Those of you timing your exit ,selling your consulting business, and aiming to make your equity realisation as tax efficient as possible, will be keeping a keen eye on what the new Conservative/Lib Dem coalition government is aiming to do to reduce the deficit through increased taxation and in particular how CGT will be targeted in that mix of measures.

CGT currently stands at 10% for the first £2m, then 18% above that, however prior to the Coalition agreement the Liberal Democrats wanted the 18% rate of CGT brought closer to the 50% top rate of income tax.

The expectation now is that CGT will be increased for non-business assets up towards income tax rates, but there should be large exemptions for profits from the sale of businesses in order to not excessively tax entrepreneurs.  Confirmation of the tax on owners of consulting businesses realising equity will have to wait for 50 days or so for the expected emergency Budget. 

Unless you are in the Fresh Produce Sector!

This is Equiteq's contribution to the RainToday.com Selling Services Challenge

So what is a radish in the context of a sales pitch?
Imagine that you are home lazily watching television, and an advertisement comes on for a fancy, up-market, kitchen food-processor.

“Dries and shreds lettuce in a moment” claims the announcer.
In the summer we are always having salads with our barbeques you think, so that would be really useful.

“Chops potatoes into perfect chip size”
Fantastic, as I would like have fish and chips every Friday, but am put off by having to chop by hand.

“slices cucumbers in an instance”
That will be great when the mother-in-law comes for tea, and is an easy way to impress her.

“…..peels radishes….”
Yuurrrgghhhch, you think.  I hate radishes.

In an instant you are put totally off a product that otherwise has great features and benefits. And so it is that you must avoid having ‘radishes’ in your consulting or service sales pitches.  These are items that can put a buyer, often totally irrationally, off your solution.  For example, the client maybe happy with your price of $200,000, and happy that you are planning to spend about 120 days, but if you explicitly mention a day rate of over $1,600 that may cause a negative reaction.  It could be a simple as a spelling error or incorrect piece of data. The reason radishes must be avoided is that they become firmly embedded in the buyer’s mind and can be difficult to overcome.

These are not the same as objections.

A good sales person will always be pushing to find the buyers objections – the reasons that they will not place the order there and then – so that these can be addressed and the sale advanced. So, hunt for objections but avoid planting radishes!

Growing the sales pipeline and generating revenue is the number one priority for leaders of the small and medium sized consulting businesses we serve, not just for cash flow reasons, but also for equity value.  A strong, growing pipeline and the ability to predict sales, and therefore cash flow and profit, with a reasonable degree of accuracy is manna from heaven on both counts.
 
However many firms fall short of their revenue targets and most experience erratic, unpredictable performance with peaks and troughs over the years. While there are of course many contributing factors to sales performance; marketing process, the power of the value proposition and sales skills to name but three, one of the least difficult to fix is the way in which you manage your pipeline.

There are three questions we are frequently asked by our clients in order to help them put a plan in place to drive up sales through the behaviour of senior customer facing staff and to forecast the cash flow resulting from their activities:

• How do we measure the pipeline and reliably forecast sales?
• What stretch target should we be setting our principals and partners?
• How do we manage them towards achieving it?

1.How do we measure the pipeline and reliably forecast sales?

If you are going to drive up sales you need an effective way of measuring progress from current state and beyond. You also want a reliable way of predicting sales in order to manage the business and when you come to sell the firm, predictable sales and profit growth increases the equity value of your firm. In order to do this you want to:

• Create a simple database of TRUE sales opportunities
• Categorise each opportunity with a success probability
• Regularly assess the overall health of the pipeline
  

Create a simple database of TRUE sales opportunities

There has to be a line drawn between a marketing lead and a real sales opportunity.

Only the latter should be included in your forecast and do not allow hype or hope to cloud your clinical judgement! A lead turns into an opportunity when the prospect has been qualified into a piece of work he/she may execute and initial interest in your solution has been established.

Setting up a simple database of opportunities is easy to do, at least in spreadsheet form, but ideally in a CRM system. A good CRM system will enable you to integrate all communications with clients and prospects into a single view and provide you with effortless ability to monitor actual activity between your firm and the people you are selling to.

Categorise each opportunity with a success probability

Within your database, as well as defining the expected project revenue per month and including other data, all opportunities should be categorised as follows:

There is often a tendency to use many different percentages for probability of sale in the belief that this will somehow generate some kind of statistically accurate forecast. This will not happen!

Much better to keep to the four simple definitions above and then there will be a shared language throughout the organisation and everyone will understand the pipeline.  There will be no loss in ‘accuracy’ of future events and level of business. However your accuracy will improve as you learn to interpret the way your consultants describe their opportunities and filter the wheat from the chaff!

