Joe Capillo continues his series on sales management with a look at how to develop achievable sales goals.
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If salespeople concentrate on helping customers achieve their goals and sales managers help salespeople achieve theirs, the store will achieve its goals.
Last month we discussed methods for developing sales-volume goals that are tied to the individual salesperson's needs for income and achievement. This "bottom up" goal development process can be motivational in nature when employees realize that you are truly trying to help them reach the goals they want to reach, not goals that are completely company-driven.
We arrived at a volume goal - net of cancellations and accounting for non-commission income - that would provide the salesperson with an income of $50,000 for the next year. We can say that if the salesperson (let's call her Pat) writes sales totaling $745,614, given her historic 5% cancellation rate and our store's commission rate of 6% and accounting for the fact that 15% of her total income is derived from non-commissioned sources, she will earn $50,000. (If you misplaced your October/November issue, look in the Sales Management Index on www.furninfo.com).
Now we have to pull out our extensive measurements of the key elements in the sales-success equation. As you undoubtedly recall, these measurements are: number of Ups Pat handled over the past year, her closing ratio and her average sale (you all have these numbers, right?). We will use these performance statistics to determine the likelihood that this goal can be achieved given Pat's current performance levels. After all, what is the purpose of having a goal that there is no chance of reaching? Will Pat feel motivated by an unattainable goal?
A review of the last 12 months' results for Pat shows that she wrote $625,000 from 1,800 total Ups with a close ratio of 25% producing 450 sales at an average of $1,389 (rounded).
Now things get tricky. The number of Ups that Pat will get in the coming year is unknown - pure guesswork. But if we assume that things will stay the same based on our promotional plans for the year, we can predict that she will also see 1,800 customers next year. And, if everything stays the same, she will not reach her goal. You can help your salespeople understand, right up front, what the likely outcome will be for the next year - if you have the right numbers.
But you have to develop some plan, some pathway to guide your people to their goals. This is one of your key roles as a business owner or manager; so let's go with what we believe might be likely to happen and watch the progress every day, week and month along the way to determine what changes might have to be made to get to the goal. If we want to help Pat get to $745,614, we must be able to guide and coach her based on the realities of her own performance and development.
With 1,800 Ups and a 25% close ratio, Pat will write 450 sales. If we divide $745,614 by 450 we see that her average sale will have to be $1,657 as opposed to her current performance level of $1,388. Suppose the range of performance of your total staff is from $1,800 at the high end to $1,080 at the low end for people who have been working as long as Pat with about the same number of Ups. This shows you that Pat's required average sale of $1,657 is possible provided she does some things differently. On the surface, she would have to do things more like those done by the person at the top of the range (if only we knew precisely what those people are doing).
You can do the same kind of numbers gymnastics for close ratio, looking at the range of performance and asking "what if?" for any number of possibilities. For example, if the top of the range of performance in close ratio is 30%, you could ask "what would happen if Pat closed at that rate?" Just do the math. If she sees 1,800 Ups and closes 30% of them, she'll write 540 sales and with her current average sale of $1,389 she'll write a total of $750,000 – more than enough to reach her income goal of $50,000.
This kind of goal development can produce several different scenarios for each salesperson and will clearly show you and the salesperson where there is a disconnection between what they would like to have happen and what their level of performance shows actually will happen. The results of these goal-development exercises should be an understanding and an agreement between the sales manager and each individual salesperson regarding what levels of performance are required and what level of commitment the salesperson will make to achieving the goal. Commitment is the key word in the process of goal development and coaching. Both parties must be committed to achieving the goal and to doing the things that are likely to make it happen.
If the person at the low end of the performance range in our example, with an average sale over the past year of $1,080 also wanted to earn $50,000, the scenario would be quite different because the magnitude of the increase required in average sale is so large. In this second case, the level of commitment would have to be very high for both the salesperson and the manager. If you were to begin with this person's baseline performance level in average sale, you could develop a workable plan for the person to improve his performance by a specified date with interim goals (steps) along the way.
In Pat's case, she has to increase her average sale by 19.3% from $1,389 to $1,657, a total of $268. There are some specific things you could ask Pat to do that would help raise her average sale (add-ons not being one of them). You know this from observing her on the floor with customers, and you have seen her vary from the store's established selling strategy. You know from experience and from the results of other salespeople that these things work to raise average sale.
