Your Sales Machine Increases Your Business Valuation
“You want to sell your business because you are tired. I get it. You’re so tired you want to give it away for 4x.” I told the CEO of a laboratory services company, “I’ll tell you what, I’ll buy your company for 4x on a 60-day note, and I’ll then go sell it for 6x and pocket the difference.” The CEO didn’t take my offer, but she did work for another 150 days to get her 6x payout.
She thought her company was only worth 4x because she was looking at the standard industry payout for her type of business. She believed that standard valuation would be her price. However, she had a valuation compounder in an area that her competitors did not, a sales machine.
Let’s back up. What does a “machine” promise to provide its owner? The three promises that matter the most to sales machine owners are:
- Transparency – Being able to accurately see every step in the sales machine to understand what is working and providing the greatest yield
- Efficiency – An ever-increasing level of improvement in every step of the sales machine process through adjustments to each stage for increased revenue production
- Predictability – Consistent results that can be anticipated on a look-forward basis, not just by sold work or backlog, but by demonstrating where sales and associated revenue will be with confidence
My team and I have been building sales machines for almost 30 years. A sales machine that demonstrates these three attributes provides the buyers of your business greater confidence in their investment. Confidence in results means higher valuation.
Often, companies believe having a CRM system provides them visibility to their sales funnel with the result being transparency into sales performance. I equate this to predicting where the plane came from and where it will land by watching the contrails in the sky as the plane flies by. You are at best taking a wild guess. Transparency is granular and behavior must be verified.
A client of ours was a construction company where revenue was generated by 40% bid work and 60% negotiated work.
The transparency into its sales process as examined by its CRM was:
- Contact and qualification of opportunity
- Identification of needs
- Internal evaluation and proposal
- Final meeting
This is similar to the sales processes we’ve seen with most companies. There may be a few more steps added that are relevant to each company’s industry, but in all, this is the CRM version of transparency. What it does NOT show is the granularity of how each of the steps is taken. Without the transparency, it is difficult to understand which step to adjust.
In the example, the construction company was able to determine its pinch-points in its sales machine in three places:
- How qualification of opportunity needed to be redefined
- Separation of internal evaluation of opportunity from proposal was necessary
- How final meetings needed restructuring
For this company, visibility at a more specific level allowed for improvement in the system at the pinch-points slowing the sales process. By changing the target, the threshold of value for the customers, and the ratio of resources to customer size, they were able to reduce the cost of customer acquisition by 38%.
Time is the measure of truth versus false hopes. Often, without a sales machine, CEOs and other senior executives look at their pipelines with doubts. Stories from salespeople are usually compelling. Why wouldn’t they be? They are paid to sell. When looking at the efficiency of a sales machine, speed and yield are the keys to discerning the cost in and return on capital. Efficiency comes from the:
- Right materials – In this case, it would be qualified buyers.
- Right system – Visible and impactful sales machine stages that can be adjusted.
- Right timing – Time kills all deals. What is the acceptable amount of time for each stage?
If time is the separation between truth and false hopes, efficiency between each stage in the sales machine will define opportunities that are stuck and those moving at expectation. Like all machines, the first question is what material is being fed into it? No one would expect wood, rubber, and steel to produce the same product. A machine works best when the exact materials fed into the machine create the end products. In this case, that would be qualified prospects. Each stage through the machine should disqualify prospects. That’s right, disqualify. Any stage in the sales process that does not produce the acceptable result, or you can see will not, should be pulled out of the sales process. It’s like finishing second in a poker hand – you paid the most money at the table to lose.
Another client of ours was a cyber-security services company that was losing opportunities in the middle of their sales process. The point of loss was at the point of parallel demonstration; the prospect company would run their current system against the proposed system to measure levels of effectiveness. Why? The company was selling its systems to companies with less than 50 users. The true value of their product was demonstrated at 250+ users. The tests required the same number of resources regardless of the number of users. The efficiency showed itself in several ways:
- Calling on the wrong prospects
- Poor examination of resources to achieve sales
- The outcome not meeting revenue expectations
Stage gate analysis of the sales process reveals at each stage where the chance for improvement is. In this example, the impact of efficiency improvement increased the speed to sale by over 12% and the margin almost doubled by reducing the amount of resources to close smaller sales.
Many companies know for certain what this quarter’s revenue will be. But how about the revenue three or four quarters from now? Going back to the first example in this article, the reason the valuation of the laboratory services company went from 4x to 6x was in strong part due to their ability to show sustained predictability based upon a sales process. Their sales machine showed the ratio of opportunities kicked out of the sales process, which ones stayed in process to close, and the sustained revenue duration for opportunities that closed.
The machine’s success is what provides the confidence in the future, not the past general performance, backlog, or prospect funnel because they are always a part of the valuation. The difference between the traditional valuation and the sales machine is confidence in the predictability of future revenues not based upon hitting revenue plans in the past, but confidence in the future.
An insurance industry services provider used to be a client of ours and used a developed sales process for landing 7 out of 10 of the top Property and Casualty companies. Prior to having a sales process, the sales efforts were relationship only. The process was:
- Meet someone in the company we want to sell to
- Become friends with them
- Ask for an internal referral to someone else in the company that’s higher up
- Rinse and repeat
The new process was much more system-designed, transparent, and recognizing that the materials put into the machine resulted in sales out. This meant starting at the level of person who could buy a three-year contract. Working through the remainder of the process, the company not only landed more sales, but landed longer term contracts, giving predictability to the revenue stream. By the way, the reason they did not land the other three of the ten was because our client (the selling company) threw them out of the sale process in the machine for lack of fit.
The sales machine is the sales process. What goes into the machine makes an enormous difference on the sales that come out. Eliminating wasted time, effort, and people for prospects your machine says will not produce sales thus increasing your efficiency is the key. The machine should provide predictable revenue because of the clarity and sustained yield of your sales. The valuation compounder comes not only from the traditional valuation measures but in large part from your money machine.
Hunt Big Sales Now
My team and I at Hunt Big Sales have been helping build sales machines for over 15 years now and have helped our clients land large deals totaling more than $18 Billion in new business because of it. If you and your company are interested in building your sales machine, we welcome the opportunity to talk further with you. Setup a free consultation today.
Written by Tom Searcy (Founder, Hunt Big Sales)
Tom Searcy, Founder of Hunt Big Sales, is a nationally recognized author and speaker, and the foremost expert in large account sales. Hunt Big Sales clients have landed more than $18 billion in new sales with 190 Fortune 500 companies, including 3M, Disney, Chase Bank, International Paper, AT&T, Apple, and many more. Tom was recently named in the “World’s Top 30 Sales Professionals for 2023” by Global Gurus.