GoldMine - Implementing Sales Force Automation Solutions

By Russ Lombardo
FrontRange Solutions (formerly Goldmine Software Corp.)

Part 2: The Return-On-Investment (ROI) of SFA Solutions

This is part two of a three part series entitled "Implementing Sales Force Automation Solutions". In the first part, The Cost of SFA Solutions, we discussed the various costs associated with the implementation of SFA systems. In this issue, Part Two, we will discuss The Return-On-Investment (ROI) of SFA Solutions. In Part Three, a separate document, we will address How to Implement SFA Solutions.

Measurements

Before we start down the path of figuring out the ROI of SFA, we need to first understand what our goals are. What problems are we trying to solve? What costs are we trying to save? What times are we trying to improve? What pains are we trying to cure? As you are thinking about these important issues, you can also think about what it's costing you to not address these issues. For instance, how much is it costing you in lost revenue when your sales people are not productive?

We addressed this point in the first part of this series when we proposed considering SFA Solutions as an investment, not a cost. This is an important viewpoint because if you only look at SFA as costing your company money, then there's no return on that investment to even consider. But even if you do consider it an investment, then you also need to know what it is you'll be improving in order to measure your return. As such, it is important to understand your goals and objectives, and then measure your progress as you proceed. Only then will you be able to calculate your return on investment.

Scenario

Let's analyze an ROI by creating a scenario to work from. First, let's say we have a company that has 100 sales reps. this company, we'll call it Rally Inc., has annual revenues of $100M. Therefore, each sales rep has a $1M (one million dollar) per year quota. Let's also say that an average sale at Rally is $10,000. Therefore, to make quota, each sales rep needs to close 100 sales per year, assuming they average $10K each.

Rally's corporate goal is to increase annual sales by 10%, thereby generating $110M per year. In order to achieve this goal, they'll need to increase the productivity and close ratio of each sales rep by 10%, requiring them to make 110 sales per year, an increase of less than 1 sale per month. Here's the math:

10 Additional Sales X $10,000 Avg Sale = $100,000 more revenue per year, per rep

$1,000,000 Annual Sales per rep + $100,000 Increased Sales = $1,100,000 Annual Sales per rep

$1,100,000 X 100 Sales Reps = $110,000,000 Annual Corporate Sales, or $10M more sales per year

We now have some measurable goals. We have a corporate goal of increasing annual sales by $10M. We also have a goal of increasing individual rep's sales to 10 more per year. Actually, the goal is to increase annual sales by $10M. The way to achieve this goal is to increase the number of closed sales by 10 per year per rep. So the increased number of closed sales is the method for reaching the corporate goals. It's important to note the difference since it's the final goal of increased corporate sales we are ultimately measuring. The trick is to increase the close ratio for each sales rep by 10 more per year (or 10% increase in close ratio). Now we just have to figure out how to achieve that, and everything will work out just fine, or so we hope.

Let's assume that the average close ratio is 25%. In order to close 100 sales per year, a sales rep needs 400 qualified opportunities in their pipeline. To increase their close ratio to 110 sales per year, a sales rep will now need 440 qualified leads in their pipeline. So now we need to make sure we can find, and qualify, another 40 leads per sales rep, or a total of 4,000 more qualified leads per year for all 100 sales reps. As you can see, we not only have to improve the productivity and efficiency of the sales force, but we also have to improve our marketing efforts as well. All this just to increase annual sales by 10%. Clearly, the proper implementation of your SFA solution will be critical. But that's the subject of the third part of this series.

If we summarize for a moment, we can see that by adding 4,000 more qualified leads to Rally's 100 sales reps' pipelines, each sales rep will sell 10 more deals each year and increase the company's annual revenue by $10M. For the record, how each company actually acquires 4,000 more qualified leads varies tremendously and is not the subject of this paper. Nonetheless, it will definitely take a lot more overall leads to whittle them down to 4,000 qualified ones. The point being that your SFA solution better be able to handle marketing campaigns, lead tracking and opportunity management, as well as automate your sales force.

Costs

As outlined in Part 1 of this series, The Cost of SFA Solutions, the detailed line items can accumulate dramatically, depending on the rollout plans, customization requirements, SFA product chosen, number of users, and more. Let's start compiling our list of costs using worst-case scenarios and noting that these figures are for illustrative purposes only will vary by company.

