Having turned around a large agency; and started, grown and sold another, I’m firmly in the ‘planning is essential’ camp.
However, I can see why planning gets a bad rap. It’s because most plans are rubbish and are, indeed, a complete waste of time. They tend to be little more than assertions of greatness, followed by aspirational numbers with little substance behind them.
So how do you create business plans that are actually helpful and which don’t take forever to put together?
Let’s start with the simplest, the growth plan, which spells out the growth challenge.
You should already have some idea of what your growth target should be, by reference to the annual Kingston Smith survey. This shows what others in your business area are managing; you will have a sense as to how busy everyone in your firm is; you will have a sense of whether yours is a high-performing business, or not. At the time of writing, many firms are managing about 15%, so let’s assume that’s what you are aiming for.
Step 1. Basic arithmetic.
(a) Look at revenue from last year, add 15%. That gives you a £ number. Add to that what your attrition is likely to be (you will know which projects are coming to an end, and you can look back to see roughly how often clients depart for other reasons). This new £ number is your revenue target; subtract last year’s revenue gives you the £ growth you have to achieve.
(b) Work out what your average (ie mean) client is and divide the £ growth by this. That’s how many clients you have to win.
Don’t be seduced by the “if we were to win one enormous client, our target would be met” argument. It’s rubbish and secretly you know that.
Last year’s revenue: £1,000,000
Growth required (15%): £1,150,000
Attrition (say): £150,000
Revenue target: £1,300,000
So you are looking for £300,000 of growth.
This may not all be new-new; it’s possible you can grow some existing clients, but for the sake of simplicity, let’s assume not.
If the average client is £60K, that’s 5 clients – yes?
No. There’s something called the “average trap”
Step 2. The average trap
Just imagine you have a new business gap of £100K.
Assume clients only come in one size – £100K a year, paid monthly.
So how many clients should you plan on winning, to meet your target?
If you said “one”, you have fallen into the trap. You see, that would be the correct answer, only if you won them on the first day of your financial year, so you received the full £100K in fees. But if you won them on the last month of the financial year, you would get only 1/12th of the fees.
So the standard planning assumption is that you win clients, on average, in the middle of the year. Which means you need two at £100K to meet the £100K hole. Or in our example, you need to aim for 10 clients, not 5.
Doing this arithmetic takes about 10 minutes, so it’s hardly an onerous burden, and its pretty important to work out how many clients you need to win.
Step 3. Working out the marketing load
(a) Work out – don’t guess – what your pitch-to-win ratio is (if you are a genuinely expert, specialist firm, you should be winning about 75% of what you choose to go for. Average firms tend to win about half and the mediocre about 25%). Let’s assume its 50%.
So to win 10 clients you need to pitch for 20.
(b) Next, work out (assuming you have the historical data…) how many prospects you need to see, to generate a single invitation to pitch (this is not under your control as it varies depending on client need). Let’s assume this is 5.
So to get 20 pitches, you need to see 100 prospects (assuming you have identified the decision maker).
(c) Finally, how many contacts do you need to make, to turn a contact into a prospect. I think it’s generally between 3-4 times. So let’s assume 3, which gives 300 meetings needed.
Now some of you will look at that number and scoff. So what I suggest you do is go through the process, putting in your own, historical numbers (not guesses or fantasy data).
For some businesses, the number of contacts required is tiny, because their success at each stage is so high. Or they have a high volume of warm prospects already, or they get a huge volume of referrals from existing clients, or they are approached on a non-pitch basis.
Some very specialist, really niche, expert firms have a pitch to win ratio of practically 1:1 (and these pitches may be informal in nature). And they generally only have to see a couple of client folks to get hired, and it may take a couple of meetings with each There are other hurdles, like doing some free work; getting the fee accepted; and so on, but do the sums and you can see their marketing load is tiny.
All I am saying is, if you want to plan properly, go through the step-by-step exercise, putting in your numbers at each stage.
Number of clients needed (x2) = W
Pitch to win ratio: X
Prospects needed to get tender: Y
Meetings for contacts to prospect: Z
Number of meetings is: WxXxYxZ = Your target.
And the chances are, for most firms its a big number. That’s why you need to have a really comprehensive marketing programme, and your people need to be out networking, pretty much non-stop. In some cases, you need to chase multiple prospects at clients, since hiring may not be the province of a single individual. And you need to have the training and systems in place to have the highest possible pitch to win ratio.
Other plans can flow from this work – the marketing plan; recruitment; etc., but this is one of the most important bits of planning you should do.
As always there’s much to do and time is short, so good luck and get cracking.