“Perfect is the enemy of good.” So said Voltaire, an 18th century French philosopher. If we cycle forward to the 21st century, our problem is we drown in detail. We get so caught up in the statistics of conversion rates and click through rates and sales conversion rates that we lose the clarity of what is actually going on in our funnel.
In most businesses you can ask the sales leader what their closure rates are, and they’ll know and you can ask marketing what their click through rates are and they’ll know that too. However, do either of them know what their click to revenue rates are? Or what their dollars per inbound lead are generating by way of revenue? Often we don’t because we’re lost in the detail about micro-measurements. Today I’ll show you just how four numbers can help you build a model of your funnel and I will also build a statistically valid model using those same four numbers.
So there are just four numbers that we really need to have to be able to build a valid model. Do we know how long it takes to convert a lead to a sale? Well of course we do. We can get that from your CRM. Importantly though, don’t look at all opportunities in the CRM, only wins. We want to know how long it takes to move through the funnel when we win. Do we know what proportion of our leads eventually result in a proposal? Of course we do. Get a list of every lead generated last year and every proposal. Tick off all of those proposals that we count as having started with one of those leads. I know you can get into a bit of a dog fight here about influenced leads versus created leads. But, as long as you use that same basic rule each time you compare yourself year over year it doesn’t matter. That’s all you need. Now do we know how many meetings it takes to make a sale? Of course we do. Sit down with five different sales people and get them to pull out their calendars for their last four sales and count them up.
Do we know our real closure rates? Sure. Get a list of every proposal that went out the door last year, remove those that are still being worked on because we don’t know whether we are going to win or lose. How many have been one? Wins divided by resolved proposals is your ratio. It’s usually worse than the sales guys think. So that’s the meat of it. For example, if you had to generate 100 sales in Q4 and you had a 50 percent propose-to-close ratio and your lead-to-propose ratio was about 20 percent meaning that one in every four of your leads actually generated a proposal and it took five meetings to make a sale. Well, to get your 100 sales you’re going to need 200 proposals, and to get your 200 proposals you’re going to need about 1000 leads and for Q4’s sales you’ll probably need those leads in Q3 because it takes a quarter to make a sale. So, in Q3 we need 1000 leads to generate 100 sales in Q4.
Now, the meetings is a little bit trickier on a back of the envelope calculation like this I’ll show you later on a more scientific approach to this but I’ll give you a basic rule of thumb to work with for now. If we make 100 sales and it takes five meetings to make a sale then we certainly know that we are going to need 500 or more meetings. Five per sale, 100 sales is 500. But, we’re going to need some meetings for sales that don’t go ahead. In fact, we know that we’ve got 200 proposals so there’s probably sales guys involved at that stage as well. So, maybe it’s more like 1000. 200 proposals times five meetings to make a sale when you do make it. Then, it gets a bit trickier around leads so here’s my basic rule of thumb. Take the number of leads in this case it was 1000. Halve it, and multiply that by the number of meetings that it’s going to take on the assumption that half of your leads acquire that quantum of meetings some leads need a couple of meetings then they bail, some of those leads need all five meetings, so just halve it. Now it’s not accurate but we’ve got a much better model for you a little bit later on but let’s stick with the basics.
Propose-to-close ratio lead to proposal ratio, if it takes 13 weeks to make a sale so we need 1000 leads in Q3 to make 100 sales in Q4 and we are going to chew up about two-and-a-half thousand meetings across that period. There’s the meat of it. Well if that’s the meat of the sandwich, where’s the bread? We talked about those four basic ratios.
If you’re going to build a complete ratio, you probably also want two more little figures to factor in there. One would be how often does a positioned buyer become a lead? Because then I know how many buyers I need to position with so we need one more number at the top perhaps and for absolute accuracy we need something at the bottom as well and that is, is there any kind of leakage from sale to revenue? In a lot of businesses there isn’t because it’s a product business but in some businesses you sign a contract but you still don’t get to invoice for a variety of reasons. So you might have a little bit of leakage at the last stage but often you’ve got lag and it’s a little bit of a trick.
If in your business, you measure the sales people on revenue then a signed contract it’s rarely revenue. There is something that has to happen between the signed contract and when the invoice hits the door. So, you need to factor for that lag and in the example before, if it takes 13 weeks to make a sale but it then takes another month before that sale converts to revenue, then we actually need to allow for a fourth month window not a three-month window. Small trick, little bit of detail. That’s the whole sandwich.
In a moment or two, I will show you how we do that in Funnel Plan and build a complete velocity model in the Funnel Plan but before that I am going to do two things. Firstly, I’m going to show you how to do this on the back of an envelope as promised and I am going to invite you to receive more blogs like this. But let’s get firstly to the back of the envelope calculation. How do we do that? Firstly, don’t let complexity be the reason your team doesn’t have a good handle on their funnel velocity. Simplify it until it does make sense. Then, share and agree the straw man model what’s the control we are trying to beat? What is our current status quo in the funnel that we are trying to improve? Use that insight to manage your sales people and your campaigns. Ask yourself constantly, why are we adding this campaign? Is it to get better at the top? Or better at the bottom? Less friction in the middle i.e. cost? Or are we just bored? Often we add campaigns because we are bored but then hold every campaign and every sales person to that improvement that you’re trying to make to your status quo.
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By the way, if you’re not generating a propose-to-close ratio of one in two but maybe more like one in five or more, the odds are very good that you’ve got your sales people working on leads that are not yet well enough qualified. I’ll show you how to fix that in another blog. But for now, may your funnel be full, and always flowing.