It’s a simple question, really.
The answer will drive the size of your B2B marketing budget, staffing, and resources.
Without the answer you can’t set reasonable goals and make plans.
Well, actually it’s two questions.
How many inquiries do I need to make sales quota?
And it’s converse:
How much revenue can I expect from a projected number of inquiries?
James Obermayer of the Sales Lead Management Association (SLMA) recently answered these questions in a pair of articles on Dan McDade’s ViewPoint blog.
His answers show a straightforward way to link the efforts of marketing with the efforts of sales.
James has been helping B2B companies to improve sales lead management for a long time. He founded the SLMA. His books include “Managing Sales Leads, Turn Cold Prospects into Hot Customers.”
What attracted me to his articles were the calculations he provided. It’s a formula that anyone could use to project the number of inquiries they need or the forecast revenue they could expect.
From sales quota to inquiries
The first article answers the question “How many inquiries do I need to make sales quota?”
Start with the quota for new business ($5M). Factor in the average selling price ($12,225), the selling close rate on Qualified Leads (32%), and the buying percentage on raw inquiries (45%). Except for the last one, these values will vary for each company.
In the example, this company needs 2840 inquiries to produce $5M in revenue.
The Rule of 45
James uses a 45% conversion rate on raw inquiries that turn into Qualified Leads. He calls this the Rule of 45, “a steady, reliable rule which simply says that 45% of all inquiries (not just qualified sales leads), will buy from someone.”
Note he doesn’t say that they will buy from you. He says they’ll buy from someone. That implies that if they don’t buy from you, they will buy from a competitor.
On average, he says, the following rules apply:
1. Within 3 months 10%-15% of business to business prospects will buy someone’s product.
2. Within 6 months, 26% will buy someone’s product.
3. Within one year 45% will buy someone’s product
From inquiries to revenue
Now, what about the other direction? The calculation that will answer the question in James second article, “How much revenue can I expect from a projected number of inquiries?”
Here you simply start with the 2,840 leads and use the same ratios to achieve $5M in revenue.
How many qualified leads will Sales pursue?
These calculations contain an implicit assumption that affects both revenue and marketing costs.
Can you see what it is?
They assume 100% followup on raw inquiries. What happens if this doesn’t happen? Revenue declines and marketing costs (as % of Sales) skyrocket.
Clearly $5M in revenue with 2.8% marketing costs is much better than revenue that is ten times lower and marketing costs that are ten times higher.
What can companies do to achieve the goal of 100% followup on raw inquiries?
- Use a marketing automation system to respond to buyer inquiries and nurture them with further education. Before you turn buyers over to sales, you want them to be well-qualified and well-educated.
- Engage telemarketing services (or build your own) that check in with buyers to answer questions and gauge interest.
- Seek alignment between marketing and sales. As Rich Eldh asserted at the recent SiriusDecisions Summit, companies where marketing and sales are aligned enjoy 5.3 times more revenue and 6.2 times more profit than average firms. Therefore, agree on a definition of a qualified lead that has acceptance from both marketing and sales. Negotiate a Service Level Agreement that lays out the terms of the qualified lead and the consequent steps that Sales will take to follow up on accepted leads.
Persuading buyers to inquire about your company and your offer is the hardest part of marketing. Once buyers have raised their hand and expressed interest in you, respond by making it as easy as possible for them to become a customer.