Month: February 2013

Meet your Revenue Target: Calculate backwards

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Funnel 1: Sales Funnel

Calculating what you need in your Sales Funnel starts with your revenue objectives for the year, and then working backwards to find out how much you need in each of the funnels.
To start with, let’s say your revenue objective for the year is $10 million and that your average sales size is $25,000. Therefore, on average, you will need to close 400 deals during the year to achieve your revenue target.
You know that you will not close every single sales opportunity. However, you probably know your average closing ratio out of a given number of well-qualified leads, on average, how many does your sales team close.
Armed with your average closing ratio, you can calculate the number of well qualified leads you will need to close 400 deals.
This is also the focus of the next funnel, Sales Qualified Leads. 
Funnel 2: Sales Qualified Leads (SQL’s)
 Let’s say that you can close one out of every four (1:4) well qualified leads.
Therefore, in order to close 400 deals you will need to meet your revenue objective of $10 million for the year, you will need 1,600 Sales Qualified leads (SQL).
The goal here is to pre-qualify a lead to determine that the prospect meets your minimum sales qualification criteria: prospect has a well defined pain that you can address; he/she has authority and budget to purchase your solution; he/she wants to address this pain within your minimum timeline requirement (e.g. next 3-6 months), and is willing to setup time to meet with you.
Of course, you will do further discovery during the scheduled sales call to make sure that this is a viable sales opportunity. But, you can see how such pre-qualification over the phone can significantly reduce the time you spend qualifying leads that may not be viable in the first place.
This SQL Funnel is the key to integrating Marketing and Sales. Without this, leads that are not well-qualified will be passed on to you and that will increase close cycles and reducing closing ratios–which in turn will result in missed revenues. 
Funnel 3: Marketing Qualified Leads (MQL’s)
Now we have calculated that we will need 1,600 Sales Qualified Leads. So where will these SQL come from?
Let me tell you that this is where things break down. In most cases, marketing sends over the requested 1600 leads, and Sales rejects many of these as unqualified. These are called Marketing Qualified Leads.
MQL’s are prospects that have indicated interest in your company’s products or services by doing something such as downloading a white paper, attending a webinar or seminar, giving you their cards during a trade show, etc. In other words, they have shown some interest, but you don’t really know if they are qualified to purchase your products or services yet.
In other words, these are not yet ready to be passed on to Sales until they are better qualified.
If we assume that the ratio between MQL’s and SQL’s is 5:1 or out of five prospects that indicated interest, only one will be qualified enough to be passed on to Sales.
Therefore, your Marketing Organization will need to provide at least 8,000 such Marketing Qualified Leads (MQL’s) so as to obtain at least 1,600 Sales Qualified Leads, which the Sales Organization then takes as its Sales Funnel to close the 400 deals it needs to generate the targeted $10 million for the year.
Funnel 4: Touched Unqualified Leads
We have reached the top of the funnel now. These are Touched but Unqualified Leads. It looks tricky but the easy part is figuring out how many potential prospects are in your target market. For example, if your target market is CXO’s of retail companies with over $5 millionin revenue but not bigger than $500 million, there may be 32,000 such prospects.
However, how many of these you will be able to reach is a function of a number of factors, many of which are hard for you to determine without the use of fairly expensive tracking tools requiring some specialized knowledge.
What you know is that you need at least 8,000 of them to take some action that will indicate to you that they want to be contacted so you can better qualify them.
So, working the numbers backwards again, if you need to reach 8,000 and you assume maybe one of out of three (1:3) of those that you touched will actually act, then you will need to reach 24,000 of the 32,000 available. So, does that mean you need to create 24,000 marketing impressions? Not so fast.
There are studies that suggest that in this “overly-communicated” world, you will need to reach a prospect with at least 10-15 impressions before he or she will even notice you and act on your marketing message.
So the real number of impressions you need to create is more like 240,000 to 360,000 impressions through a variety of programs such as email campaigns or online marketing
Sure, you can cold call every one of those 32,000 contacts, but this is very time consuming, not to mention prohibitively expensive. 

Now on, every time you hear this ” We don’t have marketing budget for this year”…..well, God bless them!!!

This entry was posted in Sales and Marketing.