Predictable Revenue Model

A Predictable Revenue Model enables a company to become a market leader by unleashing its full revenue potential so it can consistently achieve a high growth rate, year after year.

Why High Growth Rate Matters

Companies that grow at a high rate tend to be market leaders. Market leadership is important because brings with it strong financial rewards, such as high valuation and high profitability.

  • Customers generally prefer to buy from market leader, as they feel it is less risky to do so. This naturally reduces the cost of marketing and selling for the market leader. Furthermore, customers expect to pay a premium for buying from the market leader. Higher prices at lower marketing and sales costs translate into higher margins.
  • Vendors as well prefer to work with market leaders and are willing to give favorable pricing and terms to gain their business. This further enables the market leader to keep input costs low while charging premium prices for its products and services.
  • Finally, market leaders have less recruiting and hiring costs compared to their competitors, while still attracting the best talent.

More profits and better talent will eventually result in greater competitive barriers being erected, enabling the market leader to become dominant for possibly a long time.

Clearly, high growth rate matters. The real question might be how does one achieve it. And how much should that rate be? And how much will this expensive initiative cost?

A Predictable Revenue Model attempts to provide answers to these critical questions.

Structure Predictable Revenue Model

A Predictable Revenue Model (PRM) has three main phases: plan; execute, and learn. Each has its own role to play, but all three have to work together to deliver the true power of PRM.

  • Plan
    • Targets
    • Metrics/KPIs
    • Resources
    • Execution Plan
    • Budget
  • Execute
    • Setup
    • Nail
    • Scale
  • Learn
    • Measure
    • Analyze
    • Adjust
    • Document

These are the components of a Predictable Revenue Model, whose purpose is to enable a company to become a market leader by unleashing its full revenue potential so it can consistently achieve a high growth rate, year after year. It is agile, constantly renewable and repeatable, and it should work in any company.

The Perfect Compensation Plan

predictable revenue growth

Driving Sales Funnel growth, meeting revenue objectives, and getting sales teams to meet or exceed sales metrics are among the many challenges faced by our clients. Quite often, these problems are self-inflicted. Large salaries and commissions provide little incentive for sales teams to achieve the metrics that drive Sales Funnel and revenue growth.

In order to meet your targets, you need to introduce a compensation plan that encourages the appropriate behavior and provides the right incentives for your team to work towards their goal. Key Performance Indicators (KPIs) are the activities that drive Sales Funnel and revenue growth.  KPIs that fail to be established or met, will result in a loss for your target revenue. Example KPIs for Inside Sales might include:

  • Key conversations with prospects that establish pain & fit. Without frequent conversations with prospects, there will not be enough activity to grow the sales funnel.
  • A Sales funnel that is in excess of 3X the revenue objective.  We suggest that clients analyze the sales funnel activity from the past 3-6 months to determine their closing ratios.  Some of our clients have only required a sales funnel of 1.5X their revenue objective, while others have needed a funnel of 5X, to ensure that their targets were met.
  • A pre-established number of demos.  We suggest that our clients determine the ratio of demo presentations to closed deals, to establish this metric.  One of our clients found that 75% of demo presentations generated closed deals.  For this specific client, demos were very important and became a top metric for their Inside Sales team.

What is the best way to ensure that team members meet or exceed their KPIs? Fifteen years of experience and association with over 100 companies, has led us to this answer. The answer: Build a compensation plan with three distinct components: Base Pay, Performance Bonus, and Commission.

Three Components of a Perfect Compensation Plan

  1. Base Pay: Companies with a high base salary often have poor performance within their sales teams. Base salary should accommodate a decent quality of life within said region. Base Salary should not be able to provide “luxury” items, keeping incentive for the team to meet their established KPIs.
  1. Performance Bonus: Compensation plans must provide a pay-for-performance component to encourage appropriate team behavior.

For example: if the monthly KPIs include a specific number of Key Conversations, Sales Funnel growth, and Demos, the representatives should receive a monthly performance bonus for meeting or exceeding these established KPIs. Performance bonuses work very well to ensure that KPIs are met.

  1. Commission: Commission should reflect the achievement of KPIs.

For example: suppose that 5% is the highest commission rate given at 100% of quota.  If a team member has met 100% of quota and 100% of their KPIs, they should receive the highest commission rate.  If not, the commission rate should reflect their achievement of quota and established KPIs.

Appropriate “Selling” behaviors develop when compensation plans are structured around KPIs and Sales Funnel growth.