More leads, please!

While at it, make them qualified and with a credit card in hand. The question is, how many?

In this post, we cover how you calculate the number of leads required to meet your sales revenue goals and why it鈥檚 critical to use the bottom-up approach when setting your sales goals.

The story continues.

In our last post in the Proving Marketing ROI blog series, we had a hypothetical case of someone using the top-down approach instead of the bottom-up approach to find out what a revenue goal of 50% would look like in terms of new business.

It turned out that for Awesome AI Inc, our fictional business, they would need to increase new sales by 300% or get 100 new deals to meet the 50% revenue increase goal.

Now, we鈥檒l turn our attention to what the sales goal would look like if you work your way down to your sales and marketing activities. How many leads would you need to generate to meet the goal?

A quick note, although we are doing this type of reverse engineering calculation, ideally, you鈥檇 want to use a more bottom-up approach to your goal setting.

As a refresher, here are the metrics for Awesome AI Inc.

Awesome AI Inc: This Year鈥檚 Sales Goals
路聽聽聽聽聽聽 This year鈥檚 total growth revenue goal: 50%
路聽聽聽聽聽聽 Total Goal revenue: $7.5M
Revenue Breakdown at 50% increase:
路聽聽聽聽聽聽 Total revenue (new business): $4.5M
路聽聽聽聽聽聽 Total revenue (existing customers): $3M
Awesome AI Inc: Last Year鈥檚 Revenue
路聽聽聽聽聽聽 Last year鈥檚 total revenue: $5M
路聽聽聽聽聽聽 Last year鈥檚 new sales revenue: $3M
路聽聽聽聽聽聽 Last year鈥檚 revenue from existing customers: $2M
路聽聽聽聽聽聽 Total number of new customers acquired: 25
路聽聽聽聽聽聽 Total number of customers (new and existing): 100
路聽聽聽聽聽聽 Average new business deal: $50,000
路聽聽聽聽聽聽 Last year鈥檚 current customer revenue from upgrades: $1.5M
路聽聽聽聽聽聽 Customer retention rate: 95%
路聽聽聽聽聽聽 Customer churn rate: 5%
路聽聽聽聽聽聽 Last year鈥檚 existing customer maintenance revenue: $0.5M
Awesome AI Inc: Existing Conversion Ratios
路聽聽聽聽聽聽 Existing customer upgrade conversion rate: 75%
路聽聽聽聽聽聽 Opportunity to new sale conversion rate: 25%
路聽聽聽聽聽聽 Lead to opportunity conversion rate: 45%
路聽聽聽聽聽聽 Prospect to lead conversion rate: 10%
路聽聽聽聽聽聽 Website visitor to prospect conversion rate: 5%

Awesome AI Inc: Last year鈥檚 estimated Conversion Values

路聽聽聽聽聽聽 Number of new customers: 25
路聽聽聽聽聽聽 Number of opportunities: 100 (25% conversion from opportunity to sale)
路聽聽聽聽聽聽 Number of qualified leads: 223 (45% conversion from qualified lead to opportunity)
路聽聽聽聽聽聽 Number of prospects: 2230 (10% conversion from prospect to lead)
路聽聽聽聽聽聽 Number of Website visitors: 44,600 (5% conversion from web visit to prospect)

How Many Leads Do You Need to Generate to Meet Your Sales Goals?

As stated earlier, in our previous post, we discovered that we鈥檇 need to get 100 new deals to reach our 50% revenue increase goal.

Now, we have to reverse engineer to figure out how much attention you鈥檇 need to get from potential customers to meet that goal.

In this example, Awesome AI Inc has established conversion rates throughout the marketing and sales cycle. We鈥檒l use those conversion rates to help us estimate how many leads the company would need to generate to meet the set goal.

First, let鈥檚 take a look at the company鈥檚 marketing lead to sales process to help us better understand the company鈥檚 operation.

Figure 1: Awesome AI, Inc. Marketing to Sales Process and Conversion Rates

From what you can see from figure 1 above, Awesome AI Inc has a marketing to sales process that starts with a potential customer visiting their website from a marketing channel.

