2 Steps to Calculating Your Annual Leads-to-Revenue Ratio
Do you know how many converting leads you’ll need to meet your revenue goal for the coming year?
Lead volume and quality are important metrics for sales and marketing teams. Knowing the raw number of leads you need to produce is crucial. It can help you assess the overall efficiency and effectiveness of your sales pipeline and help you and your sales team be more proactive and maintain momentum.
Now is a great time to calculate your company’s leads-to-revenue ratio for the year. In just two easy steps, you can quickly convert your sales revenue goal into clear marketing objectives.
The best approach to calculating your annual leads-to-revenue ratio is to work backwards through the sales funnel. In addition to your revenue goal, you’ll need a couple of other metrics to get an accurate picture of where you need to be: your average revenue per order or closed deal and your average lead-to-customer conversion rate.
Ready? Let’s get started!
Step One: Calculate Your Converting Leads
Using your sales revenue goal (we’ll use $10 million as an example) and your average revenue per order or closed deal, you can determine how many converting leads you will need to close in order to meet your goal. Simply divide your annual revenue goal by the average revenue per order or closed deal (we’ll use $50,000 as an example).
$10,000,000 revenue / $50,000 revenue per order or closed deal = 200 converting leads
Step Two: Look at Lead-to-Customer Conversion
Not every lead is going to convert. That’s why, when tracking activity in your sales funnel, it’s essential to know the conversion rate of leads to prospects to customers.
For example, only one out of every four leads you generate might end in a sale resulting in a 25% lead-to-customer conversion rate. So step two is using your average lead-to-customer conversion rate to calculate the total number of leads you need to generate in order to satisfy your revenue goal. Simply divide the number of converting leads you need (from the previous step) by your average lead-to-customer conversion rate. Using a 25% conversion rate as an example, we find that in order to meet a revenue goal of $10 million, we must generate a total of 800 leads.
200 converting leads / 0.25 lead-to-customer conversion rate = 800 total number of leads
Calculating an annual leads-to-revenue ratio makes it easier to manage and analyze your efforts, helps ensure that you’re staying on course, and is a key component to staying productive. Once you know the number of total leads you need to generate, you can better allocate your resources so that your sales pipeline is never too empty or too full.
But when it comes to sales metrics and tracking leads, many businesses don’t know where to begin, or they don’t understand how metrics are used. Quality metrics are vital to your marketing success. If you want to gauge the efficiency and performance of your sales funnel or find out what the ROI of your lead generation program is, you’ll need to know which metrics to monitor and how to evaluate them.
Our trusted marketing experts are now available to help you with any questions you may have. To learn more, contact us today!
Originally posted on allbusiness.com.