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How to size for sales success - know thy funnel
Most sales teams have an inherent awareness of how many customers they need to see in order to make a sale - in other words, the key ratios that affect their business.
One business will tell you confidently that they win one sale from every four proposals. Another will say that it takes around three phone calls just to get a meeting.
But how many drill back into their statistics to determine the total number of activity steps needed to achieve a result? And how many in this age of quarterly reports bother to work out the stats over a reasonable period of time?
Here's how to do it:
Find 500 targets
List the businesses in your target market; let's say there are 500.
Position with 200 buyers
In b2b marketing, the position task differs markedly from positioning in consumer markets. Usually, the task for your marketing team is to get buyers to consider your brand at all, let alone worry about how it is positioned.
So the first step is to position your business as having the ability to solve the problem - whether or not the prospect is ready to acknowledge they have the problem. If your marketing department is working well, we would assume for the exercise that you can be positioned with 40 per cent of the market.
Help 100 of the target to accept they have the problem
Of those you position with, a sub-set will accept that they are affected by the problem, and that this problem is worth solving - either with you or someone else. Perhaps we can get 50 per cent of those remaining to accept this.
Define a clear need with 75 of these leads
No matter how hard they qualify their leads, it would be rare for salespeople to be able to convert every lead into a meeting. So let's assume that 75 per cent of our leads convert into meetings with the buyer, during which a clear need is agreed.
Submit proposals to 50 potential buyers
The goal is for our sales team to convert as many as possible of the 75 meetings into prospective buyers willing to receive an offer of some sort. Let's say we lose a third of them before this stage, and we therefore submit 50 proposals.
Win 17 and lose 33
One in three is a common conversion ratio - most businesses will say they get one sale from every three or every four proposals. So let's assume this holds and that our sales team can close 17 deals.
Top to bottom, this means we converted 3 per cent of our list into customers, which doesn't seem unreasonable. Incidentally, we recommend you avoid comparisons with the oft-quoted 2 per cent direct marketing ratio - it is the least useful figure ever bandied around in business.
Using these figures, 500 targets might yield 17 customers.
500 x 40% x 50% x 75% x 67% x 33% = 17
Put another way, to make 17 sales you need a target list of 500. But you also need to conduct 75 first-time meetings, and to submit 50 proposals.
And suppose you need 50 sales? Well, that will take a target market of 1,500. It will also take 300 qualified leads, 225 defined needs and 150 proposals, so you would want to be confident you had the staff numbers needed to complete each of these steps.
The caveat is that this is a somewhat artificial picture, because it ignores that it takes time to move buyers from stage to stage. A sales cycle of nine months is common. Measured from the time of the first contact to the time of a sale; most buying decisions are complex, and take time.
But the buyer's journey begins before the first contact - so the total sales cycle might be more like 12 months than nine. While some businesses might enjoy a shorter sales cycle, others have an even longer delay. So let's stick with 12 months for this example.
Allowing for the time it takes a buyer to progress from stage to stage, our simple progression from above might now look like the following:
A 12-month buyer-cycle shown above suggests that this business will see no revenue from their demand generation campaign in the first 12 months.
Given this, why is it that businesses often design demand generation campaigns to last only one quarter? Clearly, campaigns need to last for as long as the sales cycle, or longer. It is our experience that campaigns should be designed to run for two to three years without interruption, not two to three months as is often the case.
Should you plan on a fat funnel, or a skinny one? Or put another way, is it better to plan on making your sales numbers from a small market - to do this you will need excellent conversion ratios - or from a large market, where you may see many buyers leak from your funnel?
And should you assume your funnel will be fat or skinny, fast or slow?
There is no single correct answer for all businesses and all markets. But this much is clear: this needs to be a deliberate decision based on some knowledge of your current ratios and a clear forward model.
Sales success comes from understanding the shape of your funnel and sizing your sales and marketing funnel to suit. Then, its a matter of building a sales and marketing plan that translates these funnel metrics into real results.