Financial Literacy: Money Wheel Analysis

DevelopmentCorporate

Money Wheel AnalysisHow to find repeatable sales transactions to scale

revenues in tough economic times

April 2009

DevelopmentCorporatewww.developmentcorporate.com

http://www.developmentcorporate.com/


Overview & Contents

Contents

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

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


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?

http://www.developmentcorporate.com/wp-content/uploads/2008/12/yelling-man.bmp


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


Money Wheel Example

• 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

Product ABC Spokes / Spoke-lets # Deals Deal Value % Deals % Value

1. Net New

ERP Change 6 172,420$ 11.8% 13.5%

Merger 2 54,405$ 3.9% 4.3%

SOX Compliance 4 157,950$ 7.8% 12.3%

Subtotal 12 384,775$ 23.5% 30.1%

2. Add-On

Balanced Scorecard Implementation 4 59,670$ 7.8% 4.7%

Business Objects Implementation 3 43,875$ 5.9% 3.4%

Oracle Financials Upgrade 4 71,955$ 7.8% 5.6%

SAS Implementation 3 26,325$ 5.9% 2.1%

WebMethods Integration 3 32,550$ 5.9% 2.5%

Subtotal 17 234,375$ 33.3% 18.3%

3. Expansion 0.0% 0.0%

New Division 2 50,895$ 3.9% 4.0%

Post Pilot Rollout 2 40,365$ 3.9% 3.2%

Subtotal 4 91,260$ 7.8% 7.1%

4. Migration

Red Hat Migration 3 78,975$ 5.9% 6.2%

zOS Migration 3 89,505$ 5.9% 7.0%

Subtotal 6 168,480$ 11.8% 13.2%

5. Financial

PCI Compliance Audit 3 64,935$ 5.9% 5.1%

Q2FY08 Promotion 6 222,885$ 11.8% 17.4%

Q3FY08 Promotion 3 112,320$ 5.9% 8.8%

Subtotal 12 400,140$ 23.5% 31.3%

Total 51 1,279,030$ 100.0% 100.0%


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

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

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

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

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 perpetualsoftware licenses. Disaster Recovery licenses. Etc.


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

Spoke-lets


Money Wheel Example

• 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

Sales Rep/ Sales $ 1. Net New 2. Add-On 3. Expansion 4. Migration 5. Financial Total

Peters 42,120$ 25,530$ 24,570$ 33,345$ 124,605$ 250,170$

Calvin 91,260$ 64,935$ 31,590$ 187,785$

Smith 54,405$ 26,325$ 26,325$ 63,180$ 170,235$

Baker 45,630$ 26,325$ 42,120$ 50,895$ 164,970$

Jackson 24,570$ 50,895$ 29,835$ 47,385$ 152,685$

Edison 60,100$ 36,855$ 50,895$ 147,850$

Hobbs 98,280$ 28,080$ 126,360$

Jones 14,040$ 19,305$ 14,040$ 31,590$ 78,975$

Total 384,775$ 234,375$ 91,260$ 168,480$ 400,140$ 1,279,030$

Region / Sales $ 1. Net New 2. Add-On 3. Expansion 4. Migration 5. Financial Total

1. Northeast 110,565$ 19,305$ 40,365$ 26,325$ 138,645$ 335,205$

2. Central 24,570$ 76,425$ 24,570$ 63,180$ 128,115$ 316,860$

3. SouthEast 98,280$ 73,710$ 26,325$ 42,120$ 50,895$ 291,330$

4. West 151,360$ 64,935$ 36,855$ 82,485$ 335,635$

Total 384,775$ 234,375$ 91,260$ 168,480$ 400,140$ 1,279,030$


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


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?


Demand Generation Estimate Example

Product ABC Spokes / Spoke-lets # Deals FY09 Target Suspects Prospects Qualified Selected Closed

1. Net New 2.5% 7.5% 15.0% 75.0% 100.0%

ERP Change 96 2,758,720$ 455,111 11,378 853 128 96

Merger 32 870,480$ 151,704 3,793 284 43 32

SOX Compliance 64 2,527,200$ 303,407 7,585 569 85 64

Subtotal 192 6,156,400$ 910,222 22,756 1,707 256 192

2. Add-On 15.0% 25.0% 50.0% 75.0% 100.0%

Balanced Scorecard Implementation 64 954,720$ 4,551 683 171 85 64

Business Objects Implementation 48 702,000$ 3,413 512 128 64 48

Oracle Financials Upgrade 64 1,151,280$ 4,551 683 171 85 64

SAS Implementation 48 421,200$ 3,413 512 128 64 48

WebMethods Integration 48 520,800$ 3,413 512 128 64 48

Subtotal 272 3,750,000$ 19,342 2,901 725 363 272

3. Expansion 10.0% 25.0% 50.0% 75.0% 100.0%

New Division 32 814,320$ 3,413 341 85 43 32

Post Pilot Rollout 32 645,840$ 3,413 341 85 43 32

Subtotal 64 1,460,160$ 6,827 683 171 85 64

4. Migration 20.0% 25.0% 50.0% 75.0% 100.0%

Red Hat Migration 48 1,263,600$ 2,560 512 128 64 48

zOS Migration 48 1,432,080$ 2,560 512 128 64 48

Subtotal 96 2,695,680$ 5,120 1,024 256 128 96

5. Financial 15.0% 25.0% 40.0% 50.0% 100.0%

PCI Compliance Audit 48 1,038,960$ 6,400 960 240 96 48

Q2FY08 Promotion 96 3,566,160$ 12,800 1,920 480 192 96

Q3FY08 Promotion 48 1,797,120$ 6,400 960 240 96 48

Subtotal 192 6,402,240$ 25,600 3,840 960 384 192

Total 816 20,464,480$ 967,111 31,204 3,819 1,216 816

Sales Funnel Stages / Conversion FactorsFY09 Targets


Money Wheel Evolution

Visionaries Early Adopters Early Majority Late Majority Laggards

% Revenues Net New Customers 97% 85% 60% 45% 15%

% Revenues Existing Customers 3% 15% 40% 55% 85%

Total 100% 100% 100% 100% 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

http://upload.wikimedia.org/wikipedia/commons/d/d3/Technology-Adoption-Lifecycle.png


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


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



Copyright 2009 Development Corporate

www.developmentcorporate.com

DevelopmentCorporate is a strategic corporate development advisory firm for enterprise and mid-market 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