Posted: December 01, 2011
Just how many sales leads do you need?
The answer could make you a C-suite heroChristopher J. Ryan
This should be a simple question. However, for a lot of B2B companies, the answer is tough to pinpoint. When I ask a new Fusion Marketing Partners client or prospect how many leads they think they need to generate, I usually get one of these answers:
• "I don't know" or "I have no idea"
• "A lot more than I am getting now."
• "X number of new leads a month, but I don't know why."
Often, I get different answers from different people in the organization. The marketing VP believes he or she is producing plenty of leads, but the sales VP disagrees. In fact, it is rare to find a sales VP that believes the lead quantity (or quality) is sufficient. But that's only part of the problem.
The biggest and most important problem to overcome is getting marketing, sales and the C-suite on the same page when it comes to the required number of leads - and the budget necessary to get them.
We accomplish this by creating a service level agreement between marketing and sales that specifies exactly what marketing intends to deliver to the sales force each month. I deliberately emphasized the word "intends" because the marketing department must be very serious about meeting this commitment - just as the sales department has its own commitment (number of sales, revenue, etc.).
The actual analysis requires specific knowledge of your company's revenue goals, but let me offer a simplified scenario that will give you the concept. To work your monthly lead target, you will need seven pieces of data. If you don't have all this data, use what you do have and begin to collect the missing data:
1. Monthly revenue target: your monthly sales goal from all revenue sources
2. Marketing-driven revenue: the portion of the total monthly revenue that marketing is responsible for, not counting cross-sales, up-sales and revenue that comes in irrespective of marketing efforts
3. Average sales price (ASP): the average revenue contribution from each new sale
4. Number of marketing-driven deals: this is the marketing-driven revenue divided by the ASP
5. Opportunity-to-sale ratio: the percentage of pipeline opportunities that you close
6. Qualified lead-to-opportunity ratio: how many qualified leads it takes to produce one opportunity
7. Inquiry-to-qualified-lead ratio: how many inquires it takes to produce a qualified lead
Let's plug some straw-man numbers into these data elements to produce a sample lead plan. Note that in this example, the terms "lead" and "inquiry" are used interchangeably.
Monthly revenue target: $125,000
Marketing driven revenue: $70,000
Average sales price: $7,000
Marketing-driven deals needed: 10 ($70,000/$7,000)
Opportunity-to-sales ratio: 5 (we close one out of five opportunities)
Number of opportunities needed: 50 (10 x 5)
Qualified lead-to-opportunity ratio: 2 (we turn one out of two leads into an opportunity)
Number of qualified leads needed: 100 (50 x 2)
Inquiry-to-qualified-lead ratio: 7 (we turn one of every seven inquires into qualified leads)
Number of inquiries/leads needed: 700
In this example, the number of inbound inquiries/leads required to meet the revenue target is 700 per month. If each leads costs an average of $30 to acquire, the total marketing programs acquisition cost is $21,000 (700 x $30). But as I said earlier, your mileage may vary.
The point is that you need to know two very important things: First, exactly how many leads/inquiries you need to reach your target revenue goals; and second, your acquisition cost per lead/new customer order.
Your ability to quantify these numbers and then deliver them to the sales force will make you a hero in the executive suite. And most importantly, your marketing budget will be seen as a critical investment, not as just another expense.
Christopher Ryan is one of the nation's foremost experts in B2B marketing and sales. Author of How to Create an Unstoppable Marketing and Sales Machine (Fusion Marketing Press, 2009), Mr. Ryan is founder and President of Fusion Marketing Partners (www.fusionmarketingpartners.com). Chris Ryan was formerly a senior marketing executive at noted companies like Stellent, Inc., FrontRange Solutions, PeopleSoft, Sybase, and Group 1 Software. Mr. Ryan's latest book can be obtained at Amazon.com or at http://fusionmarketingpartners.com/get-the-book/.