Simple math for what it takes to make your sales goals this year
By: Kevin Hourigan – Bayshore Solutions President and CEO
There is often a great misunderstanding of the processes and support systems that can make or break a company's ability to achieve their sales expectations. A very useful tool to clarify this understanding is the Sales Funnel Model to illustrate what levels of sales prospecting and marketing support (both online and traditional methods) are needed to generate enough leads to fuel sales.
What is the Sales Funnel Model?
The sales funnel is a graphical representation of the flow through your sales process from many general prospects in your target customer population narrowing to those that become your customers. From the top of the funnel down, the general layers of narrowing phases and the conversion points that transition these are as follows:
- Targets. These are the prospects, suspects or online searchers that are in the market for your product or service. They ‘convert’ to the next level to become
- Leads. These are people that have indicated interest or acknowledged a need for your product or service. Completing a quote request form on your website clearly defines a lead. These convert to the next level to become
- Opportunities. These are the people that are qualified and to whom you will present a proposal. These convert to the final bottom level of the funnel as they become
- Sales. Your closed-won deals and customers.
Each business entity has unique conversion percentages for their funnel stages. Your historical sales data will show your specific rates. By way of example let’s use these: a conversion rate of 10% of targets who progress to leads, of which 25% qualify as an opportunity to receive a proposal, and of that 25% of these deals are won as sales.
How do you apply the “Simple Math”?
Given these conversion rates, the key is to take your sales revenue goal and your real historical average sales deal amount and work back up the funnel stages to get a clear picture of how much you need to pour into the top to achieve your goals at the bottom. For a Business to Business firm example, if your annual sales target expectation per sales rep is $1 million, and your average deal size is $15,000, then you need to win 6 deals ($90K) each month to achieve that revenue. Applying the conversion rates back up the funnel, this translates into 24 proposals ($360K) per month and 96 leads per month with marketing and prospecting systems support to influence $160 million worth of prospects per salesperson.
How realistic are the results?
The math is straightforward, showing what volume of input is needed at given conversion rates to achieve a set goal amount. When companies take themselves through this exercise, the most common result is the realization of a critical weakness in their ability to fill the top of the funnel. It goes beyond simply setting a sales quota number and securing buy-in to that number. If you can’t fill the needed prospects into the top, then you will never reach the goal at the bottom. It’s not that your salespeople are putting you out of business; it is a matter of having the correct company wide marketing and sales plan and processes in place to feed your funnel.
How do you make it work?
Determining who (marketing staff and sales reps) is responsible for generating top of the funnel leads from which sources (web marketing, events, referrals, networking, prospecting) is the first step. Next develop what amount of leads and conversion percentages will be used as scorecard metrics to manage activities for success. Then, assess who is doing what blocking and tackling in generating these leads and maturing them down the funnel. Are the people, processes, tools and metrics aligned and in place to generate the quantity and quality of leads needed?
With this alignment in place, you can also work on influencing the funnel dynamics to more efficiently lead to your goal. Items that can change the math results quickly are conversion rates and the average sale size.
For example: If you could increase the average deal size to $21K and your sales conversion rate to 39% you would have much less to fill at the top of the funnel. Changing just these two factors revises the math to require: 4 deals won monthly, 11 proposals presented monthly and 44 viable leads generated monthly which achieves (and exceeds) the annual goal revenue at $1,008,000.
Weekly tracking of the marketing and sales details attached to leads generated, conversion to opportunities, and proposals to won deals is key. This will help you analyze the tactics that are working best, what types of leads to prioritize time and effort on, and what sources and influences are your best cost per lead investments. Knowing how changes in the funnel factors affect the outcome will also guide adjustments in strategy and help you manage to the metrics that add up to successfully reaching your sales goals.