Some compare a steady supply of leads that keep their businesses going to fuel that keeps engines running. To showcase the fact that not all leads are converted into sales, a more poignant metaphor would involve seeds only a fraction of which will blossom into flowers and mature into delicious fruit while others will stay barren or dry out. The purpose of this sophisticated comparison is to point out that when you know the seed-to-fruit ratio, you know how to distribute your resources. When business owners, executives, or heads of sales departments have the exact number of leads needed to reach the desired sales revenue target, they know how to organize the sales reps’ work and plan the roadmap. What metrics specifically do you need to calculate how many leads it will take you on average to make a sale?
- The average sales goal per rep per a specified period
- The average sales price
- The percent of their sales goal that a sales rep generates from repeat sales, referrals, etc., without new leads
- The ratio of SQL (sales qualified lead) to a closed deal
Is there a lead-to-sales calculation formula? It is more complicated than that. Let’s take a closer look at all elements going into answering this question. B2B lead generation may seem too capricious and tangled at first sight but not to professionals in sales lead generating. If you too want to get to the bottom of this lead generation business, dig in and you will figure it out in no time.
The Basic Way to Calculate Your Leads in B2B Lead Generation
What metrics do you need to calculate the number of leads to generate per month or any other period of time? First of all, you need a sales target or a revenue goal to keep as the benchmark for you to align all the other numbers. Keep in mind that your sales target should not be too ambitious so that your sales reps won’t lose their motivation. Next, each new metric you introduce into the equation will bring you a different degree of accuracy of what you want to find out.
Average Sales Price
If you know just your revenue goal and your average sales price, you will get a very basic idea of how many sales you need to make this time. If you want a revenue of $2M with an average sales price of $5,000, you need to divide your revenue goal by your average sale price and you will get the number of sales you need to make in order to reach your sales target: 2,000,000 : 5,000 = 400. Now, does it mean that 400 leads can be converted into 400 customers? No, it doesn’t. Everyone knows that the lead-to-customer conversion rate is never 100%. How many leads do we need to generate to have 400 customers at the end of the month? Let’s see what else can make our calculation more specific.
By adding lead volume taken from your historical close rates, you will get the average close rate of your leads. To get the total number of leads from all your sources, glean the data from Google analytics and sign-up statistics and you will know:
- Number of website visitors
- Sign-ups for your lead generator (lead magnet)
- Number of subscribers to your blog
- Number of email leads
- Number of confirmed attendees to your webinar
- Number of respondents to an advert
- Trade show registrations
- Footfall in retail, etc.
Calculate the close rates. Divide the total number of leads by the number of sales in the specified period of time. If you generated 1M leads from all sources from February 1 to March 1 and had 20,000 closed deals, you get the close rate of 2%. Now to find out how many leads you need to generate to reach your sales goals, divide the number of sales you need by the close rate: 400 : 2% = 20,000 leads.
An average close rate doesn’t take into account leads quality. Some leads convert at a lower rate than others. To account for this, calculate low-rate and high-rate leads separately and then add the numbers together. For example, by now you know that leads who attend your webinars convert at 15% (they account for 20% of your leads) whereas leads who download your e-materials close at a 2% rate (accounting for 80% respectively). Having these numbers you can differentiate your close rate as such: (15% x 20%) + (2% x 80%) = 4.6%. Use this result to calculate the number of sales more precisely. Also, you can calculate the close rates for each type of lead separately.
Including Self-Generated Leads
A more precise way of calculation is to include self-generated b2b leads. If your sales reps are not newbies, they already have loyal customers, referrals, and other sources that bring them monthly sales without lead generation. In addition to sales goals, revenue per closed deal, and the leads to close ratio, you will need the percent of a sales rep’s self-generated revenue from repeat sales, referrals, etc., without new leads.
Sales goal $3,000,000
Percent of self-generated revenue 40%
Quota requiring lead support ($3M x 1-.40) $1,800,000
Sales price $60,000
Converting leads required ($1.8M/$60K) 30
Conversion rate 20%
Qualified leads required per rep (30/.20) 150
Let’s imagine that the sales goal for a sales rep is $3M. First, find out how much of the sales goal can be covered by self-generated sales and how much should come from lead generation. In the example, 40% of self-generated sales leave the sales rep with $1.8M in revenue to come from lead generation. If you divide the expected revenue of $1.8M by the sales price of $60K, you get 30 closed deals that the rep should deliver to achieve the sales goal. By dividing the average number of closed deals by the conversion rate, we get the number of qualified leads per sales rep: 30 / 20% = 150.
What Can You Do to Improve your Lead Conversion Rates?
Even at the stage of calculating lead volume from different sources, Google analytics and other statistical data will prompt you which lead generators are the best and worst performers. Do something about it.
Find your Best Lead Generator
If fixing and adjusting smaller details helps, do it. However, keep an open mind to cutting off some sources that have extremely low performance in terms of lead generation. If a webinar has too few views or a checklist has zero downloads, remove this type of content and work on producing something more engaging.
Optimize your Website
Ensure your website is sales lead generating and has a clear CTA (call to action). Check for on-page and off-page SEO. Refresh keywords if necessary. Replaced broken backlinks.
Train your Salesforce Better
How qualified your sales reps are, is also a crucial factor in how quickly they can close a deal. Experienced reps immediately see a lead’s needs and pains and target their value propositions better. As a result, they close a deal faster and on average need fewer leads than their less experienced colleagues.
Calculating Correctly Now?
We hope now b2b lead generation looks more nuanced to you. Depending on what numbers and metrics you have, you can have various degrees of precision and accuracy. However, having just a sales goal and an average sale price will give you a ballpark number which can be further specified with a conversion rate, self-generated revenue, and lead volume. At Belkins, we respond to any questions on lead generation and deliver highly customized recommendations made specifically for your business.
Rachael is a content writer at Pearllemonleads.com, who has written on a Ultimate Resume Guide, from colored diamonds to SEO software. In her spare time, she enjoys singing, sketching, cooking, and video games.