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The Sales Math Equation

Updated: Aug 29, 2022

In a world of constant influences and tasks that compete for the attention of sales reps, cut down on wasted time, increase key activities, and you will influence revenue.

Playing Moneyball with Your Pipeline Creation

The magic of the bat hitting the ball took flight in a new way when the Oakland A's changed the way baseball was played. If you haven't seen that movie recently, go watch "Moneyball" with Brad Pitt. It's the type of story that can get you hyped about why data can work and be cool, inasmuch as you like baseball.

For that coaching staff, it became a math equation of building a team that could get on base, not building a team of superstars that were perfect--and by implication, expensive. Sales and Business Development (SDR) teams have a dilemma not far off: how to hire sales development reps that will stay on board long enough to fully ramp, and be the type of rep who can get "on base" with enough prospects to achieve their quota for pipeline creation.

Why SDR's Should Want To Know This Math

Still throw up in your mouth a little when you think about college math classes? Math can be fun and powerful if you do it right. So before you check out, just realize that you can save yourself a lot of time/money/effort, as well as make yourself a lot of money if you follow some of this well enough to implement it. So, how bout some simple math in regards to pipeline creation––the kind of math that you actually use later in life. Generally, you hear sales leaders touting their knowledge that dials per day correlate to conversations per day when you're prospecting. So... DIAL MORE! The effort metric of dialing alone does not constitute the "on base percentage," and it is a "fakeable" metric.

The good SDR's know the objection handling frameworks, the qualification questions and the call-to-action scenarios well enough to get executives to take them seriously. The best SDR's also know that it's fairly straightforward that conversations per day/month correlate to appointments per day/month (should they handle those conversations properly and there is not a worldwide pandemic). The more volume, the more contact. Right? Even if this is true, there are paradoxes - and leaders often read too much into the data and lean too hard into their people to work harder instead of thinking of how they can innovate/automate.

Yes, appointments can lead to Opportunities and open pipeline, and that pipeline becomes revenue. Revenue is what companies care about. But sometimes it's hard to execute on building a great culture in your development team leads to revenue––which includes the snacks and ping pong, but also more importantly, a culture of success is where people work hard because they love working with their manager, and they know that working hard is in their best interest.

Example Math

Pretend as an SDR you make an average of 25 dials a day, setting 1 appointment a day, and your appointments convert around 50% of the time to open pipeline. Over a 20-ish day work month, they will have made roughy 500 dials, set 10 appointments, and created 5 opportunities.

  • 25 dials x 20 days = 500 dials per rep

  • 10 appointments ÷ 500 dials = 2% of dials that became appointments (your SDR needs 50 dials to get an appointment on average - just flip it 500÷10).

  • 5 opps ÷ 10 appointments = 50% of appointments became opps (your SDR needs 2 appointments to get 1 opp, and 100 dials to get an opp on average)

If you even just upped the #'s to 35 dials a day at the same math, at only 2% of dials being appointments (which is below industry standard), it can have bigger impacts than you might think.

  • 35 dials x 20 days = 700 dials per rep

  • 14 appointments ÷ 700 dials = 2% of dials that became appointments (your SDR still only needs 50 dials to get an appointment on average - just flip it 700÷14).

  • If we maintain 50% of appointments becoming opps - 50% of 14 appointments = 7 (your SDR still only needs 2 appointments to get 1 opp, and still the exact same 100 dials to get an opp on average)

Now extrapolate it across the team: If you have 10 SDR's and you had 2 more qualified opps in a month per SDR, that's an overwhelming 240 more opps created in a year (10 reps x 2 more opps/month x 12 months). This is an even bigger deal the bigger the team is. The profit margin and customer cost of acquisition cost are crucial to calculate - but these calculations are the calculations that lead to increasing profit margin and decreasing customer acquisition cost.

The takeaway? You are leaving commissions on the table.

This is an invaluable equation for creating your comp plan and quotas:

  • Dials/month ÷ Conversations/month = Conversion % from Dial → Conversation

  • Conversations/month ÷ Appointments/month = % from Conversation → Appointment

  • Appointments/month ÷ Sales Handoff/month = % from Appt → Sales Handoff Calls

  • Opps/month ÷ # Closed Deals = Conversion % from Opportunity → Closed Won ARR

You can divide any metric from the higher parts of the funnel with any metric from the lower part of the funnel to find a conversion rate.

You can then use those conversion rates to figure out the benchmark you need to set for a metric higher in the funnel, in order to achieve a certain number lower in the funnel.

What is you company ARR number? How much pipeline is generated by an SDR for your AE's versus directly by your AE's? How much of the pipeline generated from either BD or AE's that originates with Marketing efforts? If you can identify some of these questions, you start to play "Moneyball" with your sales game. You can also begin to predict the exact number of appointments that are needed to get the number of opportunities your company needs for healthy pipeline (just divide Appointments/month ÷ Opps = Conversion %. How many opps do you need?

This is the type of modeling the Revenue Ops teams of tomorrow are doing.

