Know your sales & marketing dashboard before you run out of cash

Wrapping numbers around your sales and marketing engine is critical to knowing if your business is on track or not. It’s not overly complex and a lot of it comes down to understanding pretty basic supply and demand economics.

Supply-side considerations:

It starts with knowing your capacity. As it currently stands, your business has capacity to deliver a certain volume of products or services each year. If you’re a service provider and you charge by the hour then your volume is the number of available hours per year you choose to work. If you sell a physical product or have a productised service offering then its a certain number of units per year. Your capacity (or supply) dictates how much demand you need to create to ensure supply and demand are in equilibrium (the intersecting point on the below graph) or even better, excess demand (and therefore the ability to raise prices).

At the point where demand outstrips supply (Qd & P1), most small businesses increase their supply (work more hours in the day, bring on more staff, build a bigger manufacturing facility, take on more warehousing space etc) to meet demand. This is a mistake.

It increases fixed and inflexible costs (long-term leases, staff, plant and equipment). Instead they should be increasing prices to reduce quantity demanded to the point where it meets supply. This raises profitability per unit of supply, increases retained profits for future re-investment AND provides more flexibility when demand reduces (as demand is cyclical) or due to macro-economic shock (e.g. recession, exchange rate fluctuation, tight money etc).

Demand-side considerations:

On the other side of the equation is demand. The demand for your product or services is proportionate to how effective your sales and marketing engine is (demand, particularly for small to micro business, doesn’t just ‘exist’ — its driven by marketing your products/services). The goal of any sales and marketing engine is to drive enough demand to your products or services to fill capacity and create a scenario of being oversubscribed (demand outstrips supply). Therefore to create an effective sales and marketing engine you need to first know your capacity.

That’s the theory, here’s the practice:

For example, let’s say I sell a technology widget and I have capacity to sell 100 of these widgets per year for $10K a pop. Let’s say that once I get in front of a qualified prospect I know I can convert half of them into sales. That means I need to get in front of at least 200 qualified prospects a year to meet capacity. I then know that to get 200 qualified prospects a year booked into a sales meeting I need 5 times (1000pax) that many people to come watch a live demonstration of the technology widget in action at the annual technology conference I run once a year. I then know that for every 1000 copies of the industry magazine my advertisement appears in I get 10 people book a ticket to the annual technology conference. That means I need to have my advertisement appear in at least 100,000 copies of relevant industry publications to fill my conference.

So, to generate 100 sales I need 200 qualified prospects which I attain from having 1000 conference attendees who book as a result of 100,000 advertisements being placed. Much like a maths formula, I have a ‘dashboard’ of sales and marketing targets I need to reach to hit capacity and lay the foundations for growth. Over time I can work on creating more efficiency in that chain of numbers (better conversions) and therefore meet the same sales targets with less effort. Now that I’ve got more time back, I can then invest in new infrastructure (staff, offices, P+E, other fixed overheads) to increase capacity for the next level of growth and repeat the cycle.

The take-away lesson is: Know your capacity, know your conversions, measure religiously and run the formula. A lot of SME’s struggle because they can’t run a simple sales and marketing model like this and as a result they are starved of cash. Getting your sales and marketing engine ticking over gives you the cash to bring on team, outsource, invest in the development of new and existing assets and soar to ever greater heights. Without a doubt, this should be the number one priority for any new business or startup.