Setting goals for your business is crucial for its success. Whether that’s marketing goals, personal goals, growth goals, etc.
But perhaps the most crucial for the health of your business is revenue goals. Without making consistent revenue and meeting your quota on sales, your business may not make it to the other goals you’ve set for yourself.
In this post, we’re going to help you evaluate whether your sales pipeline is strong enough to meet your revenue goals. Let’s get started!
Do the Math
To start, we’re going to do some math. This might not be everyone’s favorite subject (in fact, it’s many people’s least favorite subject), but having math and numbers to back up your revenue/sales goals is crucial in order to track success and understand the steps you need to take to follow through with goals you’ve outlined.
Mant sales teams and people will simply set some numbers like, “we want X amount of leads,” or, “X amount of deliverables/money” without doing the math to figure out whether or not their sales pipeline can support those goals. Thus, those goals are set relatively arbitrarily. This can backfire and set yourself up for failure to meet goals and meet quotas.
Without those numbers or doing that math, it’s also difficult for sales teams/people to understand the pace at which they need to work to get things done.
To avoid this, you simply have to do the math. To help, we’ve prepared a simple spreadsheet that can help you do that math to help you out. You can find the spreadsheet here. In the next section, we’re going to walk you through how the math works so that you can apply it to your own sales quota.
We’ve made some fairly large assumptions and are keeping this article very general, but you can easily take this spreadsheet and make it your own. This is simply a tool you can use to get you thinking about the math that should go into your revenue and sales goals.
Working Through the Simple Spreadsheet
Everything in the yellow boxes are the fundamental assumptions we’ve made for the purposes of this article: your yearly revenue goal, the average deal size, and your various conversion rate assumptions.
Those are the first things that you should adjust based on your sales team, your business, your product, your industry, etc, since those numbers are going to be significantly affected by those things.
Note: you may not really know these numbers right away. You need to have realistic expectations, understand the real results you get, and understand your industry. So you may need to tweak these numbers over time as you come to understand the team and the business you’re working with.
We’re going to start with a revenue goal.
For the purposes of this example, let’s say that we want to make $120,000 per year selling something. Doing a simple calculation, you can break down that yearly number into a monthly goal of $10,000 per month.
How did we get to $10,000 per month? Simply take that 120,000 yearly goal and divide it by 12.
Average Deal Size
The next important assumption is the average deal size. So, whatever you’re selling, what is the average amount that you get when the deal goes through? How much do you get paid when you make a sale?
While deals can surely vary, try and calculate the best average you can. In this example, we’re using $1,000.
Then we’re going to take that number and we’re going to divide it into the monthly revenue number you calculated earlier.
So we have $10,000 / $1,000 to get the number 10. This number is the number of things you have to sell/deals you have to make per month in order to hit your monthly goal. In this example, you need to sell 10 things every single month.
While all of this is super simple math, it’s critical for you to properly gauge and drive your sales process each month.
Sales Pipeline and Conversion Rate Assumptions
Now that you know how many sales you need to make per month, you can now start to figure out the process by which you’re going to do that. How many calls do you need to make? How do you convert leads? How do you find and generate leads to push them through your funnel? All of these things are going to affect the pace that you need to follow to reach that monthly deal number.
Here’s how we broke down the conversion rate assumptions: we took the percentage it takes to move from one stage of your funnel to the next. We know the end quota, but we need to back up to understand how many calls, meetings, contacts, etc, we need in order to end up with that quota.
Sales Qualified Lead to Closed Deals
The first one is how many sales qualified leads to turn into closed deals? That’s the first conversion rate you should calculate.
Let’s define a sales qualified lead a person that can actually purchase from you. This lead has the capacity, the need, or the want to purchase your product/service.
When you get to this stage in your sales funnel, you’re down towards the bottom of the funnel, right? When they’re a sales qualified lead, you’ve likely had multiple conversations with them, you know they’re interested, and they’ve made their way down your sales funnel, which makes them more likely to convert to a sale. You know they have the capacity, the ability, the need, etc, to buy.
All you have to do with them is to seal the deal. So from that sales qualified lead to a closing, let’s say you can generally close at a 20% rate.
To put it simply: 20% of those sales qualified leads will ultimately turn into closed deals within that month.
Lead to Sales Qualified Lead
Moving a bit farther up the funnel are leads that turn into sales qualified leads. These are leads that you’re turning into those sales qualified leads through conversations, meetings, discovering want/intent/need, etc.
These leads have some level of intent to buy, but they’re not quite at the point where they’re almost ready to close.
So what’s the definition of a lead?
