Formula to Predict Inquiries Needed to Make Quotai
Marketing managers regularly ask me how to predict the number of leads (really raw inquiries) needed to achieve quota (I wish more sales managers would also ask). It’s a simple formula that jump-starts a discussion with sales management and helps C-Level types understand that this magic of marketing is more science than magic when it comes to lead generation. Here is the formula:
Quota dollars / average sales price / buying percentage (45%)ii / close ratio (your market share) = inquiries needed to make quota.
You need some very basic information to slip into the formulaiii. Let’s say you ask the sales manager for the following, and she gives you:
- Quota this year: $7,500,000 in new business
- Expectations from existing pipeline: $2,500,000
- Net new business needed not yet in pipeline: $5,000,000
- Market share percentage (or closing ratio of leads), this sales force: 32%
- Average sales price: $12,225
Prediction of inquiries needed to make quota:
$12,225 average sales price /
45% buying percentageiv /
32% closing ratio = 2,840 inquiries
(not qualified leads, but raw inquiries) needed to make quota.
Of course this assumes a 100% follow-up of sales inquiries. If you have a follow-up of only 50%, double the number of inquiries needed to 5,680.
If you have a typical follow-up of only 25%, you will need 11,361 inquiries.
I know how much Dan McDade loves to measure marketing programs by only the raw inquiry cost (he doesn’t), but ride with me on this one. The marketing program cost to make quota jumps, depending on sales follow-up (assumes a low cost of only $50/inquiry):
1. 100% follow-up: cost to create sufficient inquiries to make quota is $142,000
2. 50% follow-up: the cost is $284,000
3. 25% follow-up: the cost is $568,050
Put another way
Personally I like the 100% follow-up number and it’s worth targeting. Now you just have to figure out how to do that. If you have a marketing automation system, it’s easier. If you contract with a telemarketing services company, follow-up is assured. If you just rely on your sales force, you’d better have a sales manager with a backbone to be sure the 100% follow-up rule is unbreakable.
Next month: Predicting the sales results from a group of inquiries.
i Obermayer, James, Sales and Marketing 365, Racom Communications, 2004, page 17 Number 12