Projecting sales from leads…or what are you willing to pay for a new customer?

Sales ProjectionCan you forecast the number of inquiries needed to make sales forecast? That was the topic of a recent LinkedIn Sales Lead Management group discussion between Scott Tate and James Obermyer of the Sales Lead Management Association. Some excellent formulas were shared.

Here is a sample goal: You need to sell $1,000,000 of a product that sells for $5,000. How many inquiries will the sales force need to make the number? Let’s also assume there is 100% follow-up of the inquiries.

Scott Tate proposed the following formula edited here for space:

Quarterly sales revenue target (A): $2,000,000
Portion of revenue required from marketing sources (B): 50%
Quarterly revenue target from marketing sources: C = A x B = $1,000,000
Average deal value (D): $5,000
Deals from Marketing sources required to hit target: E = C/D = 200
Forecasted opportunities needed to yield 1 deal (F): 5 (20% conversion rate)
Forecasted opportunities from Marketing sources needed to hit target: G = E x F = 1,000
‘A’ leads from Marketing sources needed for 1 forecasted opportunity (H): 3
‘A’ leads from Marketing needed to hit target: I = G x H = 3,000
Leads needed to yield 1 ‘A’ lead (J): 4
Leads needed to hit target: I x J = 12,000

Now, you can go further to use this figure to tell the boss what you need for a lead generation budget. Here’s how:

Average cost per lead: $20
Lead gen program budget required: $240,000

Scott shared that the classic sales defense is that marketing doesn’t do a good job of pre-defining lead quality, and applying those standards before turning the leads over to sales. The antidote is to:

1) work proactively with senior sales management to define what constitutes a quality lead,

2) encourage the reps to notify you when the lead quality did not pan out as advertised, and

3) audit the questionable lead and provide the results to all parties involved.

By doing this, Scott says he has bridged the classic gap between marketing and sales.

Obermayer adds that if you have a CRM system and the salespeople are updating it without fail you can measure your success from formulas like these.

The primary variable in this formula is the follow-up by your salespeople. If the follow-up is only 50%, the number of inquiries needed to make quota jumps dramatically. This demonstrates the power of simply following up every inquiry. And the time frame may shift depending on the value and buying cycle for your products. Less expensive products that are commodities may have 45% buy in 6-9 months. Large capital equipment products may take 15-18 months to cycle through.

Another important variable is your cost-per-lead which can take some homework to determine.

The power of following up every inquiry is demonstrated by the marketing automation companies that rightly claim that if their system is used (and they do the follow-up) sales can increase between 300-400% from inquiries.

If you have a formula of your own, I’d like to hear from you.

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