Whether you’re a freelancer or running your own agency, you likely didn’t end up in this profession to crunch numbers all day. And while it likely won’t all be billable hours, dedicating time to plan for the long-term financial health of your business is just…well, good business.
But where do you get started?
I recently sat down with Rhys Furner, Head of Partnerships and Business Development (APAC) at Shopify, to chat about how he helps Shopify Partners revisit their approach to revenue growth, and the important role that goal setting plays in that strategy.
Between finding new clients, meeting deadlines, and hiring new team members, goal setting is often overlooked by agency owners. But by the end of this article, you’ll be better equipped to develop a more sophisticated process for establishing strategic and concrete goals for your business.
First, let’s talk about strategic goal setting
Regardless of whether you’re just starting your journey into digital consulting, or are ready to scale your operations, it can be challenging to find time to dedicate to goal setting.
You’re not alone. A lot of smaller agencies and freelancers are so preoccupied with the feast or famine known to the consulting world that they have difficulty finding the time to establish goals that drive their team’s efforts throughout the year.
Despite how much work you have on your plate, goal setting should be something that you do every year, quarter, and (potentially) month. Goal setting isn’t just a vanity exercise. When purposefully created, goals help serve several basic functions for your team and business:
- They provide direction, guiding employee decision-making towards goal-related activities.
- They facilitate planning to ensure your team strategically thinks through their next projects, or areas of focus.
- They motivate and inspire employees to use their collective knowledge to rally towards a centralized cause.
- They help you measure the performance of your team and your business.
Most agency owners have broad goals they want to hit, whether that’s revenue growth, market expansion, or increased headcount. The problem with traditional goals is that they lack the depth necessary to actually keep us accountable for our decision making.
That’s where SMART objectives come into play.
If you’ve never heard of SMART objectives, the concept is relatively straightforward. SMART is an acronym for the criteria you’ll use to guide your goal creation, ultimately making the goals themselves… smarter.
Here’s what the acronym stands for:
- Specific — Your objective should have a clear area of focus that you will target for improvement.
- Measurable — Your objective should be based around quantifiable metrics or, at the very least, some indicator of progress.
- Achievable — Your objective should state results that are realistically attainable, given your resources and historical growth.
- Relevant — Your objective should focus on the progress that really matters to your business’s success.
- Timely — Your objective should specify a date by which you intend to achieve your goal.
With all these parts in play, your overarching SMART objective should look something like this:
“Grow client services revenue from $30,000 per month to $50,000 per month by December 31, 2017.”
As you can see, each criteria is well represented in the aforementioned goal:
- Specific — We’re targeting revenue growth.
- Measurable — We want to increase revenue from $30K to $50K.
- Achievable — We know this growth rate is realistic given our past (more on this below).
- Relevant — We know that revenue growth is a key metric for business success.
- Timely — We want to accomplish this by December 31, 2017.
Three metrics to help you better understand your sales process
You probably noticed that all aspects of our example SMART objective were apparent, with the exception of “Achievable.” We’re assuming that this example was created using real insight and data to create a realistic goal, but it’s just an example.
That’s why it’s important for agency owners to regularly review their current sales process and key metrics that inform its success. If you’re not already doing this, Rhys recommends starting with three simple metrics that you can look at to get a pulse on the health of your digital consulting business and inform your long-term goals. Those include:
- Sales conversion rate
- Average sales value and average client value
- Average time to convert
If you haven’t got this information, that’s okay. Rhys has shared a few handy formulas for calculating them manually.
1. Sales conversion rate
You’ll want to start off by calculating your sales conversion rate. This number represents your success rate of converting leads to paying clients; something that can provide an at-a-glance insight into the health of your sales process.
To calculate your sales conversion rate, you’ll need to go back and tally the number of successful projects you’ve landed and divide that by the number of proposals you’ve sent in your established time period (we recommend reviewing every three to six months). You’ll then need to multiply that number by 100 to get your rate.
