Having insights into the potential revenue a prospective client could generate proves invaluable when evaluating a sales opportunity. This understanding allows for a more accurate assessment of whether the company can financially accommodate your offer. In the case of existing clients, comprehending their total revenue potential aids in identifying additional upsell opportunities. For those considering the acquisition of a company, estimating its sales becomes a crucial factor in the decision-making process.
The catch, of course, is that sales figures can be tough to come by unless you are selling to a publicly traded entity. Most private companies keep their revenue figures close to their figurative chests.
While there are data services like Dun and Bradstreet (D&B) Hoovers that you can get some information from, it’s been my experience that the data they provide on private companies is often a rough estimate and, at times, inaccurate.
The good news is that you can use a couple of questions as a hack or workaround to determine a company’s sales.
Let me explain.
1. What’s Your Capital Budget?
When I was selling to large telecom networks earlier in my career, we had a good baseline to work with to understand our sales potential with our clients. It started with an innocent question: What is your capital budget? You can lean on industry standards to backfill a company’s revenue based on how big its capital budget is. For example, an average company might spend 5 percent of its revenue on capital, so knowing the budget can easily translate into an overall revenue estimate.
Our target for all clients was to get 0.2 percent of the capital budget when well penetrated. While that might seem like a minuscule number, it was pretty sizable since our clients had budgets and revenues measured in billions of dollars. Setting our target as a percentage of the capital budget rather than revenue allowed us to gauge where we might have some additional upside with a client under that 0.2 percent figure.
2. How many employees do you have?
While the leaders of a company might stonewall you on answering a question about their revenue, most will readily tell you how many employees they have. That’s a great way to build a revenue estimate based on their industry. For example, a reasonably well-run manufacturing business might generate anywhere from $200,000 to $300,000 in sales per employee. That means a company with 300 employees might bring in $10 million in sales annually. Professional services companies might generate $500,000 to $700,000 in sales per employee–while that figure can jump as high as $1 million per person in a software company. Once you learn the industry standard, you can estimate client revenue and determine if they can use and afford your offering.
3. What’s the square footage of your facility?
This question is less valuable than it used to be before we began working in a hybrid environment, where more people are working virtually. The size of a company’s facility can be a neat hack to estimate how many employees a company has–which can then lead you to their revenue.
Again, knowing your industry will help. A manufacturing facility will differ from a software company. Another shortcut can be to count the number of cars in the company’s parking lot to estimate how many employees they have: one per car. In the current hybrid environment, you might need to multiply by two to get the actual figure.
Information Is Power
If you’re searching for potential new clients who can afford your offering, or even if you’re looking for a new acquisition, it’s beneficial to know what kinds of sales a company generates. While paying for data can be a good start, it can often lead you to make poor conclusions. I remember talking to a CEO I thought was running a $20 million company based on data I paid for, only to learn that they had more than $80 million in sales.
If you want to save yourself that kind of embarrassment, use a couple of low-tech questions instead to help you get a better estimate of a company’s revenue. You’ll be surprised at how effective they can be.