Managers' analytics workbench final 22 june10

Analyses that Enable GrowthJune 24, 2010

Tom Knight

Partner

Evergreen Growth Advisors

Chicago, IL

tnight@evergreengrowthadvisors.com

Managers’ Analytics Workbench

Session Overview

• What’s Required to Grow more, predictably?

• Key Analyses in Detail

• Questions and Answers

What’s Required to Drive Growth?

Our experience indicates that sustained growth requires alignment of

Strategy, Organization, and Execution.

� Which markets?

� Which customers?

� How much sales potential exists?

� What products and services?

� What value proposition(s)?

� Optimal sales organization structure and roles?

� Complete market coverage?

� Ideal channel network & partner ecosystem?

� Most efficient sales processes?

� Most effective sales tools?

� Sales Management Processes?

� Sales Skills and Capability?

� Data Driven Planning and Analysis?

� Performance Measurement Systems?

� Sales Force Enablement?

� Compensation Plans?

� Which markets?

Actionable Growth Plan

Optimized Revenue Engine

Operating Platform for Revenue Growth

What’s Required to Drive Growth?

While all questions are important, some are more critical than others…

� Which markets?

Actionable Growth Plan

Optimized Revenue Engine

Operating Platform for Revenue Growth

What Analyses Help Us Drive Growth?

..answering these questions requires strong analytical capability.

Sales Strategy Organization Execution

1. MAP Analysis

(Maintained,

Acquired,

Penetrated)

2. Capacity vs.

Opportunity

3. Cost of Sales and

Spans of Control

4. Territory Gains vs.

Losses

5. Upside Analysis

1. MAP Analysis – Are We

Growing Where We Should Be?

A growth MAP is a critical first step in

understanding whether growth is occurring where

and how you planned.

$10,000

$3,407

Last Year’s

$10,720

This Year’s

$(7,650)

Maintenance

$2,450

Acquisition

Penetration

Calculation detail:$7,650 Maintenance sales ÷ baseline period sales of $10,000 = 76.5% Maintenance$ 620 Acquisition sales ÷ baseline period sales of $10,000 = 6.2% Acquisition growth$2,450 Penetration sales ÷ baseline period sales of $10,000 = 24.5% Penetration growth

107.2% total sales growth

A Sales Growth MAPS

Building A growth MAP requires customer level

performance data.

MAP can provide some meaningful insights…

…and can be useful for benchmarking and decision

making about how to adjust one’s sales model.

Incorporating profitability provides an added level

of insight far more useful than volume alone.

$10,000

$3,407

Last Year’s

$10,720

This Year’s

$(7,650)

Maintenance

$2,450

Acquisition

Penetration

Calculation detail: Growth Source Growth Category Profitability

Last year’s sales of $10,000 “Baseline”

$7,650 Maintenance sales ÷ baseline period sales of $10,000 = 76.5% Maintenance $2,180 in Maintenance profit dollars = 28.5% profitability

$ 620 Acquisition sales ÷ baseline period sales of $10,000 = 6.2% Acquisition growth $ 140 in Acquisition profit dollars = 22.5% profitability

$2,450 Penetration sales ÷ baseline period sales of $10,000 = 24.5% Penetration growth $ 884 in Penetration profit dollars = 36.1% profitability

107.2% total sales growth $3,204 in profit dollars (M+A+P) = 29.9% profitability on this year’s sales

Incorporating Profitability into the Sales Growth MAP

2. Capacity vs. Opportunity

Analysis

Sales Capacity in the Context of Growth Capability

Market Factors

Organization FactorsGrowthCapability Factors

Total Market Size

Target Market Size

Needs for Offering

Competitive Share and Churn

Accessible Market

Segmentation and Strategy

Coverage Design

Performance Management

Sales Capacity

Channel Coverage

Sales Org. Coverage

Marketing, Service Coverage

Sales Availability

Sales Process Workload (E+D)

Workload Adjusted Close Rates

Market Targets

Sales Strategy

Historic Growth Sources

Alignment with Strategy and Coverage

Compensation, Quotas, Metrics

Market Factors

Organization FactorsGrowthCapability Factors

Total Market Size

Target Market Size

Needs for Offering

Competitive Share and Churn

Accessible Market

Segmentation and Strategy

Coverage Design

Performance Management

Sales Capacity

Channel Coverage

Sales Org. Coverage

Marketing, Service Coverage

Sales Availability

Sales Process Workload (E+D)