You will now have two sets of revenue numbers per month looking forward:

• The total value of pipeline opportunities
• Sales value discounted by percentage probability (0%, 35%, 65%)
   

Here is a sample pipeline table…

Regularly assess the overall health of the pipeline

The simplest way of doing this is to create a ‘stacked bar graph’ of the revenue per month of booked projects and discounted opportunities.

Monthly Revenue £000s

A healthy business will see a declining stream of booked revenue, but a bow-wave of discounted opportunities.  Over time you will quickly get a ‘feel’ for what looks good and what does not!

If, rather than just a visual impression, you want to create numbers that you can monitor over time, then the values you can track are:

• The total value of forward booked revenue (i.e. sum of Feb-Aug green bars in example above)
• The total value of the discounted pipeline (ie Feb-Aug, total column height)
• Divide the numbers above by the monthly delivery capacity of the business to get a ‘number of months work’ (even with projects going out 6 and nine months, a ratio of 3 to 4 is quite good)
  

2.What stretch targets should we be setting our principals and partners?

Within a typical small or medium-sized consulting business, the stretch revenue target of a principal or senior manager could be anywhere between £1m and £3m depending on the size of support team and blended day rate for the services you offer.  In a business where:

• A partner’s role is client (not project) management and sales conversion
• The business turns over £5m to £10m
• A typical ‘good sized’ project is £350k, but £1m projects are achieved
• A strong client base exists
• The business has a market presence and reputation in their specific field, with some sales  leads coming into the company
   

then the target should be £2m. Adjust up or down depending on where your business sits against these factors.

In order to hit the target they will need to convert to ‘booked revenue’ £200k every month (that’s £50k a week!).  At the same time they will need to get verbal commitment for £300k every month (£75k a week), as well as adding a further £600k of good prospects to the pipeline (£150k a week).

This sounds like a difficult task, but it can be made much easier if you create discipline through a constant drumbeat of sales pipeline management activity.

3.How do we manage them towards achieving their targets? 

There are three main drivers to making this happen:

• Getting them to set sales meetings
• Setting regular sales pipeline management meetings
• Keeping the pipeline moving
   

Getting them to set sales meetings 

The target can only be achieved through setting and holding meetings, understanding the prospect’s problems and pains, proposing solutions and progressing those sales opportunities to a close.

The starting point is therefore to record and measure the level of ‘front-end pro-activity’ in your selling teams in terms of meetings set and held, without which you have little chance of extending the business. 

We are not in the arena of a sales rep’s five-calls-a-day, but consultants are often reluctant to get new contacts from clients and make calls, so a simple measurement will provide the necessary ‘encouragement’. These should not include meetings that take place as a natural course within programmes of work, but only those specifically for prospecting. 

To ensure a forward view, Include meetings set, as well as held. As you develop you can be more granular by categorising ‘first’ and ‘second follow-up’.  If you are selling a high-value solution, the number of these will not be large and are easily tracked.

Meetings set and held

Keeping the pipeline moving

It is amazing how consultants can present a forward pipeline that looks healthy, but always seems to be ‘moving to the right’ as orders are delayed!

The way to avoid this is to ensure that prospects are adequately ‘worked’ and to measure the movement in the pipeline.  Earlier we described what a selling consultant must do on a monthly basis to deliver £2m. The most important metric is the total value of new contracts won and therefore converted to ‘booked’ in the pipeline. However, you can only get converted orders from existing Hot and Good prospects, so it is important to also measure the value of new Good prospects added to the pipeline each month, as well as the value of projects moved into the status of ‘Hot’.

Monthly pipeline movement

Setting regular sales pipeline management meetings

Holding all this data is one step forward, but to gain real benefit it needs to be monitored and managed.

To do these we suggest the Managing Director or Partner runs a regular meeting with consultants holding sales responsibility.  On a weekly basis there should be a phone call either one-on-one or to a small group.  The purpose is quite simply to maintain that drumbeat of activity and demonstrate that sales are important to the business. 

Aim to set regular time slot and discuss key activities and achievements for the week and follow-up on any tasks created the previous week.  On a monthly basis there should be a formal sales meeting, that again can be one-to-one or as a group, but should ideally be face-to-face. 

Create a standard report pack, and send to all attendees beforehand, then review revenue, forward pipeline and activity against plan.  Discuss in detail the specific steps required to move prospects through the pipeline and activities to drive more prospects into the ‘top of the sales funnel’.

Conclusion

The content of this article may not be entirely new to you as we are presenting only the basic principles of sales pipeline management. However it may be a timely reminder to reinforce or invigorate your process. That said it is surprising how many firms do not practice these important steps!  This approach will not guarantee you any sales growth as this depends on a range of additional factors, however at the very least it should help to ensure that you do not lose revenue that you could and should be winning.

Finally, if you believe that £2m per partner or principal is out of reach, we’d love to hear from you and we would be happy for you to test our thinking against the practical factors in your firm!