Doug Davidoff
While there is a lot of conversation about strategy and tactics, growing a business is more about math and managing by the numbers than anything else. If you’re tracking the right things and communicating the numbers then growth becomes a much simpler task.
However, if you’re not tracking the right numbers, it is impossible to have the right strategy. Consider the results of a recent study that found:
- Only 23% of companies are exceeding their revenue goals.
- Of those not exceeding their goals 74% didn’t know the number of monthly visits, leads, MQLs or sales opportunities they needed.
When we conduct our lead generation or sales and marketing platform assessments, we start by understanding the math necessary for a company to meet their growth objectives.
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While the specific numbers we look at vary by company, there are nine that are universal and must be understood by all companies looking to sustain B2B sales growth.
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Sales Numbers:
The first set of numbers is centered on the bottom of your funnel (I’m a big fan of working backward) and highlights important sales performance indicators.
1. Closing Rate
Your closing rate is calculated by determining the number of people that you formally ask to buy (typically illustrated by some form of proposal being made) to the number that actually do buy. So if you need to make three proposals to get one yes, your closing rate is 33%.
2. Fit Rate
Your fit rate is calculated by determining the number of meaningful conversations (or, better yet, the number of sales-qualified leads - SQLs) that your salespeople need to talk with to get to the point where you’re able to make a proposal (or formal request to buy). For example, if your salespeople need to talk to four qualified prospects to get to a proposal, your Fit Rate is 25%.
3. Win Rate
The win rate is determined by multiplying your closing rate by your fit rate. This number is important because it determines how many SQLs are needed to create a customer. Using the above as an example, the win rate would be 8.33%.
Lead Generation Numbers:
With clarity on the bottom of the funnel, we turn our attention to the middle and top of the funnel, where your lead generation and lead management efforts are focused.
4. Lead Channel Origination Rate
As the name suggests, this metric tracks where your leads originate. It’s important to know where your leads are coming from so that you can track results, ROI and determine how to allocate your resources in the future. Here are the common “channels” we recommend tracking:
- Inbound marketing efforts
- Sales development efforts
- Paid search
- Sales team
You can create additional categories or sub-categories as long as they provide a substantial contribution to your results. If you get too granular in your tracking, you’ll lose the benefits that effective metrics provide.
5. Conversion Rate
The conversion rate can be a little tricky to assess, as it is dependent upon the channel you’re measuring.
For example:
- For inbound marketing and paid search, your conversion rate is simply the number of new leads you gain in a period of time divided by the number of visits to your website.
- For sales development or new sales, it would be the number of target accounts that turn into leads divided by the size of the list being used during a given time.
The combination of all channels for this calculation is called the Blended Conversion Rate.
6. Qualified Lead (QL) Rate
Not every lead you get will turn out to be qualified. Certain channels will produce higher levels of qualified leads than others. Your qualified lead rate is calculated by dividing the number of leads that meet your basic qualified lead definition by the total number of leads over a set period of time. The combination of all channels for this calculation is called the Blended QL Rate.
7. QL to SQL Rate
While some people use lead to SQL rate, I prefer to use qualified lead to customer rate. The reason for this is that qualified leads are the number that really matters. If you’ve got an effective lead triage or lead scoring process, the cost for creating unqualified leads should be virtually nonexistent.
The goal should only be to increase the velocity of qualified leads you are creating and how well you handle those leads. Your QL to SQL rate is calculated by determining how many qualified leads you need to create one sales-qualified lead.
The seven numbers we’ve just reviewed will enable you to put together an effective model for growth. They will allow you to allocate resources effectively, determine what’s really working (and what’s not), and to assess progress (without arguing over opinions).
The chart below shows how understanding these numbers allows you to determine clear targets for your marketing and lead generation efforts.
NOTE: For those that may be wondering, we use the term QL here, instead of marketing qualified leads (MQL). In our lead management approach, we define the difference between a qualified lead and an MQL. If your system does not have such a difference, treat QL and MQL as synonymous.
Full Journey Numbers:
While these seven numbers provide clarity into your sales and marketing efforts, they don’t tell the whole story. Long-term an effective marketing strategy should both increase the value of your clients and lower the costs associated with growth. While there are tens of metrics that can be used, the two marketing metrics that should always be used are:
8. Client/Customer Acquisition Costs (CAC)
CAC simply calculates how much it costs you to gain customers/clients. When your number is going down, it’s a good indicator that you’re doing a lot of the right things and that your efforts are improving results. The opposite is also true.
CAC is calculated by taking your total sales and marketing spend for a specific period of time and dividing that by the number of new customers/clients for that period of time.
Sales and marketing costs should include the money spent directly on marketing, advertising, and other promotional efforts, plus the salary, commissions, bonuses, and overhead used for sales and marketing. If you do not have dedicated personnel, or if you have people (like the CEO) who spend significant time in that area, it is important that you allocate those expenses.
Sample Calculation:
- Sales and marketing costs for the year: $575,000
- New customers for the year: 27
- CAC = $21,296
9. Lifetime Value (LTV)
LTV is another strategic indicator that tells you if your efforts are truly contributing to greater success. The two key variables used to calculate LTV are:
- Average length of time a customer/client is with you (typically measured in years)
- Average money spent with you in each period of time.
Multiply the two to get LTV. Therefore, there are three ways to increase LTV:
- Increase the time customers/clients stay with you.
- Increase what they pay you.
- Do both
As with CAC, an increasing LTV is a powerful momentum driver to scale growth, while one that is decreasing is an important sign that you are being commoditized and should adjust.
While there are literally hundreds of metrics that should be used in various circumstances, these nine are the core of any effective effort. Make sure you are tracking them, and more importantly sharing the results with everyone (and yes, we mean everyone) in your company. You’ll see that the data and knowledge will unlock even greater creativity allowing you to achieve faster growth and greater success.