Workload Adjusted Close Rates

Market Targets

Sales Strategy

Historic Growth Sources

Alignment with Strategy and Coverage

Compensation, Quotas, Metrics

Business Case Parameters

Customer provided:

• Account and rep data for the 2 districts

• Call frequency and call duration values

• Current territories assignment

• Target work for each territory = 1,696 hours per year

TerrAlign

• Geocoded each store and rep record

• Calculated travel time estimate and work for each store using TerrAlign 4

software and Drive Time Network

• Work = call frequency x (travel time estimate + call duration)

• Optimized territories within district boundaries balancing on work

• Manually reviewed and fine tuned territories

• Compared current and optimized alignment

Travel Time Reduction

Optimizing territories reduced travel time creating the following benefits:

Travel time reduction

• NE decreased by 5.2%

• SE decreased by 4.7%

• Total savings on mileage = 11,960 miles x $.50 = $5,980

Increased available call hours

• NE increased by 1.6%

• SE increased by .6%

• Total value of increased call hours = $100,000 x 2.2% = $2,200

Over/Under-Capacity Issues and CostsOptimizing Territories Improves Overall Balance

• Over-capacity means that the reps can’t make all

planned calls

• Under-capacity means that reps can make more calls

• Target for each territory is 1,696 +/- 10% hours per

�1,526 – 1,866 hours per year

Over-Capacity Issues and CostsOptimizing Territories Improves Overall Balance

CURRENT ALIGNMENT

• 6 territories over 110% of target

• 877 total hours above 110%

• Value = $51,733

OPTIMIZED ALIGNMENT

• 2 territories over 110% target

• 59 total hours above 100%

• Value = $3,466

• Improvement of 818 hours and $48,267

TOTAL ROI

Mileage saving ($5,980) + increased call time ($2,200) + over-capacity improvement ($48,267) + under-capacity improvement ($43,266) = $99,713

Ways to Improve Capacity

Over-capacity

• Add reps

• Move reps from under-capacity areas to over-capacity areas

• Reduce call frequencies

• Reduce call durations

• Remove stores from coverage

Under-capacity

• Reduce reps

• Move reps from under-capacity areas to over-capacity areas

• Increase call frequencies

• Increase call durations

• Add additional stores to coverage

Territory Opportunity vs. Rep Capacity & the

Impact on Incentive Compensation

Opportunity by Territory

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Territories

Average Opportunity

Rep capacity

Costly Resources

Opportunity by Territory

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Territories

yAverage Opportunity

Rep capacity

Lost Opportunity

The Inverse Bell Curve

Distribution of Attainment

% of Quota

50 60 70 80 90 100 110 120 130 140

Imbalanced Territories Create Over and Underperformers, Regardless of Talent

Improved Balance and Workload

Opportunity by territory

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Territories

Opport

The Desired Outcome

Distribution of Attainment

% of Quota

f Sale

50 60 70 80 90 100 110 120 130 140 150

Balanced Territories Lead to Expected Incentive Compensation Costs, Aligned with Revenue

Optimizing Territories Creates Predictable

Incentive Compensation Costs

Planned Incentive Comp Cost

200 reps x $1M quota = $200M

(not always attainable)

200 reps @ $200k OTE = $40M

50/50 Base vs. Variable = $100k/rep

$20M IC planned

Actual Incentive Comp Cost

100 reps x $75k var = $7.5M

+ 100 reps x $150k = $15M

$22.5M IC Spent

Same Revenue - $2.5M Over-spent on variable incentive comp

3. Cost of Sales Analysis and

Spans of Control

How many of you have

reviewed your Cost of Sales

and Spans of Control recently?

Questions to Ask When Optimizing

• Are we spending enough on

New vs. Retained business?

• Is our spend aligned with

revenue and profit potential?

• Are our costs variable enough?

• Should we be spending more

in alternate channels?

• Is the cost curve to our benefit;

do returns increase as we

invest more?

• Is our spend competitive?

• Are spans appropriate given the

nature of the role (transactional

vs. strategic)?

• Do spans reflect the experience

level of direct reports (e.g. larger

with tenured reports)?

