do in your own job and are more about what is being done around you - i.e., by senior management. The first of these macro factors was the importance of leadership during an economic downturn, and how a good leadership will help get a struggling team across the loss-to-profit divide in one piece. Without good leadership, individual efforts, no matter how heroic, get lost in the noise and panic.
The second macro factor, which we will discuss today is performance expectations by senior management. Clearly this is important, because if in their general worry your management feel that sales people should suddenly be able to double or triple their productivity, then your job is in peril.
Therefore, the second strategic question to ask yourself after the leadership issue is whether or not the new targets are attainable or not. If they are not, then as a team you need to go back to management and reason with them. There is no point in a team even attempting unrealistic goals, because the disappointment in not achieving them will severely demoralize everyone - leading to depression and resignations. In additional some nastier managers may use the missed targets as an excuse to start playing politics and culling people they don't like. Unfortunately, ugly corporate politics often manifests itself during economic hardship.
So what is a realistic sales goal? What should management reasonably be expecting?
Attainability in sales is can be measured in a number of different ways. The most obvious measure is to look at what the team's top performers have been doing over the last year. It is probably reasonable to assume that if you are in a sales team with more than 3-4 individuals, and you're in a company of more than 10 people, then at least 1-2 of the sales team are performing at a high level and the business rests on their shoulders. If these high performers are getting more than 30%-50% better results than you are and you're not new to the position, then your job may be in danger. I will discuss in the next column what to do about this.
Another measure is to look at what other companies are getting from their best salespeople. By other companies, I'm not talking about the top dogs with their unassailable Intellectual Property, patents, ad budgets, and highly profitable parent companies. Instead, it's the other 90% of companies who have competent but unimaginative offerings and who have formed lasting relationships with good-sized client bases.
In my experience, this average 90% of companies focus on profits rather than sales, since they are not going to go public tomorrow, and because profits are what pay the bills. So you should be thinking in terms of profits as well. In most companies in Japan the rule of thumb is that salespeople need to be bringing in an average of JPY2MM~JPY3MM of Gross Margin (after Cost of Goods/Services but before General Administration Expenses). Alternatively, I have a rule of thumb for my own companies whereby we set a target for fully productive sales staff of earning at least five times their salary in Gross Margin. I originally heard this "five times" number from a Japanese CEO friend and have found the number to hold up very well for modestly-run companies.
To figure out what you cost your company (which I refer to as "salary"), remember to include the cost of both your base and bonus/commission compensation, as well as the cost of your transportation and social welfare ("Shakai Hoken").
Actually, if you think about it, both the JPY2MM a month and five times numbers coincide with someone being on a base salary of about JPY4MM to JPY6MM and supporting two other individuals in the business, while helping the company to make around 10% Net Profit before tax. Clearly if the company is renting an expensive office and/or has an expat boss, then the Gross Margin profit requirement will be at the high end of the scale.
As a reminder, JPY2MM monthly in Gross Margin doesn't mean the actual sales amount, but instead depends on the profit margin of what it is that you sell. If you're selling software with a 50% profit margin, then you need to be doing around JPY4MM of sales monthly, whereas if you're selling products, you have to be selling JPY40MM a month to achieve a 5% Gross Margin.