You can never have too many leads, right?
Not quite.
If your sales and marketing teams are drowning is leads, inevitably, the quality of outreach suffers. Marketers limited to larger, more generalized segments. Salespeople are unable to incorporate as much research and personalization.
Often, the result is paying more for less. Your team is so busy trying to process the volume of leads that they’re unable to convert them. The increased lead volume ends up being offset by the diminished conversion rates.
Of course, there is still a minimum number of leads a company needs to sustain itself. Companies can’t completely disregard lead volume. Even with meticulous attention paid to every contact, there will be some who don’t pan out.
The real number of leads you need falls somewhere in the middle. You don’t want to overwhelm yourself with excessive volume, but you also don’t want to set yourself up for failure by not putting enough irons in the fire.
So, how do you arrive at the right number of leads for your organization?
Flipping the Funnel
You can’t arrive at the “right” number of leads without a couple of key items.
First, your organization needs to have clear and specific goals. It might be building out a new million-dollar line of business. It might be to grow revenue by 20% over last year. Whatever the case, this goal needs to be clearly stated from the start.
Second, you need to know how your sales and marketing teams have performed historically. The most important numbers to know are your conversion rates at each stage of the funnel. You need to know the percentage of leads you turn into opportunities, the percentage of opportunities you close, and the average size of your deals.
Note: The definition of leads, prospects, opportunities, and deals can vary a bit from company to company. (You can see our definitions and reasoning in our related post.) Here, we’re defining leads as contacts that have given you their contact information, opportunities as contacts that have agreed to a sales call, and deals as signed contracts or completed transactions. The same process will apply regardless of the definitions you use, as long as they match your processes.
Using our goals and conversion rate as a basis, we can back into a minimum required number of leads by performing a simple series of calculations. We’re essentially flipping the funnel and inverting the conversion rates to estimate our starting point.
Let’s look at an example: Say your company wanted to grow its current revenue of $10,000,000 per year by 20%. We’ll assume you convert 5% of leads to opportunities, 33% of opportunities to deals, and have an average deal size.
As you can see from our diagram above, we arrive at a count of 12,000 leads, or 1,000 leads per month, by dividing the goal figure by the appropriate conversion rate at each stage of the funnel. As a marketer at the example company, you would want to shoot for a total of at least 1,000 leads per month between all channels.
Taking It to the Next Level
The above is the most basic way to arrive at how many leads you need for your organization as a whole. You can make the same process even more useful by running several calculations for specific areas of your lead gen efforts or introducing additional information into the general calculation.
For example, a pretty obvious next step is to determine how many leads you need by channel (inbound, outbound, referral, etc). Start by dividing the overall growth goal into portions for each channel. Use your historical numbers to gauge anticipated contributions. From there, run the calculation once for each channel, substituting channel-specific numbers for the general conversion rates and deal sizes.
There’s no shortage of ways to tinker with this lead needs calculation. A few of the other ways you can adjust this formula include:
- Factoring in client turnover for a more realistic growth goal
- Running calculations for each line of business to account for differences between products
- Incorporating budgets and costs to calculate profit goals rather than revenue goals
- Calculating individual sales needs by substituting in rep-specific quotas and conversion rates
- Modeling the impact of improvements to deal size or conversion rates
Wrapping It Up
Understanding how many leads you need is the first step in planning successful lead generation efforts. And, while you don’t need to adhere to the numbers calculated above down to the lead, the result is an ideal tool for planning your future efforts.
Let us know what you think:
- Does your company have an accurate gauge of how many leads you need?
- How do you source leads?
- Do you work with required lead totals when planning your lead generation efforts?
[…] But for lead-based quotas to have any value, you must use them to deduce how many will convert and eventually buy. The HIPBlog team wrote a great post on this. […]