Setting revenue goals is a crucial responsibility for founders and leaders, particularly for organizations that are new to the process or have yet to establish a framework. To ensure comprehensive and effective goal-setting, it is necessary to embark on this journey alongside your leadership team, crafting holistic objectives that encompass all aspects of your business.
Let’s start with a simple question: When thinking about your revenue function, do you have the right (or any) goals in place for the team?
There are ways to make this process more palatable and even —dare I say— fun for the team. However, the first step is digging in and figuring out the top-line revenue goal.
After working with many organizations, I often see two roadblocks the Founder/CEO struggles with around setting revenue goals.
The CEO does not want to put a stake in the ground and give the team a goal— because if there is a goal, there must be accountability.
The organization isn’t aware of how they will tackle this daunting number.
Often, the objection to goal setting is rooted in wanting to be nice and not wanting to be “too salesy”. The reality is goals are necessary for two reasons: First off, it provides clarity, and remember, “clear is kind.” Secondly, this process allows the team to know when to continue pushing toward the goal or celebrate the win.
Just like in life, the absence of goals makes it challenging to determine when you have reached your desired destination.
Effective communication with the entire team, not solely the sales department, is critical to this equation—particularly for small organizations. In small and startup companies, it becomes even more crucial for leaders to ensure that goals are transparently communicated and that team members comprehend the objectives at hand. Everyone within the team should comprehensively understand the goals and, more importantly, how their unique role plays a significant part in achieving them.
Assessing Feasibility
Before communicating goals, another crucial step for leadership is to assess their feasibility. Crafting a plan for the upcoming fiscal year involves considering numerous factors as a leadership team. These factors may include year-over-year percentage increases, revenue thresholds required by investors, cash flow considerations, operational implications, and external influences like market trends and potential economic downturns.
Engaging in this discussion with the senior leadership team enables the use of year-over-year data to gain valuable insights. Armed with these figures, reviewing whether the growth goals are realistic and attainable is essential. I recall a CEO I collaborated with who simply guessed the annual plan without conducting any feasibility analysis. Needless to say, it didn’t end well.
Too lofty a goal kills motivation. Too easy a goal, and everyone is resting on their laurels. To maintain a healthy balance, it is crucial to deeply understand your company's key metrics and evaluate the feasibility of the goals accordingly. This self-checking process ensures that your goals are both challenging and achievable.
Here are some key metrics to consider:
Average client revenue: goals should consider if your revenue is $2000 per client vs. $200,0000 per client.
Sales cycle: in one of my past sales roles, the sales cycle was 18 months (yes, you read that right). If your pipeline looks like this, there is no chance you will achieve your goal in one year. Here’s a pro tip: consider offering spiffs or bonuses to encourage motivation and keep your team engaged.
Close rate: what is your company’s close rate? If you speak to 10 clients, do you close twice or three times? It is essential to know it.
Pipeline intel: after doing some quick math with the above two metrics, reviewing the pipeline intel is vital. Do you have enough high-quality leads to give the sales team a realistic chance of achieving the goal?
Ensure the Math is Mathing
If your revenue goal for next year is $30,000,000, your average client revenue is $25,000, and your sales cycle is six months. Using back-of-the-napkin math means that you need to close ~1200 deals during the year and ~600 by June.
With a six-month sales cycle and a close rate of 20%, you will need ~3000 new prospect conversations in the pipeline at the top of the year. If you find your pipeline is way off, this creates an opportunity for the senior leadership team to discuss recommendations to rectify. It also reinforces that all sections contribute to the success of the organization.
Communicate Goals to Igniting Team Excitement
The last step in the process is sharing the goals with the team. Don’t do this 90 days into the new year. Be respectful of your employees and give them this intel before the end of the year or at the top of the new year. I always bristled when my leaders punted the goal conversation to the end of Q1.
Again, “clear is kind.” Get the team excited about the opportunity. If you don’t have funds for a proper sales kickoff, get creative. What are you sending the team to generate excitement and enthusiasm?
It will take some effort in a hybrid/remote world, better known as time and money. Remember, be open to going the extra mile to excite the team, as this will pay dividends in how the team approaches prospects and clients.
Conclusion: Start the New Year With Clear Goals
Revenue goal setting is a critical leadership function at start-ups. Be intentional about your process and take the time to craft reasonable goals for the team to ensure the team can balance success and motivation. Nothing kills a vibe like unrealistic goals. Take the following months to do this diligence and kick off your new year on the right track.