Let’s assume that we are examining a company that does $15 million annually with a 30% close rate. Deal size averages $75K and the sales cycle is 90 days. They need 200 closed deals annually. Their 10 sales reps are each closing 20 deals per year while working 60. Their closing pipeline will contain 12-15 deals.
Assume fixed costs are approximately 25% and the operating profit is 15%. Net: $2,250,000
What happens if each rep closes one more deal? This would be an additional $1,500,000 in revenue. Net of fixed costs, this would yield an additional $1,125,000 in margin. Total would be $3,375,000. A 50% margin increase.
What happens if on average each rep loses a deal so they only close 19 deals. This is a revenue loss of $1,500,000. Net of fixed costs this is a $1,125,000 loss. This means that the margin is cut in half.
The impact of each rep just closing one more deal is dramatic. So is the impact of each rep losing one more deal.
Is it realistic to think that all 10 reps are on target. Absolutely! Why? Because the sales force is relatively small. While it isn’t realistic to think that staffing a large sales force with top line talent is likely, it is absolutely realistic to staff a small team with exceptional people. This is exactly how the Seals, Delta, Special Forces, USMC Force Recon and other elite organizations operate. They build elite teams, one exceptional individual at a time.