Sales (and marketing) is a numbers game!
Well, kind of, but……
Let me backtrack. Too many organizations are driven by the numbers and “math” of sales and marketing. They think the way we drive performance is manage to the numbers and math equations.
Let me give a very simple example:
(Number of dials) x (Answer rate) = (Number of prospecting conversations)
This is a fundamental equation we all use in prospecting. Let’s imagine the following, we have an answer rate of 5% for our dials. (This is probably a very ambitious conversion rate, but let’s go for it!) Doing the math:
(100 dials) x (5% answer rate) = 5 prospecting conversations.
The math is pretty easy, even someone in sales and marketing can do this.
The next thing that happens is management says, “We need more prospecting conversations! We need 100 prospecting conversations!”
To figure this out, we dust off our intermediate school algebra books and discover we can solve for this. The equation is transformed to:
(Required prospecting conversations) / (Answer rate) = (Number of dials required)
Solving for this: (100)/(5%) = 2000 dials!
Math has come to our rescue again. To get the outcomes we want, all we have to do is up the number of calls. And if we need more conversations, we just run the math again.
Math works! Until it doesn’t–but I’ll get to that later.
We have all sorts of math equations we use to calculate the numbers and achieve our goals. We have win rates, average deal sizes, sales cycles, prospect to qualify rates, average touches to response, email opens/click throughs, and so forth. From an organizational point of view we have average quotas, % of people making goals. We have any number of acroynms that help us with the new math of XaaS. Things like MRR/ARR, CAC, CLV, retention, cross sell, etc.
It seems everything we do in sales and marketing is reduced to a set of trusted math equations. To make our goals, we just have to run the numbers.
Now let’s go back to our original prospecting conversations equation. As you analyze the equation, you will notice there are two variables and one constant. The number of dials and the number of prospecting conversations are variables, and the conversion rate is a constant. As we look at all the equations we run, there are a lot of things that we treat as constants. For example, win rates, average deal size, sales cycle, ARR, retention and so forth.
As we solve these equations to achieve our goals, we start to notice a pattern. The answer, at least if we are a growing organization, is always the same: Do more! More dials, more conversations, more deals, more pipeline, more people, more leads, more programs, more, more, more (Thank you Hank Barnes)
But what if we paused a moment? What if we stepped back from the mania of activity? What if we took the time to “rethink” what we do, how we do it, who we do it to/with?
For example, virtually everything that we treat as “constants” really aren’t constants. They aren’t rooted in the laws of physics or nature. We realize they are, in fact variable–things that we can change, perhaps shifting in our favor.
Going back to our prospecting equation, we might challenge ourselves, “How do we get a 20% conversion rate, rather than a 5% conversion rate?” This changes the math in stunning ways. For example, if we need our 100 conversations, we run the equation with this changed conversion rate:
(100)/(20%) = 500 dials!
Amazing! With 25% of the dials, we can hit that 100 call goal. (Alternatively, if we made 2000 dials, we could have 400 conversations.) Isn’t math wonderful?
Now we challenge ourselves, “What do we have to do differently to increase the conversion rate from 5% to 20%?” We can start to consider different alternatives, perhaps a higher quality call list. Then we consider, “How do we get a higher quality call list?”
As we look at all the equations we leverage to make our numbers, all the things we treat as “constants” are actually variables. We can change them if we rethink what, how, who, why we do them. For example, if we increase our win rates, or increase our average transaction value, or decrease our sales cycle, our healthy pipeline metrics change profoundly. We can look at alternatives to more easily or effectively achieving our goals. Alternatively, we can look at ways to dramatically grow our results.
It’s fascinating, if we take the time to rethink what we do–organizationally or individually, we can discover new ways to more effectively achieve our goals and grow. Yet, too often, we get sloppy or lazy. We don’t rethink things. We do the same things we always have done, at ever increasing volumes.
But if we changed, we could achieve so much more.
Let me leave you with a math problem that can be applied to coaching your teams:
- You have two sales people, each having a quota of $5M.
- Each salesperson has a qualified pipeline of $10M.
- They each have the same average deal value and sales cycle.
- Sales person A has a win rate of 20%, sales person B has a win rate of 40%.
What coaching do you do for each sales person? What 1-2 things would you do to drive their performance?
(Hint: The answer isn’t to get 3X coverage in their pipeline)
Would love to see your responses in the comments
Brian MacIver says
“The math is pretty easy,
even someone in sales and marketing can do this.”
Actually, MANY CAN’T.
In many large-scale Sales Force evaluations, I found
there are a surprising number of innumerate Salespeople.
Some cannot immediately answer “What’s 20% of 5?”,
many will reach for their calculator to answer
“what’s the offer price after a 20% Discount from a list price of $125?”
Forget extended Math problems!
During recruitment Numeracy & Literacy should be checked,
You don’t NEED Einstein, but basic math is a requirement in Sales.
So, when we talk Performance Ratios, Gantt Charts, Graphs and Performance Curves, please be aware some of your audience have no idea what it all means. They are the ones who sit smiling, or ask at the end of the presentation:
“Will President’s Club still go ahead?”
For some we will have to explain in ENGLISH not MATH.
😀 (Hint: The answer isn’t to get 3X coverage in their pipeline)
David Brock says
😉 Sadly, too many don’t understand the basics, relying blindly on the answers the systems and tools provide. As a result, they don’t understand what the numbers mean.