A lead is simply someone that you have their name, email, phone number, etc, and they’ve shown some interest in what you’re selling. There’s some level of intent to be interested, not they’re not necessarily at the point where they have that want and need for the product/service where they’re about to buy from you. But they’ve at least shown some interest in doing business or buying what you’re selling.
These tend to convert to sales qualified leads at a pretty high rate. Around 75% of the leads that we get will turn into sales qualified leads. However, keep in mind that this number will vary greatly depending on the salesperson, the industry, the business, etc.
Contacts to Leads
In one last move up the sales funnel you get to the conversion from contacts to leads.
Let’s define a contact. A contact is a name, phone number, email, etc. Unlike a lead, these contacts haven’t necessarily shown any interest or intent in your business/product. These could be given by friends/family, referrals, networking contacts, random lists, purchasing age leads, etc.
A contact means that you have somewhere to start. This conversion rate is likely going to be the hardest to estimate since not all contacts are going to be relevant/of good quality.
Since many contacts are going to be irrelevant, out of date, bad quality, etc, we estimate a rather low conversion rate of contact to lead at about 2%.
But, let’s say it again for emphasis: all of these assumptions are going to be very different depending on your specific situation. It’s important to talk through and really understand each of these pieces so that you’ll understand the math.
Using the Numbers
We now have all of our fundamental assumptions in the spreadsheet.
Next, we’re going to take those numbers and those assumptions and figure out how many leads/contacts you need to have in each of those categories to reach your goal. This will help you understand how much you need to be doing throughout the month in order to get to where you want to be, goals-wise.
The good news is, all we have to do now is some more simple math.
We’re going to start at the top of the funnel. Take the sales quota (the number of things you need to sell), which we said was 10, and divide it by 20%. With that, you get 50 sales qualified leads.
What does that mean? It means that in order to hit your sales quota of 10, you need to produce and be working with at least 50 sales qualified leads per month.
That tells you that you need to doing enough to get 50 sales qualified leads every single month.
Now, we know what you’re thinking: “I could never get that many! How am I supposed to get that many sales qualified leads per month?”
But, remember, you don’t have to instantly have sales qualified leads. You’re also going to be working on converting leads to sales qualified leads and contacts to leads at the same time. This will push them down the funnel to the sales qualified leads you’re striving for.
Moving Down the Funnel
A funnel works by pushing large amounts down into narrower small amounts. So in order to get to your 50 sales qualified leads at the bottom of your funnel, you need to be putting in much larger numbers of leads and even larger numbers of contacts to funnel down to the 50 sales qualified leads you need.
Let’s go back to the example. You know that you need 50 sales qualified leads, so to get the number next up on the funnel (the leads), take that 50 and divide it by 75%. This tells you that in order to get those 50 sales qualified leads, you need to have ~67 leads.
You need 67 leads in order to produce 50 sales qualified leads in order to produce and close 10 sales.
Lastly, you calculate your contacts. You need to move through your contacts and find people that will become leads, then sales qualified leads, and, hopefully, then clients/customers.
Take the 67 leads you just calculated and divide it by 2%. This gives you a minimum of 3,333 contacts in order to produce the 67 leads you need to hit your quota.
That’s a huge number, but hear us out. Contacts you can get in very large numbers, but only a small amount are going to actually have an interest in your product. That’s why you need to contact so many people in order to find those few who show interest/intent.
Simple Math for Big Success
That’s basically all there is to it! While this is a simple spreadsheet that is more of a general example, you can use this process and customize it to your situations, quotas, conversion rates, sales pipeline, etc, in order to help you understand exactly what you need to get each month to be successful.
Once you have those numbers, you can better allocate your time and resources.
Hopefully, this has been helpful! If you are still feeling a bit overwhelmed, don’t hesitate to start a dialogue or ask questions in the comments. You can also contact us directly for more specific help!
Speaker 1: (00:00)
Is your sales pipeline strong enough to meet your revenue goals? Hi, my name is bill rice and I’m with age lead store. In today’s episode, we’re going to talk about the sales pipeline and how to do the math to make sure that there’s enough activity and there’s enough leads in there in order to actually hit your sales quota or your revenue goal for each and every month. We all know that slow and steady wins the race, but the question is, what truly is that pace? And do we have the ability to finish the race, all that in more in this episode? Stay tuned. Okay. Like I said, today
Speaker 2: (00:44)
we’re gonna do some math. Um, and I find so often, uh, with sales folks that I work with in sales teams that I work with, that they haven’t actually done the math to figure out whether or not their sales pipeline can support the revenue goals or the sales quota they’ve set for themselves in any given month. Oftentimes we’ll, we’ll set some number that says, hey, x amount of deals, uh, needed to be delivered, uh, or closed in any given month. Or maybe we have a revenue goal, hey, I’d like to make this amount of money in a month. And that goal is set relatively arbitrary without any sort of kind of backend math to figure out whether or not I’m doing enough activity. I have enough leads, I have enough going on in my sales pipeline to actually get me to my ultimate goal. And then the second part of that that often is left out is just understanding what my daily and weekly pace need to be to figure out whether or not I’m going to land there at the end of the month.