The plan you have worked out with Pat calls for her to be at $1,488 at the end of 60 days for that 60 day period and at $1,588 at the end of the following 30 days and at her goal of $1,657 by the 120th day from today. This plan is written down, including the specific things Pat has to do to make it all happen, and agreed to by you and Pat. Finally, she has agreed to let you coach her along the way.
Now, here's the point of all this: Too often in our work with hundreds of stores and literally thousands of salespeople, we find salespeople drifting aimlessly toward some goal they have somewhere in their heads, but with no real sense of what it will really take to get there. We also find management supporting this kind of aimless drifting. In most cases goals are set for salespeople by owners and managers who do not understand that goals are useless without the salesperson's commitment. It should be obvious that people will be more likely to commit to their own goals than they would to goals set for them by others.
The good news is that when salespeople are brought through the kind of motivational goal-development process described here, the sum of all their goals will always exceed the goal of the owner. And if you can get individual commitment to personal goals and manage that commitment by coaching every day, there is a far greater chance of the store reaching its goals as established by the owner.
The synergy between the selling and coaching processes, can be explained like this: If salespeople will concentrate on doing the right things to help customers achieve their goals and sales managers will concentrate on doing the right things to help salespeople achieve their goals, the store will achieve its goals. Everyone will win and the store will become a better place to work and a better place to shop.
CASE STUDY-ACHIEVABLE GOALS: KAY FURNITURE
Anderson has used monthly and annual performance goals to increase Kay Furniture's average ticket by 75% during the last five years.
Back row (l-r): Sandra VanVickle- assistant sales manager; Fred Joy; Brenda Noorbakhsh; Hassan Katiraee; John Griffin- assistant sales manager; Nancy Kaul. Middle (l-r): Pat Groom; Robin Moberly; Caroline Saunders; Jackie Davis; Cat Haynes; Beth Asher; Laurie Ballance. Front (l-r):Danny Anderson-sales manager;Jann Richardson.
ithout goals, salespeople cannot truly measure their performance, and apart from their paychecks, their only motivation will come from subjective evaluations by their managers and the store owners, says Danny Anderson, sales manager for Kay Furniture in Smithville, MO.
"I've got three new people. They're blowing their goals away, and they're excited about that," Anderson says. "If they didn't have a number to use as a goal, they wouldn't know where they are."
A long-time practitioner of the Shepherd Management Group's sales-management system, Anderson has used monthly and annual performance goals to increase Kay Furniture's average ticket by 75% during the last five years. "This program gives us the direction we need," he says. "We all need to know what's expected of us."
Each year, Anderson develops individual goals with the 14 members of his staff. Each sales associate commits to a specific level of performance, which usually represents a reasonable increase over the prior year. "I'll have a couple of people who are conservative, but most of them are wanting to move ahead," he says.Anderson then totals those goals for the store owners, Frank Thomas, Gary Teegarden and Mike Dale. If the owners want to see sales volume greater than the sum of the goals from Anderson's staff, they would hire more sales associates rather than forcing the sales associates to commit to higher goals. In this way, Kay Furniture has developed bottom-up, rather than top-down, goals. "We won't set anybody's goal unless that person is agreeing to it," Anderson says. "The store's goal is generated by the numbers that the sales team has given me."
Anderson does not divide annual goals by 12 to create monthly goals. "Certain months of the year are stronger than others," he says. "We break it down based on how much business we expect the store to do each month." Therefore, since January is projected to generate 9% of the store's annual revenue, the salespeople are expected to produce 9% of their annual goal that month, which is slightly more than if the annual goal were divided by 12.
Using Shepherd's SalesWorks, Anderson runs reports, and he is continuously giving members of his staff feedback reports, telling each of them how they are progressing toward their monthly goals. In his message to each person, he says that, based on the individual's average sale and close ratio, the salesperson will have to see a specific number of customers to reach the goal.
"They need to know how they are doing if the goals are going to be meaningful," Anderson explains.
Anderson charts each individual's progress, but he uses a code to mask the identities. He does not want to publicly humiliate the people who are not making their goals. However, the chart serves to communicate how individual performance ties into the store goal, which is also posted on the chart. "If we're down, each person has work to do to bring it up," Anderson says.
Joe Capillo is a 41 year career veteran, experienced in managing and consulting with furniture retail operations. He is also a contributing editor for Furniture World Magazine. He is a contributing editor to FURNITURE WORLD and a frequent speaker at industry functions. See all of Joe’s articles on the furninfo.com website.
View all articles by Joe Capillo