What's the appropriate amount to spend on an engagement ring?
As strange as it may sound, I often start sales strategy sessions with this question. What's interesting to me is that I hear the same three answers 90% of the time. I hear either:
- 3-months salary
- 2-months salary
- 1-month salary (this one usually gets gently mocked by the groups who chose one of the longer time periods)
Often, with slight variations in the response, there is a known "rule of thumb" when it comes to buying a ring.
Then I ask a different question - “What's the appropriate amount to spend to improve your sales this year?”
You can replace the word sales with marketing, or customer experience, or leadership development, or whatever you want.
I've had hundreds of wildly different answers to this. If I'm in a room with ten people and I ask them to write down the answer first, I'll typically get at least eight different answers. I counted recently, and the last 100 people I asked this had 83 different responses or rules.
The need for such a rule was brought to my attention a little over ten years ago, at around the time I started doing sales & customer loyalty work with larger companies. I was talking to the CEO of a company that did $150M/year in revenue, and I put together what I thought would be a great plan for him. After he read it, we got together, and he told me that he couldn’t do business with me.
I was surprised...
I thought I’d provided a great plan, at an even better price.
He said this to me.
“Noah, what I’ve learned is that in areas like sales and customer loyalty, I have to allocate at least three days worth of my sales revenue on significant projects that are important enough to be worth my investment and involvement.
You put together a plan here that would work if you were dealing with my marketing director, and he could find the budget for it without involving me. But what I’m looking for is work that will impact the whole of the organization, and signal to everybody that this isn’t just another flavor of the week, but something that is important to everybody in the company.”
I’ve kept in touch with that CEO over the years, and his company has grown tremendously. We eventually found a few opportunities to work together. As I worked with more and more companies, I saw the wisdom in his rule over and over again.
Different companies had slightly different rules, but the ones that succeeded over the long term always had a rule like this in place.
Using his type of math was simple.
20M in revenue / 365 days * 3 days = Approx. $164,384
200M in revenue / 355 * 3 days = Approx. $16M
I've since borrowed this and it's become my 3-day rule.
There are a four key reasons why a rule like this works.
- It requires you to focus heavily on the areas that will have the highest immediate impact on your company.
- It requires you to identify areas that can have a massive impact - if you’re a $50M company and spending $410k on a project to improve your sales team performance then you must be pretty confident that you’re going to see an improvement of $2-4M/year in sales.
- It makes it worth it for you to invest time, attention, and energy into making it succeed - remember, when you work with consultants, they can provide expertise and advice, but have no authority. It’s up to you to ensure compliance. If you’ve done your homework to identify the area that will have the most significant impact, and done your homework further to find somebody who can create that change for you, it’s much more likely that you’re going to be involved and create the change that’s required.
- It allows you to work with a single provider, instead of ending up as a de facto project manager for a bunch of low paid, low performing people each making minor changes in different parts of the organization.
Most companies aren't thinking about it in these terms.
They try to spread out a budgeted amount of 'training' dollars, or they haphazardly accept a bunch of low cost, low-value proposals across the space of a year or two. Think differently.
Here's a better way to think about it. If you're a company doing $20M, how could you invest $165k in a single project that would create a massive improvement to your sales team?
Your challenge for this week: If you've put aside money for creating dramatic improvements to your sales, marketing, or customer loyalty efforts this year, are you spending them appropriately? If you haven't put aside money for creating dramatic improvements, is it because you're already world class and there's no room for improvement?
Let’s talk about it. Simply drop me an email below and I'll get in touch.