Basic sales calculator tells a misleading story

How many leads do we need? A basic sales calculator will help you work out how may proposals and leads you need to meet your sales target. And it will be wrong.

Adding just a small degree of sophistication to your sales calculator will deliver you a very different conclusion, resulting in a very different plan.

In this week’s show, we’ll build a basic back-of-the-envelope sales calculator, and share a great free tool that will give you a result that will astound you. You need a lot less market than you think.

All right, so bear with me. I’m going to duck in and out of frame on this one, because I want to show you on a simple spreadsheet and then a simple tool this basic calculation that’s hard to do with hands and pictures and stuff that’s flying through the air. So forgive me if I disappear in and out of your screen.

Let’s start with a very basic model and say that to get a sale, we need to put two proposals on the table and to get those two proposals we need four leads. So we lose half at each point. Four leads, becomes two proposals, becomes one sale. But because I want to, in the spreadsheet, compare it to a couple of tools, I’m going to use a slightly different sales number than that. I’m going to use the assumption that we need to make six sales this quarter. So, naturally, we’re going to need to have 12 proposals and we’re going to need to have 24 leads. That bit’s easy. But do I need all of those to occur in the last quarter? Can I go fishing for 12 weeks and then in the 13th week get all the leads and the proposals? Clearly not, as much as I might like.

So we’re going to need to spread that across time, so let’s do that on the spreadsheet now. Nothing’s really changing except for that fact that we’re acknowledging that we need to start with the leads at the beginning of the month. That’s on the assumption that it takes a quarter to close a deal. Let’s replicate that picture across the next three quarters and maybe increase our sales number a touch as well, across those quarters. So now we’ve got a picture of the first year and let’s just extend it into a second and even third year, because really, although you might be targeted and even compensated with quarterly and annual numbers, the reality is that it takes normally a few years to mount a realistic assault on a product market or a market segment.

So let’s give it a full three years’ worth of numbers. And you can see from that picture that to generate around 140 sales, we’re going to need about 550 leads. So how many names do we need? Because, of course, the names don’t all lead, right? Well, let’s say that you’re amazingly successful, much more successful than I am and it takes you only 10 names for each lead. I’m trying to keep the math simple here, rather than paint a realistic picture just yet. So to get our 550 leads, we’re going to need, let’s say, 5500 names across that three year period to make our round about 140 sales. So there’s a clear enough picture, right? Turns out it’s a really inaccurate picture. Let me show you why.

In the conclusion, I’ll show you why you need a very different number from the one I’m showing you now. You need a lot less market than you might think.

‘Shortly, we’ll show you how to do this in Funnel Plan. But before that, we’re going to do two things, share with you our conclusions and invite you to receive other blogs like this. Let’s get to the conclusion first.’

Okay, let’s head on over to a different tool. It’s a free tool online, and it’s at FunnelCalculator.com. You can also get to it from the align.me website. This is a tool we built quite a few years ago and t’s still quite powerful. To set this up, I need to set the same objectives that we set for the spreadsheet. Now, the Sales Funnel Calculator asks you for the dollar value of the sales, and for the average sale value. From that, of course, it works out how many sales are needed. So let’s start with that information. There’s just a little paradigm or the way that we interact with Sales Funnel Calculator, you can double click on any sale and enter the actual value, or you can slide up or down and use these dials to adjust the values. Either of those will work.

So let’s now set the objectives, then the average sale value. And now let’s go over to leakage. We know that we’re going to lose half at the top and half at the bottom. But the Sales Funnel Calculator invites you to be a little more granular than that. Now, I’m not going to take advantage of that right now because I don’t want to bore you to tears. So let’s assume that the leakage in the top three stages that make up the top of the funnel is about the same. Let’s give it roughly 20%. And let’s assume that the leakage in the bottom of the funnel that make up these two stages at the bottom of the funnel is also roughly equal. Let’s make those settings now. The net effect is we still lose half in the top, half in the bottom. But I’ve just spread that loss across multiple stages.

Now, let’s allow for lag. We said 13 weeks, so let’s be practical and say that it takes about the same to go through each stage except for the final stage. So there’s our 13 week’s allocated. And again you can use these dials or double click to enter numbers to show how you’d like to apportion those rates. When we look at the conclusions, what it’s telling us is that as you expected, it needed… well, it’s not quite 5,500, it turns out to be closer to 6,000 but near enough. So, six thousand occasions when a buyer becomes a lead. But is that 6,000 names? No. So there’s 550 leads and certainly it’s from a larger number of prospects than 550, but it turns out we only need about 1,800.

The reason for that is to get our 6,000-ish occasions when we’ve successfully made contact, we’re going to contact, try, fail, come back, and recontact at some later point. So the 4,200 number represents occasions when we come back and try again. We call that recycling. So really, what that picture’s telling us is to get our 140 odd sales, certainly we need 5500 occasions when interest is shown, but we need that from only 1800 companies, not 6,000. That’s the power of recycling. And that’s why I was saying that a simple calculation can be accurate, but horribly misleading. This is a more reliable picture.

So what’s that shown us? Well, backward math can give us a picture. Allowing for time can give us a slightly more granular picture. It’s a picture that’s going to be more useful because it lets you know in May how many proposals you need, not just at the end of the quarter: how many sales you need to make. So allowing for time gives a more accurate picture. Allowing for recycling gives you a more believable picture. In fact, if you want to be pedantic, it is actually a more accurate picture. It’s a more real world picture.

