Financial Literacy Money Wheel Analysis

Money Wheel Analysis How to find repeatable sales transactions to scale revenues in tough economic times April 2009

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Overview & Contents The most successful sales forces leverage repeatable sales transactions to scale revenue. The Money Wheel is an analytical tool tech companies can use to discover the most effective repeatable sales transactions in their markets Contents    

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Money Wheel Basics – Spokes & Spoke-lets Money Wheel Examples How Can I Use A Money Wheel? Calculating Lead Generation Requirements for a Product / Service Money Wheel & Technology Adoption Life Cycle How to Build A Money Wheel DevelopmentCorporate

I Wish I Knew . . . • Where to find more predictability in our sales? • Why do some sales reps always do better than others? • How to find better leads for my sales force? • How much I really need to spend on marketing demand generation to hit my number? DevelopmentCorporate

Money Wheel

• The Money Wheel is an analytical tool to understand where repeatable, scalable sales transactions are occurring inside your markets • Two components: Spokes & Spoke-lets • Spokes – Major categories of software sales. Net new customers, expansion of existing customers, financially driven deals, etc. • Spoke-lets – Specific events that cause a customer to decide to purchase a solution. For example, when a company implements a new ERP system they often have to update or replace other systems that integrate with ERP DevelopmentCorporate

Money Wheel Example Product ABC Spokes / Spoke-lets 1. Net New ERP Change Merger SOX Compliance Subtotal 2. Add-On Balanced Scorecard Implementation Business Objects Implementation Oracle Financials Upgrade SAS Implementation WebMethods Integration Subtotal 3. Expansion New Division Post Pilot Rollout Subtotal 4. Migration Red Hat Migration zOS Migration Subtotal 5. Financial PCI Compliance Audit Q2FY08 Promotion Q3FY08 Promotion Subtotal Total

# Deals

Deal Value

% Deals

% Value

6 2 4 12

$ $ $ $

172,420 54,405 157,950 384,775

11.8% 3.9% 7.8% 23.5%

13.5% 4.3% 12.3% 30.1%

4 3 4 3 3 17

$ $ $ $ $ $

59,670 43,875 71,955 26,325 32,550 234,375

2 $ 2 $ 4 $

50,895 40,365 91,260

7.8% 5.9% 7.8% 5.9% 5.9% 33.3% 0.0% 3.9% 3.9% 7.8%

4.7% 3.4% 5.6% 2.1% 2.5% 18.3% 0.0% 4.0% 3.2% 7.1%

3 $ 3 $ 6 $

78,975 89,505 168,480

5.9% 5.9% 11.8%

6.2% 7.0% 13.2%

$ 64,935 $ 222,885 $ 112,320 $ 400,140 $ 1,279,030

5.9% 11.8% 5.9% 23.5% 100.0%

5.1% 17.4% 8.8% 31.3% 100.0%

3 6 3 12 51

• Sample Money Wheel for a typical late stage enterprise software solution • Only 30% of sales dollars and 23% of transactions come from net net customers

• Add-on sales and financially driven transactions account for majority of sales

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Money Wheel Overview Spokes 

Money Wheel Spokes identify the categories of repeatable sales transactions that occur within a product / service line 

Net New Customers – organizations that have never purchased from your company before

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Expansion Sales – Existing customer that is buying more seats / copies / users

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Add-On Sales – Existing customer that is buying an add-on product/service to support use of an existing product/service

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Migration Sales – Existing customers that are paying to migrate from one version of a product to another version of a product

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Financial Transactions – Sales transactions that are totally financially driven. Examples include 3 year prepaid maintenance deals with significant discounts and an add-on product bundled in so that some license revenue can be recognized. Conversion from term to perpetual software licenses. Disaster Recovery licenses. Etc. DevelopmentCorporate

Spoke-lets

Spoke-lets

• Spoke-lets are the types of repeatable sales transactions within a specific Money Wheel spoke • A Spoke-let answers the question: “Why did someone wake up this morning and decide they needed to buy a new software solution?” • In this example, the most common net new sales transactions were associated with a company deciding they had to implement a new ERP. That decision then triggered the purchase of your company’s software solution

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Money Wheel Example Sales Rep/ Sales $ Peters Calvin Smith Baker Jackson Edison Hobbs Jones Total

Region / Sales $ 1. Northeast 2. Central 3. SouthEast 4. West Total

1. Net New 2. Add-On $ 42,120 $ 25,530 $ 91,260 $ 64,935 $ 54,405 $ 45,630 $ 24,570 $ 50,895 $ 60,100 $ 98,280 $ 28,080 $ 14,040 $ 19,305 $ 384,775 $ 234,375

1. Net New $ 110,565 $ 24,570 $ 98,280 $ 151,360 $ 384,775

$ $ $ $ $

2. Add-On 19,305 76,425 73,710 64,935 234,375

3. Expansion 4. Migration 5. Financial $ 24,570 $ 33,345 $ 124,605 $ 31,590 $ 26,325 $ 26,325 $ 63,180 $ 26,325 $ 42,120 $ 50,895 $ 29,835 $ 47,385 $ 36,855 $ 50,895 $ $

14,040 91,260 $

$ 168,480 $

3. Expansion 4. Migration $ 40,365 $ 26,325 $ 24,570 $ 63,180 $ 26,325 $ 42,120 $ 36,855 $ 91,260 $ 168,480

$ $ $ $ $ $ $ 31,590 $ 400,140 $

5. Financial $ 138,645 $ 128,115 $ 50,895 $ 82,485 $ 400,140

$ $ $ $ $

Total 250,170 187,785 170,235 164,970 152,685 147,850 126,360 78,975 1,279,030

Total 335,205 316,860 291,330 335,635 1,279,030

• Data can also be re-cut to show what reps/ regions are doing what types of deals. • In this example, Peters is the leading rep, primarily because he sells primarily to existing customers. Hobbs does the best in selling to net new customers • The SouthEast region has a hard time selling financially driven deals DevelopmentCorporate

