What’s the most important number that every sales rep needs to know before he or she can build an effective sales plan? Their Lead Deficit. To give yourself a solid chance of making your Sales Target you must know this number. I looked at a similar concept in a recent blog on Calculating your lead generation numbers. You could also check this article out.
Here’s how it works. Making Sales Target is based on winning a certain number of orders at a certain Average Order Size (or Average Sales Price). Some percentage of those orders will come from existing accounts. The rest will come from new business opportunities. Of those new business opportunities, a certain percentage will be derived from sales opportunities generated by inbound sales leads and the rest will flow from your proactive prospecting efforts. That number of new sales leads you need to generate through your own proactive prospecting is called your Lead Deficit.
The Lead Deficit is at the heart of your sales action plan. What are the specific steps you will take each and every day to identify and connect with a sufficient number of new customer opportunities to achieve your Sales Target?
What’s Your Lead Deficit?
I guarantee that if you are able to close your Lead Deficit, you’ll make Sales Target for the year. Here’s a simple method to calculate your Lead Deficit and accurately estimate the type and quantity of sales activities that need to be a part of your sales plan. It shouldn’t take more than 30 minutes to come up with this figure.
Let’s start with the data points you need to gather.
- What is your lead conversion rate? Historically, what percentage of your sales leads do you convert into orders? You should know this important performance statistic by heart. If you don’t, don’t guess. Go back and calculate it based on your sales records over the past 12 months.
- What is your Average Order Size? This is different than your company’s Average Sales Price (AOS). This is your plan, so it has to be based on your track record. Go back and look at your order book for the past 12 months and count the number of orders you closed. Divide your total sales revenue or deal margin for the last period by the number of orders you closed to get your AOS.
- What fraction of your business did you get from existing customers? Calculate the sales revenue or deal margin of the orders you received from existing customers for the last two years. Get those precise numbers from your sales records. Add those two years together and divide by 2. Then divide that number again by your Average Order Size. The result is the number of orders from existing customers that you will plug into your model.
- How many inbound sales leads did you receive last year? Go back into your CRM records and count how many sales leads you received each month for the previous 12 months. Take the lowest monthly number out of the previous 12 months to use in your model. Don’t use an average number, and don’t assume that the number of sales leads you receive is going to increase. Always use the most conservative scenario to incorporate into your model.
Now let’s build a simple model to calculate Lead Deficit that you can use to start your planning. We’ll use sample data points I created to illustrate how it works.
CalculatiHow to Calculate Your Lead Deficit
Sample Data Points:
- Lead conversion rate = 20%
- Average Margin Size = £5,000
- Number of orders from existing customers = 10
- Number of inbound leads = 12 per year/1 per month
Now let’s plug these into the Lead Deficit model:
Step #1: Divide your Sales Target by your average order size.
Let’s assume your Sales Target based on Margin is £120,000 per year. Based on the Average Order Size, you’ll need to win 24 orders in order to achieve Sales Target.
Step #2: Subtract orders from existing customers.
Subtract 10 (orders from existing customers) from 24 (total orders needed) and the result is that you’ll need to win 14 orders from new business opportunities to make your Sales Target.
Step #3: Divide the number of orders by your lead conversion rate.
Based on your 20% lead conversion rate, you’re going to need 70 total leads from all sources in order to meet your Sales Target.
Step #4: Subtract inbound sales leads from total required sales leads.
Subtract 12 inbound leads from the 70 total leads required and the difference is 58 new sales opportunities you will need to proactively develop on your own. In other words, your Lead Deficit is 58. Based on your past performance (which is the most accurate guide to future performance), 58 is the minimum number of sales leads you must proactively develop in order to meet your Sales Target.
Hope you found this of va
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