Sales Funnel Calculator can help you create that picture. It’s a free online tool; please feel free to use it. You don’t even need to log in to use it. Let me give you the URL now, but you can also go to FunnelCalculator.com. There’s a short demo there, click on the Skip Demo if you want to go past that, or wait for the demo and then go to the tool. Here’s a link for that now.

You know what Funnel Plan does, it takes it one step further. You might even say it takes it two steps further. Firstly, it paints an even more accurate picture. I can show you that in a second. The other thing it does is it puts that velocity model into the context of your go to market plan and helps you build your go to market plan, including that velocity calculation.

‘If you enjoyed this blog, then likely you’ll enjoy others. If you haven’t already, you can subscribe to receive this blog by visiting align.me.com/blog or by visiting our YouTube channel. If you have a colleague who may be interested, we would be so grateful if you invited them to subscribe. Why don’t you do that now, and when you come back, we’ll show you how we do that in Funnel Plan.’

As you know, the funnel plan captures the objectives, the strategy, the velocity, and the tactics of your go to market plan. Obviously, today we’re talking about the velocity. But it’s the velocity to do what? It’s the velocity to generate a particular set of objectives. So the objectives that I’ve set in Funnel Plan are the same as what we’ve set in the previous two examples. Then, we’re going to take a look at the actual velocity that that dictates. Let’s head over to Funnel Plan now. So the objectives again, to be fair, I need to set the exact same objectives that I set in both the spreadsheet and in Funnel Calculator. Then let’s take a look at velocity. Now, velocity, what Funnel Calculator can do is it can let you work in either just the really big picture – broad strokes – or get as detailed as you want. So 13 weeks to close a deal, 50% of the leads become proposals and 50% of proposals become sales. Dead easy. But it also lets you take those figures and then allocate them more precisely if you like.

Now, just a little paradigm comment. If you change the big picture numbers, all of the lower more detailed numbers I’m going to show you in a second, will change. Likewise, if you change the fine granular numbers down the bottom, the big picture numbers up the top are going to change. So make up your mind whether you want to work with a big picture or the details. The way I like to work? I start with the big picture then adjust the little details so that I don’t actually distort the big picture but get a bit more accurate while I keep an eye on the big picture to make sure it’s still pointing in the right direction.

So I start with the big picture. There’s our 50% and 50%. And now let’s take a look at what that really means. Now, we’ve got leakage and we’ve got lag. We’re going to ignore for the moment Recycling, Evaporation and Meetings. They’re for another day. With leakage, we’ve got the same assumption that 10% of our positioned companies become interested. That’s a 10% success rate. Again, I know that’s silly but I’m just sticking to simple numbers here. Then we’ve got 50% leakage at the top is manifested by 21% leakage at each of three stages, and your 50% leakage at the bottom is manifested by 29% in the bottom two stages. How do I know it’s the same number? Let me check over here. On simple probability, by the time there’s an offer that’s understood I’ve got a 50% chance of converting revenue, and by the time there’s interest shown, I’ve got a 25% chance of obtaining revenue. So we know we’re dealing with the same top level conclusions, we’re just getting a bit more granular.

When I take a look at what Funnel Plan believes is the required number of prospects, it’s going to paint a slightly different picture even than Sales Funnel Calculator and I’ll show you why in a second. This calculation goes through three years; in fact it goes through four years of detailed weekly calculations. What it’s worked out across these seven stages but allowing for recycling, is that we need about 6,000 positioning occasions to get about 600 interests shown or leads if you like, to earn the right to put 290 proposals on the table, to then earn the right to win 140 sales. Now the big picture there’s similar to what we’ve already seen from Sales Funnel Calculator. But here it differs still further. Instead of 1800 new names, we need only 700. Why? Well, the reason is in Funnel Plan you get a little more precise control over these things that I skipped over, Recycling and Evaporation. What do they mean in English? When a buyer fails between Positioning and Interest, how many weeks will I leave them alone for, before I put them back into the funnel in some fashion? And I’ve said four weeks. I’ve said that all the way through.

Equally, we get control over Evaporation which is how much of the leakage will evaporate, i.e. will leak permanently or evaporate? Now, here we said that 5% of this very top stage leakage will evaporate permanently. So of the 90% that leaks, 5% of the 90% will leak forever. It’ll be unsubscribes or some other form of permanent leakage, and 25% of those that leak between Preference and Decision, because it turns out they were playing us for a second quote only (for example). But those slightly more sophisticated controls let us paint a more accurate picture. And that more accurate picture says that to get 6,000 positioning occasions, we need only 750 names to get 150 sales. That’s much better penetration of a much smaller market.

Now, remember with Funnel Plan, you can always get help. Click on the Help Center on any page and hover over any of the things that you’re unsure about and you’ll get a nice detailed explanation on the right-hand side, and you can watch a video if that’s what you want to do to get more information. So it’s hover over what you’re uncertain about, the stage or the factor, or the high level input, hover over whatever you’re not sure about and the Help Center is going to make it easy for you to understand exactly what we mean. If you want more, watch the video to get a detailed lesson on how to think about the velocity in your business.

In next week’s show, we’ll explore speeding your funnel up. But for now, may your funnel be full and always flowing.

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