How Can I Use a Money Wheel? • Focus sales force on highest yielding sales transactions • Identify patterns of successful sales transactions in one region / rep that can be replicated in other areas • Determine lead generation requirements that are needed to hit a specific Product / Service revenue target

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Reverse Engineering the Sales Funnel • The Money Wheel can help you determine what your lead generation requirements are for a specific product / service • The Money Wheel identifies the targeted # of sales for each spoke / spoke-let • By applying historical conversion ratios you can estimate the # opportunities by sales stage needed to hit a revenue target • Note, each spoke in the Money Wheel will have different conversion factors • Typically have higher conversions for sales to existing customers • Let’s you sanity check reality – are there enough suspects in the market to meet your needs? DevelopmentCorporate

Demand Generation Estimate Example Product ABC Spokes / Spoke-lets 1. Net New ERP Change Merger SOX Compliance Subtotal 2. Add-On Balanced Scorecard Implementation Business Objects Implementation Oracle Financials Upgrade SAS Implementation WebMethods Integration Subtotal 3. Expansion New Division Post Pilot Rollout Subtotal 4. Migration Red Hat Migration zOS Migration Subtotal 5. Financial PCI Compliance Audit Q2FY08 Promotion Q3FY08 Promotion Subtotal Total

FY09 Targets # Deals FY09 Target 96 32 64 192

$ 2,758,720 $ 870,480 $ 2,527,200 $ 6,156,400

64 48 64 48 48 272

$ 954,720 $ 702,000 $ 1,151,280 $ 421,200 $ 520,800 $ 3,750,000

32 $ 814,320 32 $ 645,840 64 $ 1,460,160 48 $ 1,263,600 48 $ 1,432,080 96 $ 2,695,680 48 96 48 192 816

$ $ $ $ $

1,038,960 3,566,160 1,797,120 6,402,240 20,464,480

Sales Funnel Stages / Conversion Factors Suspects Prospects Qualified Selected 2.5% 7.5% 15.0% 75.0% 455,111 11,378 853 128 151,704 3,793 284 43 303,407 7,585 569 85 910,222 22,756 1,707 256 15.0% 25.0% 50.0% 75.0% 4,551 683 171 85 3,413 512 128 64 4,551 683 171 85 3,413 512 128 64 3,413 512 128 64 19,342 2,901 725 363 10.0% 25.0% 50.0% 75.0% 3,413 341 85 43 3,413 341 85 43 6,827 683 171 85 20.0% 25.0% 50.0% 75.0% 2,560 512 128 64 2,560 512 128 64 5,120 1,024 256 128 15.0% 25.0% 40.0% 50.0% 6,400 960 240 96 12,800 1,920 480 192 6,400 960 240 96 25,600 3,840 960 384 967,111 31,204 3,819 1,216

Closed 100.0% 96 32 64 192 100.0% 64 48 64 48 48 272 100.0% 32 32 64 100.0% 48 48 96 100.0% 48 96 48 192 816

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Money Wheel Evolution

% Revenues Net New Customers % Revenues Existing Customers Total

Visionaries 97% 3% 100%

Early Adopters 85% 15% 100%

Early Majority 60% 40% 100%

Late Majority 45% 55% 100%

Laggards 15% 85% 100%

• The Money Wheel for a Product / Service is not static • It evolves as the Product / Service moves through the technology adoption life cycle • Understanding where your solution is in its evolution is critical to building a good Money Wheel

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How to Build a Money Wheel 1. Develop Sales Transaction Analysis 1. Assemble historical sales transaction information 2. Identify spoke-lets 2. Build Historical Money Wheel 1. Analyze by spoke / spoke-let, region, rep, and vertical 2. Identify any fundamental shifts in mix over time 3. Assess Position in Technology Adoption Life Cycle 1. Honestly assess where product / service is in TALC 2. Develop consensus of most effective spoke-lets for market position 4. Develop New Money Wheel 1. Develop for next 12 months 2. Establish basic revenue target 3. Determine distribution of transactions / $$$ over spokes / spoke-lets 4. Calculate demand generation requirements 5. Sanity check to see if demand generation requirements are feasible 5. Roll out Money Wheel to Field 1. Train sales force on concepts and how to leverage spoke-lets DevelopmentCorporate

Closing Thoughts

• The Money Wheel is just a tool to help management understand where their best sales opportunities lie. • It provides a way to identify where the best types of repeatable sales cycles exist for a Product / Service • It also provides a framework for assessing where to invest marketing lead generation dollars and resources

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DevelopmentCorporate DevelopmentCorporate is a strategic corporate development advisory firm for enterprise and midmarket technology companies. We assist management teams, board of directors, and investors in updating their merger, acquisition, and divestiture strategies and then we provide tactical support for the implementation of those strategies. Our credentials include: •Served as trusted advisor for four public company boards of directors as well as three large private equity firms •Developed over 300 in-depth analyses of public and private technology company acquisition candidates •Led the approach, initial management meetings, and due diligence for over 40 acquisition projects •Led 4 major acquisitions that closed for over $200 million in consideration. •Played a supporting role in 4 other acquisitions that closed for over $300 million in consideration. •Led 8 major divestitures that generated over $30 million in consideration •Led numerous cross border projects, especially in Western Europe, Korea, and Japan •Led over 12 major strategic corporate restructuring projects DevelopmentCorporate

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