You work really hard for three years and does that leave you with 2% of the market or 20% of the market? How do you know? How much market do you need? We’ll explore how to make a perfect funnel model of your imperfect funnel in this week’s show.
Here’s how the basic math works. Start at the bottom, how many sales do you need, work out what your leakage is by each stage and do the backward math. Now it can be that simple, but that invites all sorts of questions about what a good funnel looks like and that’s what we’ll explore in this week’s show.
Let’s assume some very basic parameters. We need let’s say 10, 15, 20 and 25 deals for each of the next four quarters. The deals are $10,000 a piece and let’s for the sake of simplicity assume that we only manage to get 25% from each stage of the journey to the next stage in the journey. It’ll make the math simple. For our 10, 15, 20 and 25, that’s 70 deals across the next year.
If we apply the backward math from 25%, the model looks a bit like this, 70 sales from 70,000 names. Now that’s awful I know. That’s not a model I’d want to prepare and present to my clients or my bosses. We’ll come to what it takes to improve that shortly, but let’s just get the model going first. With those basic assumptions, we need a pretty large market to get our 70 sales, but it’s a misleading picture because in very few B2B or complex sales environments is the lag zero, meaning it normally takes months or sometimes years to generate a sale.
We actually need to allow in the model for our backward math not to go for a straight line, but somewhat to stagger to show for the fact that … in fact, let me point the other way, stagger so that sales that we make down here are generated from opportunities that we created a little earlier on. Again, for the sake of simplicity, I’ll paint an unrealistic picture and let’s say that each progression takes exactly one quarter.
Your business might be faster or slower and it’s unlikely that they’ll be evenly a quarter. We’re looking at a pretty basic model here, so bear with me and let’s get those 70 sales from opportunities created earlier. The model now looks like this. You can see that we’ve staggered the math. We got the 25 deals in Q4 that still needs a hundred proposals, but now those proposals need to occur in Q3. Take a look at the silliness at the top right of the model. Because the deals are coming from opportunities that we created much earlier and because in this model we’ve got multiple stages in the journey, really that’s painting a picture that says that we’ll only close sales in Q4 from opportunities that have already been created even before Q1 and because of that same effect, in Q4 we don’t need to start any new opportunities.
Well, that’s silly because they’ll be a fifth and a sixth and a twenty-sixth quarter we hope, so the picture is unrealistic. Let’s now pattern it out by taking out to fully nine quarters so that we can have data populated in each of those sales. Let’s do that now. We’ve got nine quarters now in order to populate the very top of Q4 with names required. Those Q4 names are required for deals that are closed in Q9. You get the picture.
Because it’s a little messy, let’s shrink it down. The picture here just got a little worse, that is the 70 sales that we want over the next year are going to come not from 70,000 but more like 170,000 names because we need enough names to generate a success not just for year one but for multiple periods. The picture just got a little worse.
What if we changed something? Now I’m going to go from extremes here to make the point. These six stages are not realistic. I want to make the point about the model. Instead of 25% success stage by stage, what if we had 75% success? That is 3x better success at each stage. The model goes from this to this. Now instead of needing 170,000 names, we need only about 700. By getting 3x better at each stage, the effect is not 3x but closer to 25x. You know that I’m painting an extreme picture here, but I am mounting a case for understanding what your actual progression rates are and getting better at them because the better at each stage has a compounding effect.
We’ve had two models there, one with a very fat funnel and one a very skinner funnel. Is fat or skinny necessarily better in a funnel? Let’s take a look at that. The answer won’t surprise you. We need to get our success from the skinniest possible funnel. Why? Sales is a wickedly expensive exercise. It’s powerful, it’s important, it’s necessary, but it’s obscenely expensive. We want to have salespeople operating on opportunities that got a high chance of closing, not opportunities that have a low chance of closing.
We need to choose tactics that can get our funnel from very fat to very skinny and we have a much higher expectation of our chance of progressing from each stage, but marketing is expensive too. We need to not just narrow the funnel, which has a big effect on our sales cost, some effect on our marketing cost, we need to do one other thing and that is instead of finding prospects, trying them and then succeeding or failing and if we fail forget about them, we need to come back to those same prospects again and again and again because that way, we can dominate that small market.
