Here’s how to do it. Productive consultative sales training and process development can make the difference.
Do you know IRV? If you’re a business owner or senior executive, you should. Why? One thing small and middle-market businesses are all about is increasing their value. And IRV is a straightforward way to use sales to increase that value in three ways—and to track it.
Companies that invest in sales training and sales process development expect revenue to increase. That’s basic. It’s why they invest in improving their sales team’s persuasive selling skills and processes. They can expect a lot more if the training and process development is customized for their business creating long term results.
What advantages does a business with a higher valuation have?
Sales are measured as “the top line,” which is of course an easy way to see results, good or bad. But how else can a stellar top line improve your business? One way is to increase the valuation of your company. A higher valuation can help you not only with longer term strategy, if you plan to sell, but also shorter term: Banks like companies with higher valuations because it reduces their risk. A proven, predictable sales process reflected in the top line makes your business more attractive to any investor or buyer.
How does it work? Say hello to IRV.
The IRV formula is the foundation of how professional M&A firms value a company, a first pass in effect. Professional valuations take a lot more into account, of course, and use more sophisticated math. But IRV is a good friend because the numbers are handy and the math is straightforward.
It can also be used to show the results of investing in sales process improvement. As you will see, the investment can increase revenue and reduce risk to increase corporate valuation.
V = I / R-g
IRV’s numerator is I, which = Income—that is, some representation of earnings. The simplest number is the topline, but more typically adjusted EBITDA is used or seller’s discretionary earnings.
IRV’s denominator is R – g, where R = Risk, or the discount rate, and g = Growth. Typically, g is the long-term growth rate of the company.
V stands for Value, which increases when an effective, formal, and customized sales process is in place. Here’s what happens:
- Income increases as the success rate in winning more business increases, both from more, smaller pieces of business as well as larger ones. That in turn helps to retain your best salespeople and other business developers.
- Risk decreases. It’s clear how better consultative selling skills can improve income. But how does coupling skills with process reduce risk and so make the denominator smaller? A consultative sales process developed in our popular FOCIS® sales training course does several things, among them:
- Your best salespeople get better—and tend to stay with you.
- Or, if they do leave, your sales process does not go with them. In other words, you have a corporate sales process in place whose success doesn’t depend on one individual’s capabilities and personal sales process. This also reduces risk.
- Penetration of larger customers goes deeper, which means their switching costs are higher.
- Your differentiation—why you’re better than your competitors—is communicated more clearly and effectively. Your customers know why they chose you, and prospects learn why they should choose you.
- The capability to close larger sales increases. (After taking FOCIS® one of our clients closed a sale eight times larger than its previous largest.)
- Access to decision-makers becomes easier.
- The gap between the top producers and the rest of the team shrink.
Also, outside variables—a pandemic, for instance—won’t have the same impact because a strong sales process is as effective on-line as it in face-to-face meetings.
Key Point: Transactional selling just doesn’t travel well in an on-line environment. It depends too much on the interpersonal dynamics of the sales representative. Transactional salespeople too often rely too much on their personality to do the job. But that doesn’t work nearly so well on-line—or as well as creating value for the prospect in any environment. Creating value is what successful consultative salespeople know how to do. To create value, you need skills and process, not personality.
- The long-term growth rate begins to rise year after year, decreasing the denominator even more, because a stronger sales process results in increasing levels of revenue (leading to growth) and reduced risk.
Try plugging some numbers into the formula from your business. See how much valuation changes not only when income increases but also when risk decreases and the long-term growth increases by just a point or two. We have seen clients significantly grow the value of their businesses by investing in sales process improvement.
“As a valuation expert, my knowledge of IRV combined with Productive Strategies FOCIS® sales process allows me to easily demonstrate the ROI of my services,” explains Jim Bates, a partner at Jackim Woods & Co., a leading middle-market mergers and acquisitions advisor. “This shortens my sales cycle and increases my closing rate. But the best part is that every client becomes a success story.”
Bates is also a partner at a boutique M&A company, Sports Club Advisors, a sister firm of Jackim Woods. Sports Club focuses on the sports, fitness, and leisure industry. He is the co-author of Business Valuation for Dummies in the popular series.
If you want to learn more about how we can help you increase the value of your company, just give us a call at 847-446-0008 Ext. 1 or e-mail me directly at pkrone@productivestrategies.
Comments are closed.