Speaker 2: (01:45)
So I prepared a fairly simple spreadsheet that I’m going to share with you and I’m going to walk through kind of how the math works so that you can start with your sales quota, which is what most of us end up doing. Uh, whether we should or should not a is a whole different discussion. Um, but we actually start with that number and then we’re going to sort of back in to the math to figure out whether or not, um, that math is going to work out for you in the end of the month. Alright, so let’s take a look at my spreadsheet. Okay. So let’s take a look at my sales pipeline forecasting tool. And you can see it’s a relatively simple spreadsheet and I’ll share it with you. It’s a Google sheet. Um, and for the purpose of this video to kind of make it as general as possible, but give you as much detail as possible.
Speaker 2: (02:31)
I made some fairly large assumptions, but you can easily take this spreadsheet. Um, and you can alter the assumptions. You can make it a sales quota instead of a revenue goal. You can base it based on your commissions. If you’re actually running the business, you can, you can actually truly make it against revenue. So there’s all kinds of little tweaks that you can make an here, but we’re not going to get hung up on that. We’re trying to just basically show you how to set a goal. And then how to back in and determine whether or not you’re creating sales activity. And you’ve got enough in your pipeline to actually get you there at the end of each and every month. So let’s take a look at this. Um, everything in yellow that I’ve kind of boxed in or my fundamental assumptions, those are the first things you got to look at because every sales team, depending on your product and your industry, is going to be a little bit different as to what you can expect from these different characteristics.
Speaker 2: (03:21)
And these are actually the, the kind of the, the fundamental assumptions that determine, uh, what my outcome’s going to be. So it’s really important to kind of tune those in to things that are real for you, real expectations, real results. And it may take you a couple months of kind of tracking these to figure out what those numbers should be, but you could always start with something. Alright, so we’re going to start with revenue goal. And again, this can be revenue goal. This could be based on the commissions that you’re getting paid. But let’s just say for argument’s sake, uh, that I want to make $120,000 a year selling something. This could be insurance, could be mortgage, could be a product, could be services. Um, it doesn’t matter. Again, the math all backs in the same, right? So I want to make $120,000. Uh, I do the very simple math, uh, to back that down, uh, into a monthly number.
Speaker 2: (04:14)
Cause again, most of us are focused on a monthly number, um, because we’re, we’re held accountable to a sales quota or delivering a certain amount of revenue every month, even if you’re a business owner. Um, the monthly number is pretty significant important. So I’m gonna take that 120. She was gonna simply divide it by 12 would give me a monthly number. So I need $10,000 in revenue per month to hit my goal and my target for the year. Um, then the next important assumption is what is the average deal size? So again, this could be the commission that I make on kind of the average size mortgage or insurance policy that I sell. Um, the actual revenue that I generate every time I sell a product. Um, so again, whatever you’re selling, what is that average deal size? This is a really important assumption here to just know on average, um, how much do you get paid when you sell, sell, sell something?
Speaker 2: (05:09)
All right? Then we’re going to take that number and we’re going to back it in. We’re going to divide it into that monthly revenue number. In this case, 10,000. That’s going to tell me in order to hit my revenue target, I need to sell 10 things this month. I need to sell 10 things every single month. So from there I’ve got kind of the basic math. Um, and all of us can kind of do that and a lot of us actually do that to figure out what my sales quote is. But we forget to do the rest of this math. And this is the math. I think that is super critical, uh, to gauge and drive your sales process month over month. And that is what is the activity that I need to be doing in order to push things through my sales funnel. Um, and then at rate do I need to be converting or at what rate do I need to be pushing deals through that sales process.
Speaker 2: (06:05)
So this is the way I broke down my conversion rate assumptions. Um, I actually took the percentage it takes to move from one stage to another. And I want to try to pick out stages that I can kind of measure and identify. So I’m going to be starting at the bottom of the funnel and going up, right? So I know what my quota is, so I need to back up to figure out at what stage of the funnel is. It kind of gets bigger. How many leads do I need in each of those buckets of the funnel? Um, all right, so the first one is, um, in order to, so how many sales qualified leads turn into closed deals? So that’s my first conversion rate. So sales qualified leads turning into close deals. And for me, sales qualified lead means that the person can actually purchase from you, right?