Instead of getting the sales that we need, in fact over the two years it’s more like 270, not the 70 that I showed in the first year, but bear with me on that for a moment. Instead of getting those 270 sales from 700, let’s get it from a market more like 500 by nurturing and recycle the prospects really well. I’ve really argued two important things after we got the mechanics going. The first one is we’ve got the skinniest funnel possible, that has the highest rate of success stage by stage and that we want to nurture prospects who are not in the funnel to get them back in again.
Now if you’ve seen my previous blogs, you’ve heard me argue that the traditional focus on how do I make my funnel flow faster and yes that was a deliberate alliteration there. Basically it’s dumb to try and rush your buyers. In fact, it has an adverse effect on your success. Better find a way to reduce your leakage and now you’ve seen why.
If you enjoyed this blog then likely you will enjoy others. If you haven’t already, you can subscribe to receive this blog by visiting align.me/blog or by visiting youtube.com/alignmeb2b. 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, Funnel Plan is a great way to build and articulate your go to market plan that sales and marketing have built and agreed the objectives, the strategy, the velocity and the tactics that you’re going to use to win. Today of course we’re talking about the velocity and in particular how do we build a model for the velocity and improve it.
Let’s take a look at the Funnel Plan software and this is a surprisingly simple exercise. Let’s open the plan that we’ve been using for a while which is a blogging video. Having used Funnel Plan already, you would know that there is this concept of simple and advanced funnel math. To the uninitiated, we can deal with very high level picture of your velocity or a more detailed high level one, just four basic questions: how long does it take to go from a lead to a closed deal, in this case we’ve got 13 weeks in the blogging example that I just gave, now we had more than a year. In this case, we’ve got a quarter growth. How many of your leads will become proposals and how many of those proposals will become sales? So a very simplified, if you like top half-bottom half a funnel and how many meetings will it take? The meetings aren’t going to apply it in today’s context. Those simple numbers become much more advanced stage by stage numbers. In the show, I was using a simplified example of a 25% success rate which is a 75% leakage, leakage meaning success and then I flipped those around.
In this example, we’ve got the ability to have different rates of success or different leakage in fact stage by stage. Instead of the standard 75% leakage stage by stage, I’ve got a chance to address them variably. What happens is when you enter the numbers here at the top, if I change that from 25% success for the top half to 75% success, that 75% becomes 9% leakage at each of the three stages.
Just as equally, I could enter leakage rates at each stage. Now I’m not going to while I’m typing, but I can adjust those rates and then my top half funnel numbers will adjust accordingly. Start with the big picture, go into the details, check the big picture after that. Here’s the thing, that’s all I need. I can now generate my velocity here in this simple model or I can simply click the PDF button and it takes me to this total go to market plan of which the velocity model is calculated.
If I change any of the variables, clicking PDF again reproduces the PDF of the Funnel Plan, the whole plan in one page and there’s the velocity model. Now the magic though is not in the presentation. The magic is in the calculation because I’ll go back to the software. What is calculated here is not just how successful you move the buyer through each stage, but also hidden from view at the moment is the recycling and that is after four weeks, once they’ve leaked, we put them back into the funnel to be recycled again and that calculation is the complexity of the algorithm but the beauty of the model because that’s your reality.
You will be going back to those prospects I hope quickly to nurture them, to get them back into your funnel. Really that’s it. We can enter some high level velocity numbers, some more detailed math derived from that, we can change where the lag occurs instead of just 13 weeks, I can change it stage by stage. Instead of assuming that I have a 25% success rate for the top half in total, I can change these three lots of 37 to some other numbers. I can make those fine tuning adjustments, click my PDF and there’s my velocity model, calculated, mindful of lag, mindful of leakage and mindful of recycling. It’s that easy.
In next week’s show, I’ll show you some great tips for B2B email marketing. Until then, may your funnel be full and always flowing.