  • For every website visit, 5% of the visitors convert to a prospect by completing a form fill on the site.
  • Then, 10% of these prospects are qualified leads. That is people that meet the company鈥檚 sales criteria and are ready to be involved in an active sales cycle.
  • Out of those qualified leads, the company then has about 45% of them becoming an active opportunity that is pursued by the sales team.
  • Then finally, of the current opportunities, the sales team tends to close 25% of the deals, making them customers.

How to Calculate the Number of Leads You Need to Generate

Since we started off calculating how many new deals, we would need to meet our original growth goal of 50%, let鈥檚 also take a look at how many qualified leads and opportunities that equates to:

Calculating Number of Opportunity Stage Deals Needed

  • Opportunity to customer conversion rate: 25%
  • If 100 new deals = 25 %
  • Then, 100% = (1/0.25) * 100 = 400 opportunity stage deals

Calculating Number of Qualified Leads Needed

  • Qualified lead to opportunity conversion rate: 45%
  • If 45% = 400 opportunities
  • Then, 100% = (1/0.45) *400 = 888.88 ~ approximately 889 qualified leads

Calculating Number of Qualified Leads Needed Monthly

  • 889/12 = 74.08 ~ approximately 74 qualified leads

Calculating Total Number of Prospects Needed

  • Prospect to qualified lead conversion rate: 10%
  • If 10% = 889 qualified leads
  • Then, 100% = (1/0.10) * 889 = 8,890 prospects

Calculating Number of Prospects Needed Monthly

  • 8890/12 = 740.83 ~ approximately 741 prospects

Calculating Number of Website Visitors Needed to Get 741 Prospects

  • Website visitor to prospect conversion rate: 5%
  • If 5% = 8890 prospects
  • Then, 100% = (1/0.05) * 8890 = 177,800 website visitors

Calculating Number of Website Visitors Needed Monthly

  • 177800/12 = 14816.66 ~ approximately 14,817

Let鈥檚 put it into context by comparing this to last year鈥檚 numbers.

Figure 2: Awesome AI, Inc. Growth Goals vs. Last Year Actuals

Sales Cycle StageLast Year ActualNew Growth GoalPercentage Increase
Website Visitor44,600177800298.65%
Qualified Lead223889298.65%

As clearly illustrated here, while you may have thought of a 50% growth increase as attainable when looking at the growth number in a vacuum, the details reveal that it is quite an aggressive goal that may not be possible depending on the situation at hand.

The key element to note here is that without clearly analyzing the granular details of what it means to increase growth, you may set up your team for failure.

In our example, with Awesome AI Inc., it鈥檚 evident that your lead generation activity would need to change drastically to make a growth goal of 50% possible.

This goal, when analyzed in more detail, means increasing your marketing and sales activity results by 300%.

Essentially, if you鈥檇 like to meet the 50% goal, then you鈥檇 have to have the necessary resources to back that. In the top-down goal setting, you could also set up multiple scenarios and analyze what each situation could look like.

So, you could answer questions like, what if I tried for 30% or 35% growth, what would that look like?

You could, in the end, come up with a growth number that looks more realistic after looking at the details. The issue here, though is that, you鈥檇 have to get all the sales and marketing teams to buy into your top growth goal.

Getting people to buy into your goal is the first step to achieving the goal. This is not even related to how much money you can invest in marketing and sales. It鈥檚 about how much effort a team member is likely to put into achieving that goal.

As a result, using the bottom-up approach to goal setting creates a better sense of team buy-in.

Bottom-Up Approach to Goal Setting

As evidenced by our previous analysis of what a 50% growth goal could look like on sales and marketing activities, setting a top-level goal and then having the sales and marketing teams scramble to meet those goals is not always ideal.

More importantly, it has the chance of backfiring with many people that are supposed to buy into your dream and make it a reality, feeling under appreciated, overwhelmed, and very unlikely to meet your goal.

For this reason, I caution against business growth goal-setting processes that take a top-down approach.

At first, this can sound scary because most business leaders feel like they have the vision of where the business should be heading. While this is true, a leader鈥檚 role is to determine the vision and direction, and then you have to leave room for others in the business to determine how the company gets there.

