What can we say, we like math. (Okay, we confess. We ❤️ math.)
But even if you don’t like math, we encourage you to dig into your numbers to understand how you can grow your business. At 321, we call that “growth math.”
What’s your growth math?
Well, start with your overall revenue target for the year. Let’s say it’s $100,000. Just for fun. Next, think about your average deal size – let’s say it’s $10,000. (Nice!)
So, now you can determine how many deals you have to close this year to hit your target. We can do that math together: $100k revenue target / $10k deal size = 10 deals… that doesn’t sound too hard.
What’s your estimated close rate? Very few of us have a perfect batting average.
So, how many qualified prospects do you need in your pipeline to actually close 10 deals this year? Let’s say your sales process isn’t yet firing on all cylinders, so you close about 1 in 10 qualified prospects, or 10%.
So, based on that, we now know how many qualified prospects you need in your funnel, to hit your target. That’s calculated as 10 deals / 10% close rate, or 100 qualified prospects.
Okay, now how many prospects do I need at the top of my funnel? What we mean by that is how many leads do you need that come from both your marketing campaigns (like paid search or email campaigns) and from your outbound sales efforts?
First, we need to understand the proportion of your leads that become qualified.
You may get a ton of inbound leads. But they may not all be a good fit with your Ideal Customer Profile (ICP in 321 lingo). Or, they may not be a buyer (hopefully they aren’t tire kickers, or “professional learners” 😩). Perhaps they are interested, but have no immediate plans to buy – so it’s a good idea to nurture them along, but you can’t count on them converting soon. Or, they just don’t have a burning problem you can solve right now.
What’s your estimate for the proportion of your leads that end up being well qualified?
Let’s say 20%.
That would mean, you’d need 500 prospects at the top of your funnel. (Do the math: 100 qualified prospects / 20% of your leads that end up as qualified prospects = 500).
Hmm. Now this is looking tougher.
So – how many prospects do you have to reach every week?
We know that consistent sales and marketing efforts is key to growth (and to smoothing out your revenues and cashflow.) So, if we take the 500 prospects you need at the top of your funnel and divide that by ~ 50 weeks in a year (minus a few that you’re hopefully spending on a beach or the ski slopes to recharge), then you need to be reaching about 10 prospects a week.
Note, that we say, REACHING. That doesn’t mean calling and leaving a voicemail. Or sending an email. I mean actually connecting with the prospect and having some type of back-and-forth dialogue.
So, next is how often do you actually connect with a prospect on your first try? That’s pretty rare – so let’s say it takes you about 10 touch points to connect. (And those touch points can be calls, emails, meetings, social DMs, and all the other ways we try to engage them.)
In other words, you connect with a prospect about 10% of the times you reach out.
That means you’d need to have about 100 attempts to reach your prospects each week.
So your growth math would be:
- 100 prospect outreaches a week
- to actually reach 10 prospects a week
- to build up to 500 prospects in your funnel
- so that you can get to 100 qualified prospects in your funnel
- so that you can close 10% of those deals
- at $10k a pop
- to hit $100k in revenue
It gets a bit more complex if we layer onto this the length of your sales cycle. If you are selling to the enterprise, and it takes you 6-12 months (or longer!) to land a new customer, you may have to build an even bigger pipeline to create a “lay up” for next year’s revenue target.
If you’re a SaaS company, you have to layer into this an assessment of your churn, or the percentage of users that unsubscribe.
And if you’re are two-sided marketplace, you have to understand your growth math on both sides.
Ask yourself whether you’re doing what you need to do – in both sales and marketing – to hit your targets?
Growth math sounds complex. But at 321, we think understanding your numbers is key. We’ll take you beyond growth math, and teach you about your unit economics (a.k.a. “do we make money on a typical deal?!?”), your customer ROI, the ROI on your marketing spend, and more.
If math isn’t your jam, 321 can help you better understand the math that makes your company grow. And if you’re a fellow math nerd, we hope you’ll come and geek out with us. Our Lean Sales or Growth Marketing courses are both starting in late September. Hit us up if you want to know more.