During the last week of December I asked a panel of experts for feedback on our Leads to Revenue Calculator. I was surprised at the level of detailed feedback I received. Not all of it was positive, but it was all valuable.
You will hear from Matt Heinz, Dave Brock, David Hubbard and Ardath Albee.
The above graphic is a sample from our Lead to Revenue Calculator.
Download it here.
I start with Matt Heinz:
If we could get more sales and marketing teams to develop and agree on this model TOGETHER, we’d have a foundation for much better, more efficient and effective sales results well into 2017 and beyond.
This isn’t about boundaries or who gets credit. It’s about honestly and objectively understanding your best way to go to market, determining who has what role, then executing together.
The logic behind this calculator makes tons of sense. What will make or break its value is how completely sales and marketing teams, together, buy into developing and following it through.
Next, Dave Brock:
In general, it's a very comprehensive, complete tool. In our experience, few sales executives have something this complete, or know how to leverage it well. It does need to be tied to a time factor/cadence that is reflective of the sales cycle. Implicit in your example is a sales cycle of a year or less. What if the sales cycle is 18 months, then the numbers are off.
You have omitted the "qualified sales pipeline opportunities." In the example, they need to maintain a pipeline of qualified sales opportunities of 74 (or less) in many organizations there is a difference between SQL and Qualified Opportunity (fitting more rigorous criteria like closing in a certain period of time.) The number of qualified opportunities is a critical number for pipeline health. Often you hear a coverage statistic, e.g. 3X, etc. That's what people are referring to.
I've never seen the nurture revenue. Interesting concept, but many people will double count or get confused. Most people see nurtured leads as converting to a MQL/SQL--which you are already counting.
There are some things that are overlaps and can be confusing. For example, inbound revenue is driven by inbound leads, which still have to be converted to opportunities and handled by sales, unless you mean inbound revenue to be something different. So in your example you are counting on $966 K, which is roughly 5 deals, incremental in the sales pipeline. Since you are assuming that $966K is what you are booking and you have a 10%-win rate, then you need to have top of the funnel inbound revenue of 9.6M. So you can see that metric, depending on what you are counting and how you are treating it can be very confusing.
[Note from Dan: Dave also felt that I should round the numbers because the level of detail I show does not really exist – a good point. We did some back and forth via email and he added a few more comments having to do with nurturing:]
Theoretically, marketing should be attacking and nurturing 100% of the total addressable market (TAM). Marketing should not be working outside the sweet spot. Theoretically, 100% of that sweet spot represents customers who will have a need for your product or solution at some time. A qualified lead or a qualified nurtured lead (the difference frankly escapes me) is a customer that has that need "now." [Note from Dan: I will address this at the end of Dave’s comments.]
I'm confused with carrying a nurturing "revenue" in a current pipeline. Is that past deals, by your definition, that have been nurtured and are now ready to buy (qualified by sales definition)? From a sales point of view, a nurtured lead presents itself as a MQL/SQL not as a different category. Those leads still have to work their way through the sales/buying pipeline, so there is a percent of those that are not won, as a result (if win rate is 10%), we can only expect 10% of the nurtured pipeline to present itself as revenue.
I agree that sales reps abandon deals, don't follow up, or loses deals—100% of those need to go into nurturing—again 100% of your TAM/Sweet Spot should buy at some point in time, we want to continue to nurture those.
So from my point of view the nurturing line item is confusing, possibly misleading from a pipeline/funnel management POV, and doesn't have a lot of meaning. Clearly, in your model it does, but you have to spend time defining terms and outlining the model in some detail for people to understand. People like me will want to drill down to see if the model holds together as an operational tool.
[Note from Dan: In this blog I explain why I feel it is important to break out nurture leads as so often the value of nurturing is ignored. I also demonstrate, in a table, how you can triple the return on marketing investments.)
Now, from David Hubbard of Marketing Outfield:
Marketing should generate more than 50% of the company's qualified leads.
- Marketing can only achieve this volume of leads by embracing both inbound and outbound.
- Marketing must deliver SQL-quality leads to Sales, and for them to achieve this they must be continually qualifying and nurturing leads throughout the entire buyer purchasing process.
- Having all Marketing leads qualified by a sales development team would help increase the current quality of MQL, but much more has to be done: deeper understanding of the target buyer, effective application of technology, and empowered collaboration with Sales.
BTW: I think MQL / SQL is an outdated concept, and, Marketing has the capability to do much better lead development and support.
Finally, some valuable insight from Ardath Albee:
I dislike the reduction of marketing and sales to a numbers game. In my opinion it gives both sides a reason to be mediocre and to finger point blame based on numbers. And for heaven’s sake, if marketing and sales have worked together to define MQLs and SQLs, then why in the world would a company need 1,484 MQLs to close 8 deals? What a tremendous waste of time and effort. [Note from Dan: this was an error Ardath found – thank you – instead of 1,484 MQL’s it was supposed to be 1,484 “Suspects” but her point still stands.]
Are they attracting the wrong people? Are they unable to validate need and propensity for change for the prospects they pursue? Are their communications not relevant or in context? Are the experiences they present fragmented? Do they drop the ball?
Seems to me that the goal should not be based on volume in order to get a whittled-down outcome, but rather on quality and an aligned approach that results in much higher conversion based on meeting the needs their prospects have in relation to making the change/purchase. I know that the tool can be modified based on specific company situation, but I think the focus on numbers is misdirected.
Additionally, this focus is mostly on retained revenue (contracts already in place) and net new deals. Increasingly, I see companies with the biggest opportunity being expansion deals, as greenfield isn’t nearly as plentiful in some industries. But also, how will these numbers change if ABM is in play? Seems like the percentages should increase dramatically if ABM is orchestrated well with marketing and sales on the same page.
I’ve just never been a numbers person. I think we need to stop thinking numbers and start thinking about how to increase the quality of our conversations on both sides to engage with fewer opportunities but win more business because those conversations are more relevant and useful/strategic.
Wrap-up from Dan McDade
Following are what I want readers to take-away from this calculator:
- If you don’t measure the revenue you retain from year-to-year (not by client but the overall percentage) it is a good thing to start doing now.
- In general, revenue from inbound is over-estimated. It is difficult (in more strategic deals) to scale with inbound. Inbound leads tend to identify lower-level decision-makers and smaller deals. I can substantiate this if you want – just reply.
- There are three sources of nurture revenue that are over-looked by many companies. Go to this blog to read more. It will show you how to triple return on marketing programs.
- To Ardath’s point, the assumptions on the calculator having to do with lead rates and close rates are conservative. However, the disconnect between marketing and sales causes most marketing spend to be very inefficient. And, that is part of the reason I used conservative rates herein.
Want to discuss any aspect of this? Comment below and lets chat! Thank you.