What is the Bottom-Up Sales Goal Setting Approach?

The bottom-up sales goal setting approach is when you set your goals starting at the beginning of your sales and marketing process instead of the top (revenue growth). It involves analyzing how much you can increase each marketing channel and optimize conversions, and then you look at what that would look like in sales revenue.

How do you set sales goals using the bottom-up goal-setting method?

In figure 1 above, you can see the Awesome AI Inc.鈥檚 marketing to sales process starts with a marketing channel activity. That marketing channel activity will most likely have a manager who is in charge of that channel. You may also have someone who is in charge of managing your website activity, perhaps a business development manager who follows up with prospects after they request information. Then, finally, sales representatives who manage active sales processes from qualified lead to opportunity to customer. You may also have account managers who focus on customer satisfaction and also identify cross-sell opportunities.

In the bottom-up goal-setting approach, you鈥檇 let each of them come up with reasonable lead generation goals and then together decide what the top number would be.

Let鈥檚 take a look at what that could look like using the Awesome Inc example.

In the example, we didn鈥檛 include customer conversion rates for the different channels A, B and C. So, let鈥檚 take a look at that now:

  • Channel A (Social Media) Conversion Rate: 20%
  • Channel B (Content Marketing) Conversion Rate: 30%
  • Channel C (Events) Conversion Rate: 10%

With the bottom-up goal setting method, you task your channel managers with coming up with ways to increase existing results. It could include tapping into new areas of growth, doubling down on what鈥檚 working, or spending more. In any case, the critical element here is that you allow the marketing channel managers to come up with their goals.

The question that they are trying to answer is, how can we increase our current results based on the data that we have today?

In most cases, marketing channel managers are equipped to answer these questions. Suppose you have one channel manager for all your marketing channels, that works as well. The critical component is if the person understands the channels enough to be able to identify patterns, trends, and what鈥檚 not working.

Benefits of Using the Bottom-Up Approach

Here are some of the potential benefits of using the bottom-up approach of goal setting instead of the reverse engineering goal-setting method.

  • Set realistic goals to get more buy-in: The bottom-up approach allows you to set more realistic goals that have the buy-in of the parties that need to bring the goals to fruition. You are unlikely to question goal numbers if you set them yourself.
  • Create growth support plans that fuel growth goals: When you look at your goals by first looking at the causation elements, you can create a plan to help make those causes and effects possible. A channel optimization goal is likely to affect your big picture goal.
  • Identify new growth opportunities: When you start your goal setting by deeply analyzing your current marketing activities, you are more likely to discover new growth opportunities. Perhaps it鈥檚 impossible to increase your customer base based on your current market focus, but it might be possible with a new market focus. These types of discoveries are often possible if you are looking at each channel or activity more closely.
  • Know why you are missing goals: Because you set goals using the bottom-up approach with specific metrics that directly affect your big picture growth goal, it鈥檚 easier to identify when you are not meeting those goals. You can make changes in real-time instead of after the fact.

There, you have it!

We鈥檝e looked at how you would go about reverse engineering your sales goals using the top-down approach.

We鈥檝e also looked at why the top-down approach might not be the best idea when setting goals, and now, we鈥檝e analyzed how to calculate the number of leads you need to meet your sales goals.

The critical element to note here is that, while there is no one-size-fits-all approach to anything, using the bottom-up approach for sales goal setting is often far more effective.

In our upcoming posts in the Proving Marketing ROI series, we鈥檒l cover how to optimize different marketing channels. Don鈥檛 forget to subscribe to get our blog updates.

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About the Author: Hellen Oti

For the past 10 years, I've been helping businesses build powerful brands and repeatable marketing processes by focusing on connecting better with customers. I started Brisque to help businesses grow organically with humanized marketing. My superpower is seeing the possibilities with your business and helping you discover how to stand out and connect with your core customers. When I鈥檓 not at work, you'll find me breaking out a random dance move, hiking, reading, traveling, fictional and non-fictional writing. I am also an experimental chef whose experiments sometimes go terribly wrong. My motto for these experiments: 鈥渆at if you dare!鈥