Speaker 2: (06:56)
They have the capacity, uh, they have the need or the want. Um, so when I get to this stage in the funnel, again, I’m down towards the bottom of the funnel. Um, at this point I know I’ve had some conversations with them, at least one or two probably. Um, and I, so I know they have the capacity, the ability that need the want to buy from me. Uh, I just need to get them, uh, to a deal into an offer that they will accept and close them. And so from that sales qualified lead, uh, meeting all those qualifications to a closing, I can generally close that at about a 20% rate. So about 20% of those sales qualified leads will ultimately turn into closed deals and probably happened within a given month. That’s the other thing that’s important. These are flowing within a month time cycle. And then the second piece that I can measure, the second part of that funnel is just a little bit higher.
Speaker 2: (07:46)
Up and those are leads. Okay. That turn into sales qualified leads. So leads that I’m, that I’m actually qualifying and turning into sales qualified leads. Again, a some level of intent to buy from me and the ability to buy from me and the want and need. Right? But a lead. So what’s the definition of a lead? Uh, this can go all over the map, but just for a simple simplicity. Um, to me a lead is simply, uh, someone that I have name, uh, email, phone number and they’ve shown some interest in what I sell. So there’s some level of intent to be interested, not necessarily have the capacity, not necessarily have the true want or need, but they’ve shown some interest in actually, uh, doing business with me or buying what I’m selling. That to me is a lead. Okay. And so from leads to sales, qualified actually converted a very high rate, right?
Speaker 2: (08:44)
So about 75% of the leads that I get will turn into a sales qualified leads and there’s a reason to do that. So your number vary depending on kind of how you get leads. But in my context, a lead, um, in, in most contexts, I think, uh, if you’re kind of doing the right things in that lead to sales qualified process, they’ll probably convert at a pretty high rate cause you’re, you’re doing some work to turn that lead, uh, together that intent on that lead. And so if you’re doing that right, again, most of those will convert. So that’s my assumption there. About 75% of those will actually turn into sales qualified leads. Then I’ll try to close. And then the last bucket here is kind of the highest level bucket. Um, and this is, um, the conversion from contacts to leads. And so this is a really important definition.
Speaker 2: (09:37)
So to me a contact is a name, a phone number, and an email and hopefully reasonably valid. But that’s okay. That’s not terribly important to me as well. A contact means that I just have a name, a phone number, an email, and my conversion rate kind of makes an assumption that a good portion of those, there’ll be incorrect or they’ll get out of date. Those sorts of things. Cause contacts can come from all kinds of different, uh, different places. It can come from [inaudible], uh, from just random list income from my friends and family. They can be referrals. That could be just things that I’ve accumulated over time at conferences and people have run into, uh, it could be purchasing age leads. We’re going to talk about that a little bit. This is a great source of actual contacts because they’re truly contacts. But there they’re also kind of leads, right?
Speaker 2: (10:22)
Age leads. Um, so some portion of them we’ll just kind of straight be contacts, um, because they don’t, maybe the intent is so old, uh, that maybe the intent isn’t no longer there. That would kind of really make them a true lead. Um, but the contact information is there. So again, we can talk about that down in our comments here. You could ask me all kinds of questions about my assumptions here. Um, what’s a lead? Where do you get contacts from? Um, ask all that in the discussion section and I’ll get in there, uh, and talk back and forth to you about your specific situation. Okay. So it’s important to kind of go through and talk through each of these pieces so that you’ll understand how the math is made, right? Okay. We have all of our fundamental assumptions in here. Now, sales qualified lead to close as a 20% conversion rate.
Speaker 2: (11:06)
That’s, you know, close to sales qualified. Um, and then my lead to sales qualified lead, that next section in my sales funnel, about 75% conversion rate there. And then my contact to leads the biggest top of the funnel, uh, is relatively low. Um, I’m, I’m assuming a whole bunch of spoilage in here. Uh, it’s about 2% will actually turn into a truly. So now I’m going to take those numbers and those assumptions and figure out how many leads do I need to have in each of these buckets. And how much activity do I need to be doing throughout the month in order to move the, how many of these things do I need to move into the different buckets? Okay? So starting at the top, I just simply do the math, right? And the thing here is this math is a tiny bit funny, right? So I’m going to take my 10 cause I’m moving from the bottom of the funnel to the top of the funnel, right?
