Forecasting requires marketing to estimate the number of inquiries your salespeople will need to make quota in 2018. It is one of the CMO’s most important functions.
And yet, few marketers take the forecast and estimate the number of total inquiries (not qualified inquiries) that will be needed to make forecast (quota).
Predicting the number of inquiries needed is simple and easy; take the sales goal, average sales price for the product, buying percentage (45%), sales lead follow-up percent and your market share. Knowing these items will allow you to predict the number of inquiries needed to make your sales goals.
The formula is:
Quota dollars / average sales price / buying percentage (45%) / % of sales lead follow-up / closing ratio (your market share) = inquiries needed to make quota.
$1,000,000 quota / $5,000 ASP/ 45% (buyers)/100% follow-up / 20% market share = 2,222 inquiries
The unknown for many marketers is knowing the percentage of buyers in a group of raw inquiries. The percentage we use comes directly from research (Telephone Did You Buy Studies, CRM Reports, etc.) and is known as the Rule of 45. This simply means that 45% of all inquiries (not 45% of the qualified leads), will turn into a sale for someone.
Don’t believe it?
Perform a Did You Buy Study of a group of inquirers. Take a block of inquirers (at least 250 to net out 100 completed questionnaires) from a single month, a single source and a single product and call them at 3 months, 6 months, and 12 months. Of course, if you have a CRM system and the salespeople are updating it you can measure your success from this system. You will find that 10-15% buy in three months, 26% buy in six months and 45% buy within one year.
Why It’s Important
“If you can’t base lead generation campaigns on forecast, you are gambling the investor’s money as surely as playing a game of chance. The odds will not be in you favor and you will lose more than you win.”
This formula assumes that there will be a 100% follow-up of the inquiries. If the follow-up is only 50%, the number of inquiries needed to make quota jumps from 2200 to 4400. This demonstrates the power of simply following up every inquiry. Plus, the time frame may shift depending on the value and buying cycle for your product. 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. The 45% Rule is right for B2B and conservative for consumer products.
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 increase between 300-400% from inquiries.
To be Practical
Now to be practical, in every forecast there are several things to consider. Let’s say you have a forecast for $5 million. With your existing pipeline you think the new business part of this is $2.5 million because $2.5 million is already in the pipeline. If you have service contracts for another $500 K you now have to create $2 million in new business. This is the goal for marketing to support with a lead generation program.
Timing of Lead Arrival Makes a Difference
The timing of the sales lead arrival also makes a large difference in the actual inquiries needed to make quota. For instance a lead that comes in January will close by December. Leads that arrive in July will convert at a rate of 50% by December and 50% in the following year. This means that if your lead generation program is spread throughout the year it will contribute to sales this year and also for the first three quarters of next year.
So, if the $1,000,000 is needed in a year you’ll have to generate about 63% more inquiries to make forecast or in our example 3586 inquiries for a $1 million in the first year and another $630,000 of follow-on income in the following year because of the one year gestation period for late arrival inquiries.
Of course, there are spreadsheets and formulas for this.
This calculator will determine the number of sales leads (inquiries) needed to obtain a forecasted sales quota.