How Many Leads Do You Need?

Fri, Nov 6, 2009

Conversion Rates, Strategy, Traffic

   Written by: Susan Tatum

How Many Leads Do You Need?
If you know me professionally at all, you’ve probably heard me say this at least a thousand times: marketing’s number one job — sometimes its only job — is to provide good leads to the sales force. By that I mean that all marketing resources should be focused on creating awareness, generating inquiries and developing prospects into interested potential buyers. But how many leads do you need to generate?
This is actually a fairly easy question to answer assuming you have sales objectives, and I know you do. It is a factor of the following:
-Annual revenue target
-Average contract value
-Closing ratio
-Lead-to-opportunity ratio
By starting with your revenue goals and applying some very basic math, you can determine exactly what your marketing needs to accomplish. Why is this important? It’s important because it provides focus and direction. When you know what you’ve got to do, it’s infinitely easier to select the best methods to do it – and to establish accountability in your marketing program.
So, how many leads do you need? Just follow these steps to get the answer.
1. Start with your revenue goal. For simplicity’s sake, we’ll stick with overall annual revenue goals in this article. You could just as easily look at this in terms of quarterly or monthly targets for even tighter planning. Let’s say your sales goal for this year is $10M.Annual Revenue Target = $10,000,000
2. Convert your revenue goal to number of new customers required. If you don’t already have this number, you can get it by dividing the overall revenue goal by the average contract value. For this example, we’ll use an average contract value of $50,000. That means, you need to acquire 200 new customers in the coming year.Annual Revenue Target = $10,000,000
Average contract value = $50,000
Number new customers = 200
3. Now look at your closing ratio. What percentage of qualified opportunities do you generally secure? Divide the new customer target by the closing percentage to get the number of opportunities you need to achieve. Let’s say the closing ratio is 50%. You’ll need 400 opportunities.Number of new customers = 200
Closing ratio = 50%
Number of opportunities needed = 400
4. Finally, apply your lead-to-opportunity ratio. How many inbound leads become actual bid opportunities? If it’s 20%, you’ll need to generate 2000 leads.Opportunities needed = 400
Lead-to-opportunity ratio = 20%
Number of leads needed = 2000
Now you know that in order to hit a revenue target of $10,000,000, your marketing efforts must generate 2000 leads. This is a powerful bit of information, and one
you can use both to drive your marketing planning and to evaluate your marketing’s effectiveness. This becomes a primary – and measurable – marketing objective: generate 2000 leads. From here, you can develop a tactical marketing plan that works specifically to achieve this objective.
You can determine this number for your company quickly and easily by plugging your own numbers into our Lead Calculator. Get your complimentary copy here.

This article was first published April 21, 2007  on the Tatum Marketing blog

If you know me professionally at all, you’ve probably heard me say this at least a thousand times: marketing’s number one job — sometimes its only job — is to provide good leads to the sales force. By that I mean that all marketing resources should be focused on creating awareness, generating inquiries and developing prospects into interested potential buyers. But how many leads do you need to generate?

This is actually a fairly easy question to answer assuming you have sales objectives, and I know you do. It is a factor of the following:

  • Annual revenue target
  • Average contract value
  • Closing ratio
  • Lead-to-opportunity ratio

By starting with your revenue goals and applying some very basic math, you can determine exactly what your marketing needs to accomplish. Why is this important? It’s important because it provides focus and direction. When you know what you’ve got to do, it’s infinitely easier to select the best methods to do it – and to establish accountability in your marketing program.

So, how many leads do you need? Just follow these steps to get the answer.

1. Start with your revenue goal. For simplicity’s sake, we’ll stick with overall annual revenue goals in this article. You could just as easily look at this in terms of quarterly or monthly targets for even tighter planning. Let’s say your sales goal for this year is $10M.Annual Revenue Target = $10,000,000

2. Convert your revenue goal to number of new customers required. If you don’t already have this number, you can get it by dividing the overall revenue goal by the average contract value. For this example, we’ll use an average contract value of $50,000. That means, you need to acquire 200 new customers in the coming year.Annual Revenue Target = $10,000,000

Average contract value = $50,000

Number new customers = 200

3. Now look at your closing ratio. What percentage of qualified opportunities do you generally secure? Divide the new customer target by the closing percentage to get the number of opportunities you need to achieve. Let’s say the closing ratio is 50%. You’ll need 400 opportunities.Number of new customers = 200

Closing ratio = 50%

Number of opportunities needed = 400

4. Finally, apply your lead-to-opportunity ratio. How many inbound leads become actual bid opportunities? If it’s 20%, you’ll need to generate 2000 leads.Opportunities needed = 400

Lead-to-opportunity ratio = 20%

Number of leads needed = 2000

Now you know that in order to hit a revenue target of $10,000,000, your marketing efforts must generate 2000 leads. This is a powerful bit of information, and one

you can use both to drive your marketing planning and to evaluate your marketing’s effectiveness. This becomes a primary – and measurable – marketing objective: generate 2000 leads. From here, you can develop a tactical marketing plan that works specifically to achieve this objective.

You can determine this number for your company quickly and easily by plugging your own numbers into our Lead Calculator. Get your complimentary copy here.

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