Speaker 2: (12:03)
So I’m gonna take my sales quota, the number of things I need to sell that 10 and I’m going to divide it by the conversion rate that will give me the next big number. So a lot of times you know your multiple ply and percentages times that number. In this case, because we’re trying to move up the funnel, we’re trying to get a bigger number. I’m trying to figure out how many numbers, I mean how many things or leads or or contacts do I need to put in in order to get those 10 I’m actually taking that 10 I’m dividing it by the 20% and as a result, I’m going to find out that in order to hit my sales quota, I need to produce in any given month, 50 sales qualified leads, I need to be working on 50 sales qualified leads. So in that bucket, if I have 45 I’m going to fall short.
Speaker 2: (12:50)
If I have 60, I might exceed my quota, right? But I know that without assuming that that conversion rate is right on, if I don’t have 50 in there, that I’m going to fall short, right? So that tells me my first sort of level of activity I need to do enough activity to create 50 sales qualified leads every single month. Now that sounds a bit daunting, but as we talk about each of these buckets, remember, uh, initially you may have to gather a bunch of these leads together, but over time, hopefully you’re going to fill it up. And then Judas incrementally moving every month people into that. So your contacts, which is going to turn out, you’re gonna see here in a second is going to be a really big number. Um, you’re just gonna have to add a few more each month. So the work, assuming that you’re building, uh, this, this system, uh, in this way, you’ll get it full.
Speaker 2: (13:43)
An age leads is a great way to fill it up in, in a, you know, a large quantity all at one time. Um, and then you just need to incrementally add to it as you move things, uh, down in the funnel and out to close. Right? Okay. So I know that I need 50 sales qualified leads, then I’m going to take that 50 and I’m going to divide it again by my 75 and I know that in order to get 50 sales qualified leads, I need to actually have 67 leads. So people that have names, phone numbers, email addresses, and they’ve shown some intent or some interest in what I’m selling. I need 67 of those in order to produce 50 sales qualified leads in order to produce and close 10 sales. And then I go up to my last bucket, very top bucket a, and this is the number of contacts.
Speaker 2: (14:32)
And again, remember this is a name, a phone number and an email. Nothing more, right? Nothing more. Hopefully I’ve done some sort of filtering on this, but generally this number is so low that I’m taking into account that they may not have any interest or intent, right? But I do need to move through them so that I can find those people that will ultimately become leads, sales qualified and close. Um, and in order to do that, I take that 67 and I divide it by that 2% and it creates a very large number, 3,333. Now that sounds like a big number and this is why it’s important to use very affordable sources of data. If you tried to accumulate this number of contacts by buying real-time leads or actually just trying to one-off get this from your friends and family, you’ll never get there.
Speaker 2: (15:23)
So, so often I see salespeople not realizing that this is ultimately aid a game of large numbers. They will just, their sales activity will consist of reaching out to a couple of friends and family and saying, Hey, do you know neo? Do you know anybody that needs insurance? Do you know anybody that needs a mortgage? Right? And you just can’t get to the numbers you need. So at some point, you need to start to think, I’m in a mentality of list building in database building. And you need to look at some of these other sources of data where you can buy in probably, um, very affordably large quantities of people that you know will potentially be interested or at least are a good solid contact that you could start to build that database. Because ultimately any kind of sales with any kind of quota, you’re going to have these kinds of conversion numbers and you’re going to need to get to a point, um, where you actually have a database with a lot of people inside of it.
Speaker 2: (16:25)
All right, so that’s the math. Those are the numbers. Uh, and you could back through that. I’m going to link to the spreadsheet down below here in the, uh, in the comments area and the description area. And so you can feel free to take that spreadsheet, make your own copy, change up the assumptions, play with the numbers, and then ultimately ask me all the questions that you would like to, uh, down in the comment section. And we can have a full dialogue about this. So hopefully this has been helpful. I know that oftentimes when I show this for the first time to a sales team or individual salespeople, they’re a little bit overwhelmed. Um, so I’m here to help you. Uh, but again, hopefully it’s been helpful if it has give us a thumbs up that helps support us, allows us to get that content, this kind of content out to more salespeople, and then ultimately, uh, enables us to do more of the production of this type of content and get more of your questions answered and hopefully take you into a shortcut, uh, to success.
Speaker 2: (17:27)
Um, again, if you’ve enjoyed this, we would love to have you here each and every week. So subscribe, hit the subscribe button and hit that Little Bell, which will notify you every time we publish a new piece of content. We try to do an episode, uh, each and every week, so we hope that you’re going to join us next week. Again, hit that light button. We’ll see you next week. Uh, if there are any questions down in the comments on there all the time trying to answer your questions and also give me ideas of what you’d like me to cover next. All that set. We’ll see you next time.