More Example Math

For rough numbers: Say after figuring out the company "recipe card" you need to generate 20 opportunities in a month. If on average, 65% of appointments your SDR's set make it to pipeline, you know your conversion rate is 65% from appointment to opportunity. That would mean you need about 31 appointments to get 20 opportunities (since 20 is 65% of 31). You can divide the # of Opportunities needed by your conversion rate % (20 ÷ 0.65) and it will give you the right rates. It's like magic.

Wonder how many dials your SDR's should make? Stop pulling a number out of your butt! No one likes to be micro-managed. Teach them how this stuff works, or hire someone qualified to help you teach it, explain to them the benefits to them and the business of optimizing their process and increasing their effort. If you need 20 opps, and you know your org makes 500 dials a month leading to only 15 opps, you know 15 ÷ 500 = only 3% of dials become opps. 3% of 500 = 150 dials. So for every 150 dials are made, you get an opp! Sometimes it really is as simple as increasing the number of dials in order to see success. Other times, it's not so simple.

High Quality = Exponential ROI

If you are maxed out on dial volume in every single person's territory, you can't say "dial 30 more per day so we can hit our number." You also can't say "just get 5 more appointments, and that will solve all of our problems. One key change that many companies are making is to switch from quantity to quality. The ability to get deals in the pipeline that grow later, or close faster now, is largely based on how you structure your prospecting efforts. While adjusting your leading key indicators is always possible (easier to control, harder to measure: like calls and emails, and sometimes conversations), you may need to do those same dials differently, or increase the effectiveness of conversations to ensure that they are being utilized as best as you can. By doing this, you can break quality into two domains:

  • Quality of the prospect (talking with the right person)

  • Quality of the prospecting efforts (skill on the phone)

By influencing quality, this is a part of the math equation that can be really powerful. Now you start to influence the lagging indicators which is usually less possible (harder to control, easier to measure: number of opps, opps that move to later stage, opps that close).

This is the math that really matters. We have to shift in the revenue ops world away from the effort metrics that can be faked and move toward the conversion rates between metrics as our source of truth for if things are running right. Quick refresher on the first math equation. Originally, we were at: 25 dials x 20 days = 500 dials per rep >>>> we raised the dials by 10 and got 35 dials x 20 days = 700 dials per rep. This led to 4 more appointments a month at the exact same conversion rate of 2%. This ultimately led to 2 more opps because of the 50% conversion rate from appointments to opportunities.

What happens when a company hits their effort threshold? Say you are calculating everything and you realize you can't just "increase dials" - you are making 50 or 60 or 70 a day, and you are not seeing changes downstream? This is very common, so if that's your situation, you are not alone.

The SDR of the future will have bots and machine learning algorithms, and progressive data analytics models, smart sequencing, and rep effectiveness scores that go far beyond today's tech. When that happens, maybe you can just click a button and increase your conversion rates. Until then, you have to get innovative. And this exact scenario illustrates why funnel metrics are only part of the story with conversion rates.

If you want to get that 2% to go up so that your 35 dials are worth more to the business, and avoid increasing dials, you have to spend more on marketing leads that are better, or do social selling, or do a better sequence messaging process that reflects your ideal customer profile's needs. the intangibles of effort and hard work can't always solve your problem.

And we will someday see technology that can help solve some of the top of funnel issues we see across the industry. Low value tasks will be taken off the SDR plate, and the ease of creating sales conversations with buyer ready personas will go up. It will be at this juncture that innovation in sales will get very very fun.

For now, doing things like organizing SDR prospect lists with data normalization and batching, creating automation workflows and triggers, doing power hour more effectively, adding contacts in mass through your database provider, and utilizing information in the CRM can all be quick tricks to fixing the process.

Avoid Micro-Managing or Over-Rotating

One "gotchya" of funnel metrics and this focus on building a revenue machine is: "what about the people?" You can't make slave labor out of your reps, even if you do justify it with their freestyle machine and ping pong table at breaks.

You have to know your math, but you also have to know that math is never more important than the people who have committed their trust to you as their leader. When they start to feel like you care more about something extrinsic (your revenue number) than their intrinsic worth as a person and employee, you have done this all wrong.

Funnel metrics are literally a guide for your reps to be successful--for you AND for them. The metrics are the "strait and narrow path" and the "central nervous system" if you will, to finding the right prospects and enough of them to be successful in your business model and industry.

Over-rotating to a new way of thinking overnight, changing your tech to match that new way, doing enablement training, etc., all at once without your org knowing why is a dangerous slippery slope. Even if they do know why you are doing it, they may disagree and see you as an erratic leader. A better way is to identify with skilled operations people either in your company or outside of it what your key initiatives are, put together a phased approach including extensive testing in a prioritized project plan, collaborating with all necessary stakeholders and even some of your top-performers, to institute changes.

By putting your teams in the driver seat for reaching their destiny, each territory "store front" for your product will be able to have a bigger why for increasing their effort, and a framework of metrics to help them succeed at doing this.

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