• Do clearly understand how we

want managers to interact with

direct reports and the time

requirements of interactions?

Cost of Sales Spans of Control

Despite the diminishing influence of wholesalers

on demand, our investment is wholesaler centric.

66% of all Sales headcount is in Field Sales, focused on wholesale execution, where just 8% and 22% are

focused on demand generation at On-Premise and Off-Premise, respectively

66% of all Sales headcount is in Field Sales, focused on wholesale execution, where just 8% and 22% are

focused on demand generation at On-Premise and Off-Premise, respectively

Division Dep.% Field On-Prem Off-P Corp. Total

Northeast 17% 26 2 5 1 34

North Pacific 15% 25 2 4 1 32

South Pacific 14% 20 2 12 1 35

Mid-Atlantic 14% 21 2 5 1 29

Southeast 12% 17 2 8 1 28

Central 10% 22 3 7 1 33

Southwest 9% 14 5 10 1 29

Rocky Mountain 8% 18 1 4 1 23

Grand Total 100% 162 19 54 9 244

% of Total 66% 8% 22% 4%

Offices are staffed largely the same; spans of

control vary little by Division (e.g. Oppty)

1 1 1 1 1 1 1 1

Northeast North Pacific South Pacific Mid-Atlantic Southeast Central Southwest Rocky Mountain

FTE Equivalents by Division - 2009

Frontline Sales

Operations Mgmt

Sales Mgmt

And, the current investment in sales resources are

not aligned with volume

2928 28

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

Northeast South Pacific North Pacific Central Southwest Southeast Mid-Atlantic Rocky

Mountain

Sales Costs (TCC & T&E), Headcount & Depletions - 2008

Sales Costs

Depletions (Case Eqs)

4. Analysis of Territory Gains

More than half the sales force is not generating

net new revenue.

This analysis can be revealing, particularly when

cut to reveal

• Customer Segments

• Types of Accounts/Customers

• Products

• Geographies/Regions

5. Upside Analysis

What is Upside?

Prominence of Sales Person

Extent of Mix and Upside Potential

Low High

Upside

Target Incentive

Base Pay

Why is Incentive Mix Important?

Incentive Proportion Impact

< 10% Minimal to none

10% to 15% Performance reminder

16% to 25% Directional

26% to 40% Highly directional

> 40% Independent action

The higher the proportion in incentive, the greater the impact on behavior

Setting Upside Levels

Distribution of Performance

Frequency

Threshold80%

Target100%

Maximum120%

Percent of Goal

Threshold80%

Target100%

Maximum120%

Target

Incentive

Excelle

FixedPay

1. Understand today’s distribution of performance

2. Determine at what level to set the excellence point, typically the upper 10th

percentile of performance

Two Ways of Providing Upside

The earnings opportunity above total target compensation for outstanding performance

Typically…

� Each sale is more difficult

� Additional sales are very profitable

� Pay discrimination is desired

Unlimited

� No cap

� “Progressive”

Limited

� Maximum (cap)

� Reduced

opportunity

Typically…

� Each additional sale is easier

� To avoid windfalls; runaway earnings

� Excessive sales are unprofitable

� Similar pay treatment is desired

“Progressive”

Volume

“Regressive”

Upside Is Defined Differently at Times

Be careful: it is common for companies to have their own interpretation

of what leverage means – make sure you compare apples with apples.

“Double” Leverage = Opportunity for an additional 1x of target incentive is available for above target performance

“Triple” Leverage = Opportunity for an additional 2x of target incentive is available for above target performance

Examples of Upside

Target Compensation = $50,000

Double Leverage (1x)

Total Target Target Target Upside Excellence

Compensation Mix Base Salary Incentive Opportunity Pay

$50,000 80 / 20 40,000 10,000 10,000 60,000

$50,000 70 / 30 35,000 15,000 15,000 65,000

$50,00 50 / 50

Triple Leverage (2x)

Total Target Target Target Upside Excellence

Compensation Mix Base Salary Incentive Opportunity Pay

$50,000 80 / 20 40,000 10,000 20,000 70,000

$50,000 70 / 30 35,000 15,000 30,000 80,000

$50,000 50 / 50

Discussion

Managers' analytics workbench final 22 june10

sales capacity

sales skills

sales growth map

yearssales sales

sales potentialexists

cost of sales

sales management association

total sales growth

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