It’s obvious that many marketers never served in the infantry or competed in archery. We’ve all heard the edict, “Ready, aim, fire.” Unfortunately, many marketers follow a different directive – “Fire, ready, aim.” They have it backwards. They jump into executing marketing tactics and campaigns before they understand their target. Then they try to adjust and optimize after the fact.
What is their campaign trying to accomplish? If revenue growth is the objective of marketing, how much revenue are you trying to generate? How many deals will be required to meet the revenue goal? How many leads need to be generated to produce enough opportunities to support the growth objectives? How can you know what tactics should be employed or the number of campaigns to be executed if there’s not a clear understanding of the number of leads required? The first step to understanding your target is to reverse engineer the sales process using real numbers from your team’s experience.
Set revenue goals.
It’s important to set realistic revenue goals and understand where that revenue will come from. What percentage of revenue will come from existing customers and how much from new business needs to be generated?
Use average size of deals to calculate the number of new customers required.
If you divide the new business revenue goal by the average size of a new deal, you will know how many new customers you need to close to hit your revenue target. This may take some research and number crunching. Go back and review the deals that your team closed over the last few years to determine the average deal size. You also may want to eliminate any outliers that can skew the average. For instance, if most deals range between $25K and $40K, and someone closed a record $250K deal last year, you may want to set that one deal aside. If you’re going to set goals, you want them to be realistic.
Use average the average close rate to calculate the number of proposals that need to be presented.
How many proposals did your team present to prospects last year? What percentage of those proposals resulted in a closed deal? Again, it’s important to do the research here. Most sales organizations I speak with have an inflated opinion of their close rates. This is one instance where a CRM tool can help keep everyone honest and realistic.
What percentage of qualified prospects received a proposal?
It’s unlikely that every qualified sales opportunity received a proposal. The sales process can stall for any number of reasons – decision-maker changes, funding dries up, etc.
Understand the Lead to MQL to SQL conversion rates.
Obviously, not every lead that marketing generates will become a qualified prospect that your sales team will actively work. It’s important to understand how a lead moves through the sales funnel. A lead is a new contact that’s generated who demonstrates some interest in what your company offers. An MQL (Marketing Qualified Lead) is a lead that fits your target persona criteria. This means they exhibit the characteristics (type of company, size of company, geography, level of decision-maker, etc.) that are similar to that of your current customer base. An SQL (Sales Qualified Lead) is an MQL whose behavior indicates that they have initiated their buying journey. Applying these ratios will allow you to calculate the number of leads that need to be generated at the top of the funnel in order for the proposals and customers to fall out at the bottom of the funnel.
This reverse engineering exercise is not only effective at establishing reasonable marketing goals, but each element of the calculation can be used throughout the year as key performance indicators (KPIs). Your conversion rates of each metric can be monitored and compared to historical and benchmark data to optimize your marketing strategy along the way and build a realistic ROI model for any future marketing investments.