Sales conversion rate = (number of successfully won projects / number of proposals submitted) x 100
A sales conversion rate above 50 percent might seem like a good thing, but be careful. “If you’re converting at more than 50 percent, you’re likely pricing your projects too low,” says Rhys. “If your conversion rate is below 50 percent, either your pricing is too high or your sales approach isn’t thorough enough.” The sweet spot hovers right around that 50 percent rate.
2. Average sales value and average client value
Rhys advises that once you have an understanding of your sales conversion rate, your next step should be to work out your average client value, also known as the average sales value. Luckily, this is also a pretty straightforward metric to calculate using the following formula:
Average sale value = (total sales value / total number of sales) x 100
You can take this one step further by calculating an average client value — a metric that can be very useful for agencies or freelancers who work with several ongoing clients. You can calculate an average client value by using the following formula:
Average client value = (yearly revenue / total number of invoiced clients) x 100
3. Average time to convert
With these two numbers, you’re just missing one key metric to paint a fuller picture of your business’s sales funnel: average time to convert. You can use this number to identify how long it takes a lead to move through each stage of your sales process, which can potentially highlight areas where your process is falling short.
Here’s a simple formula you can use to calculate average time to convert:
Average time to convert = (sum of all conversion time periods)/(total number of conversions)
If you want to build an even more granular view into your sales process, you can refine this formula to focus on the conversion times between your varying qualification stages and optimize your sales funnel that way as well.
Using these metrics to forecast your sales
Not only do these metrics provide valuable business insights on their own, but together they can also play an extremely valuable role for long-term sales forecasting and goal setting. Let’s look at an example to illustrate how you would use these numbers to do that.
Say you have 20 leads in the qualification stage of your pipeline, and it takes you an average of 60 days to convert a lead. You also know you convert approximately 50 percent of all leads to clients, and that your average project value is $10,000. You can take these numbers and plug them into the formula below:
Sales forecast in 60-day time period = (number of leads x average sales value) x sales conversion rate
Armed with these numbers, you can forecast that in 60 days time, you will have roughly $100,000 of work coming in. These forecasting numbers should be used to define your broad business objectives around revenue growth, hiring, and expansion.
Applying the SMART framework to your business
Now that you have an understanding of what makes an effective objective, as well as some key metrics to guide your decision making, let’s talk about applying them to your business.
“It’s very important that agency owners set high-level business goals for their businesses,” explains Rhys, “but those goals need to be supported by specific sales and marketing objectives that carry the direction of this growth.”
The sample objective shown in the first part of this article is a great example of a long-term business goal. Here’s what it was:
“Grow client services revenue from $30,000 per month to $50,000 per month by December 31, 2017.”
While this is a well-crafted goal, you should follow Rhys’s advice and create specific marketing and/or sales objectives to help accomplish this broad revenue growth goal — and these can be largely based on optimizing the metrics we calculated above.
For example, if you’re only winning 25 percent of the projects you bid on, one way you could facilitate revenue growth is by increasing the total proportion of projects you successfully win (aka: increasing your sales conversion rate). This could be accomplished by revisiting the length or structure of your sales process to reduce friction points for leads.
On the other hand, you might find that your average client value is too low to reach your goal given the current state of your sales pipeline. You can then either decide to test out some alterations to your pricing strategy with your new clients, or look at increasing the total volume of clients you bring on by investing in outbound marketing.
By understanding these three metrics and their relationship to one another, you’re in a better position to identify inefficiencies or gaps in your sales funnel, set strategic growth objectives for your business, and make smarter tactical decisions to reach those goals more quickly.
Start accomplishing your goals by setting them first
Managing your business’s operations is likely not what you love doing, but it’s part of the job. By taking the time to crunch some important numbers, you’ll be better able to set concrete objectives that are not only SMART, but are also achievable given that you’ve based them on real historical data.
This advice is by no means a comprehensive strategy for growing your business, but will position you to make the right decisions at the right time, and help keep yourself accountable for the future growth of your business.