· Hardware: $5,000. X 100 Sales Reps = $500,000. (includes new laptops, networks, servers, etc.)

· SFA Product: $300. (GoldMine class product) x 100 Sales Reps = $30,000.

· Other Software (Office suite, etc.): $1,000. x 100 Sales Reps = $100,000.

· Installation (Setup, security, remote access, etc.): 5Days @ $1,200/Day = $6,000.

· Services (Customizations, training, etc.): 30 Days @ $1,200/Day = $36,000.

· Support & Maintenance

1. SFA Software (20% of List): $60. x 100 Sales Reps = $6000.

2. In-House Support: $1,000 x 100 Sales Reps = $100,000.

TOTAL: $778,000.

Payback

Now that we know the results we want to reach and measure against, and we know the costs associated with the SFA solution, we now need to calculate our return on investment, or basically what's or payback. So that we can calculate the monthly impact of the SFA solution, let's divide the total annual sales goal of $10,000,000. by twelve months, yielding $833,333. monthly sales goal for all 100 sales reps.

Let's consider that Rally's reps won't be any more productive for the first three months after the installation and training. Let's also consider that by month four, all 100 sales reps will realize only 10% increased productivity, therefore increasing sales by only 10% of their goal. This will result in only $83,333. total sales increase for that month (10% of $833,333) for all 100 sales reps. Finally, lets consider that each month, the 100 sales reps will be 5% more productive than the prior month until they hit 100% increased productivity, which is when they will collectively reach the corporate goal of $833,333. increased sales per month. This monthly increase in sales will yield a 12-month increase of $10M, which is our ultimate goal.

By looking at the table below and the cumulative increased sales each month, we can see that the initial investment of $778,000. for our SFA solution will be returned in nearly 9 months (September of the first year). We can also see that we will reach our target monthly goal of $833,333. in 12 months (January of year two).

YEAR 1
Month with Productivity Increase:	Jan (No increase)	Feb (No increase)	Mar (No increase)	April (10% of Goal)	May (10% increase)	June (15% increase)
Increased Revenue per Month:	$0	$0	$0	$83,333	$91,666	$105,416
Cumulative Totals:	$0	$0	$0	$83,333	$174,999	$280,416
	July (20% increase)	Aug (25% increase)	Sept (30% increase)	Oct (35% increase	Nov (40% increase)	Dec (45% increase)
	$126,499	$158,124	$205,562	$277,508	$388,512	$563,342
	$406,915	$565,039	$770,691	$1,048,109	$1,436,621	$1,999,963
					Year 1 Total	$1,999,963

YEAR 2
Month with Productivity Increase:	Jan (50% increase)	Feb (Goal Reached)	Mar (Goal Reached)	April (Goal Reached)	May (Goal Reached)	June (Goal Reached)
Increased Revenue per Month:	$845,013	$845,013	$845,013	$845,013	$845,013	$845,013
Cumulative Totals:	$2,281,634	$3,126,646	$3,971,659	$4,816,672	$5,661,684	$6,506,697
	July (Goal Reached)	Aug Goal Reached)	Sept (Goal Reached)	Oct (Goal Reached)	Nov (Goal Reached)	Dec (Goal Reached)
	$845,013	$845,013	$845,013	$845,013	$845,013	$845,013
	$7,351,710	$8,196,722	$9,041,735	$9,886,748	$10,731,760	$11,576,773
					Year 1+2 Total	$12,140,115

By the end of the first year, we increased sales by $2M. By the end of year two, we generated over $12M in increased sales. This is a very respectable ROI, considering we invested a generous $778,000. for our SFA solution and allowed for a gradual, and patient, increase in productivity over time.

Not all implementations will be this predictable nor payoff this quickly. However, by approaching your investment in this manner, you can get a better handle on your return-on-investment. Although this may seem a bit complex, simply saying you need to sell over $778,000 worth of products or services to pay for this project is not going to give you and accurate financial picture.

Of course, you can always take a more uncomplicated approach to the whole matter. Quite simply, if you're Rally, Inc. and you don't invest wisely in technology solutions to improve the performance and productivity of your sales force and marketing department, then it can cost you $10,000,000. in increased sales over the next year - Opportunity Lost.

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