The sole purpose of B2B Marketing
If you believe, like me, that the sole purpose of B2B Marketing is to generate leads then we really need to talk about how many leads a company or individual needs, in order to hit target.
The formula
There actually is a fairly simple formula but you need to have a few pieces of information at your disposal:
Win Ratio: Out of all the qualified leads you receive how many do you win?
Average Duration: How long does an average sales cycle last (in months)?
At this stage we don’t actually need to know what the target is, for reasons which I hope will become obvious. (By the way, this formula can be applied across individuals, teams and the whole company).
If we win 1 in every 5 sales (Ratio – 1/5) and a sale on average lasts around 3 months then the formula is this:
Take your average duration of a sale and divide it by win ratio:
3/(1/5) = 3*5 = 15
This simple calculation tells you that if you win 1 in every 5 deals and a deal lasts for 3 months then you need to generate 15 months’ worth of opportunity in your pipeline in a year, in order to make your target.
If as an individual you have a target of £1m then you divide that by 12 and multiply by 15. Or of your sensible, because you don’t have 12 full months in a year, you divide it by 10 then multiply by 15 then it means that you need to generate £1.5m pounds worth of opportunity throughout the year. On a quarterly basis that means around £375K worth of business in your pipeline.
Time does have a bearing on this, but let’s say that at the start of the month you have zero, then foregoing any “bluebirds”, you are unlikely to make target. A new sales person should be aiming to generate opportunities such that at the start of a quarter they have the necessary value of opportunities in the pipeline. Views vary as to how long sales people should be given to do this, but if they are trying to do this alone, without the support of Marketing they will fail, or it will take them an extended period of time
What does all this mean for Marketing?
It means that Marketing has to be focused on lead generation through multiple channels and methodologies.
But to return to the initial question – how many leads? Then the answer is – take the target and divide it by the average sales value. If the target is £1.5M and the average value of a deal is 10,000 then Marketing needs to generate 150 leads in a year or 12-13 per month.
This all is however predicated on a number of factors:
- You know your win ratios (most sales people and companies over-estimate their capabilities)
- You measure the length of the sales cycle (Most sales people and companies under-estimate how long a deal takes from qualification to close).
- You set clear targets and you measure on a quarterly basis.