One way to think about setting targets is to ask the question “Where do I want to be?”. Another way is to ask the question “How far can I get?”. While the former is important when setting your strategy, the latter is critical to ensuring your goals are realistic.
A useful way to think about how far you can get is to start by thinking about how much more productivity you can get out of your business today. If you think about your business like a series of funnels (we discussed funnels previously) it makes it easy to see where there are opportunities for improvement. For example, consider this sales process and the associated conversion rates:
There are some obvious places where the conversion rate can be improved, such as the large number of Deals Closed where there is no Payment Received. Other places for improvement might not be as obvious, such as the drop from Sales Leads to Qualified Leads since it might not be obvious why so many leads are not qualified. Any improvement you can make will increase the total volume of traffic from the sales process and increase your overall revenue.
By identifying all the funnel steps that can be improved, and accounting for those improvements, you can create an idealized target – how well would you do if everything went perfectly. That idealized target is a starting point for planning, and then you can decide which optimizations are realistic and adjust your target accordingly. For example, if I think I can improve Deal Closed -> Payment Received to 75% and Qualified Lead -> Pitch Delivered to 20% then the total Payment Received would double (assuming the other conversion rates stayed the same)!
However, there will always be a limit to how much you can improve the conversion rates in your funnels. You will never close 100% of potential customers, nor can you retain 100% of your customers forever. What the limit is for each funnel depends somewhat on how aggressive you are, but also on the fundamentals of your business.
This kind of bottom up planning technique is very useful, but can be dangerous if you are too conservative. It might not be good enough to get 1% improvements between steps in your process, so make sure to check the goals you create here with the spectrum we discussed yesterday.
Tomorrow we’ll jump into more ways to sanity check your plan once you have picked your targets!
Quote of the Day: “Sub-optimization is when everyone is for himself. Optimization is when everyone is working to help the company.” W Edwards Deming