“How do we prioritize sales work for our teams?”
“How do we prioritize where our resources should be focused?”
These are questions that every leader is typically asking. The executive leadership team asks them during strategic planning. Colleagues ask them in one-on-one meetings. The answer differs from leader to leader, person to person. The reception to the answer varies as much as the answers themselves.
There are many ways to quantify and script out the decision-making process. You can disseminate vast amounts of data to make these decisions, or you can make them on gut feel. However, in the Sales Accelerator Playbook, we train our clients on one specific method for agile sales prioritization – the Revenue Prioritization Formula, or RPF.
RPF is inspired by Scaled Agile Framework’s Weighted Shortest Job First (WSJF) method. WSJF’s focus is on identifying which tasks a team should focus on first based on two factors: the time required to complete the task and the cost of delaying the task’s completion into the future. WSJF is an excellent tool for product teams, such as application development, but it doesn’t fit what we need to prioritize in the marketing and sales disciplines.
What is the Revenue Prioritization Formula?
RPF considers two dimensions: the close rate for a specific offering and the average earnings for closing each opportunity. To state RPF another way, we are answering the question, “Which campaigns bring us the highest return in the shortest amount of time?”
The first reaction we usually hear to this formula is that it sounds so simplistic, so fundamental, that it doesn’t even seem worth calling out. Yet, our experience shows that most marketing and sales organizations do not review campaign prioritization regularly or systematically enough to answer the question with a high level of confidence. The result is a scenario where sales teams work hard and hit call quotas, but not in the most optimal way to maximize revenue and ROI.
Gathering the data you need for this prioritization formula is somewhat involved. Let’s look at the two metrics in more detail.
Your CRM Is Essential for RPF
Before we dive into these metrics, we need to make one critical point. If your sales and marketing teams are not using a CRM to log all of their sales activity, gathering the data for these metrics will be difficult and inaccurate. Tracking deal flow in a sporadic way, like Excel documents in shared folders, will make the process take too long and the data too unreliable. Practices like this defeat the purpose of being agile. Adnova Group offers CRM Administration and Salesforce Consulting services to get your organization on track so you can collect accurate data quickly.
Opportunities and Offerings in RPF
A quick note as we move forward: We use the term “opportunity” to mean the method you use in your CRM to track a prospective purchase from a customer or prospect. For example, in Salesforce, you would use the standard “Opportunity” object, while in HubSpot and other CRMs, you would use the “Deals” screen.
Also, we use the term “offering” to describe a unique purchasable product or service you sell to customers. For example, an email service with three different pricing tiers for extra storage space would be three offerings. Likewise, a landscaping company selling a weekly lawn maintenance service and a seasonal lawn fertilization service has two offerings.
Finding the Close Rate of an Offering
In your CRM, segment your opportunities by offering. You can break down your offerings can be broken down in several ways, including product/service line, product/service tiers, geography, target customer, or other methods that make sense to how you segment your offerings.
Next, we need to find the close rate for these offering segments. The simplest way is to filter opportunities by the offering segment for a period of time. The period you choose for your business depends on your sales cycle – a seasonal business may use a quarter from the previous year. In contrast, a company with faster sales cycles may use the last quarter. Sort the filtered opportunities by opportunity stage. To make this process easy every time you prioritize, create a report or dashboard. Many CRMs like Salesforce and HubSpot also offer the feature of saved filters combined with Kanban tools to visualize your sales pipeline.
Finally, calculate the close rate for each offering segment: Total Closed Won divided by all Opportunities created during that period. We will use this value in RPF for each offering.
Keep in mind that you can go further with this analysis if it makes sense to your business. For example, seasonality may affect the close rate. In this case, breaking this down by year-over-year historical quarters may make more sense if you prioritize a seasonal sales push.
Finding the Earnings for Closing Each Opportunity
Using your CRM offering segments, create another filter to focus only on all Closed Won opportunities. For the simple version of this metric, we need the average total revenue for each offering: Total Revenue of all Closed Won Opportunities divided by Total Number of Closed Won Opportunities.
The advanced, more accurate variation of this metric is to use average Net Income instead of top-line revenue. For this, you will have to track sales and marketing expenses and cost of goods sold, and other variable pre-sales expenses, which may require integration with external systems, including accounting, ERP, and expense management systems. Our CRM Administration and Salesforce Consulting services can help with this.
For businesses in a recurring revenue model like SaaS or subscriptions, average customer lifetime value (LTV), total contract value (TCV), annual recurring revenue (ARR), or monthly recurring revenue generated by segmented Closed Won opportunities may be more accurate than average revenue or net income.
Prioritize Sales Using RPF
Finally, apply the Revenue Prioritization Formula: Close Rate multiplied by the Average Earnings for each opportunity. The result is your earnings for all sales efforts for an offering, both won and lost – your return on sales efforts.
Sort your opportunities in descending order of RPF, with the highest return on sales efforts at the top of the list. This sorted list is your base for prioritization: spend more time on the highest returning offers and less time on the offers with the lowest returns.
|Product Offering||Close Rate||Earnings||Return|
|Print Advertising Design||0.29||$120,000||$34,800|
|Social Media Management||0.15||$210,000||$31,500|
|Full Company Branding Workshop||0.10||$180,000||$18,000|
RPF is a Starting Point to Prioritize Sales
RPF provides a way to prioritize sales and marketing efforts based on analyzing real data on the best performing offerings you sell to customers. Keep in mind that you are not bound to prioritization using RPF. Instead, use RPF as a starting point for making decisions.
Perhaps a change in strategy focuses on a new offering or an existing offering lower on the RPF prioritization list. It may make sense to prioritize that offering ahead of a better performer to align with the new strategy and gain traction for that offering. Changes to the sales process or fulfillment process for an offering through Relentless Improvement may make an offering a higher priority to collect data for the PDCA cycle. Developments in the market or with competitors identified through PESTEL analysis and agile strategic management may impact prioritization.
In any of these cases, RPF provides you with the data you need to set priorities, understand the impact that prioritization decisions have on your sales results, and align business strategy with your sales team’s daily efforts.