Demand Generation Basics: Use this guide to calculate how many leads you need this quarter
It can often seem like you need a crystal ball to build a demand-generation plan that actually delivers.
If that sounds familiar, this post is for you.
What we won’t do here is tell you where to spend your valuable marketing dollars; but what we will do is guide you through a simple process that’s guaranteed to get buy-in from a CEO who’s hungry for growth, and a CFO who’s threatening to cut budgets.
Step One: Familiarize yourself with your lead and sales process
Your leads – whether they are paid leads or organic – flow sequentially through your sales and marketing operation. They touch multiple systems and process, from initial capture (through a web form for example), to an SDR performing qualification, and eventually a sales person trying to close the business.
Unfortunately, at each step, the volume of leads will decrease. Some will be qualified out, others just might not return your calls.
Depending on how sophisticated your existing demand generation operation is, you may (or may not), already understand these different touchpoints. If you don’t, your first step is to map the sales process and define the status of leads as they pass through it.
A [simple] definition might be:
MQL (Marketing Qualified Lead): A lead captured through a web form. At best the lead has been scored by an automation tool like Marketo or Hubspot; but at this point there’s been no human intervention.
SAL (Sales Accepted Lead): The lead passes to an SDR who makes an initial point of contact (to book a demo for example). There’s a degree of qualification and the intent of the lead understood.
SQL (Sales Qualified Lead): Lead ownership passes to sales. Demos are performed, and meetings take place. If the lead meets sales’ qualification criteria, it passes into their sales process and progresses.
Every sales process is different - your's might be more complex; it might be less. Whatever your process looks like, mapping out the touchpoints, and the flow of leads through them, is a worthwhile exercise.
For more guidance on lead definitions and the demand generation waterfall, read some of the excellent guides from Marketo.
Step Two: Know how to track success
There’s little you can do to build a credible plan if you don’t have any evidence to back-up your requirements.
Now that you've mapped your sales process, you need to understand the lead conversion rate at every step. That means understanding where leads drop out as they pass through your touchpoints.
For every 100 leads you capture through your web forms, how many actually make it to closed business?
50% might pass to SAL, then 50% of those to SQL. From here, the close rate might be 20%. Do the math and that means for every 100 leads, you’ll land 5 deals.
This is your demand generation "waterfall". Get to know it intimately!
Understanding your conversion rates at different stages of the sales process is hugely beneficial when planning and budgeting for marketing programs. That’s because many organizations find themselves blindly wasting marketing dollars to fill the top of the funnel (with leads from paid search, display ads, events etc.) to make up for a shortfall in won opportunities; when actually the problem might be in the conversion of an MQL to an SAL, or an SAL to SQL, etc. Without fixing this you could just be throwing good money after bad.
"Understanding your conversion rates at different stages of the sales process is hugely beneficial when planning ad budgeting for marketing programs."
Step Three: Understand your demand generation channels
Not all leads are created equally. Some come in organically at a negligible cost, while paid traffic might be costing you hundreds of dollars per lead.
Look back at you leads and categorize them by their original channel. Run them through your waterfall (as above) and you’ll quickly be able to draw some conclusions.
Are leads from certain sources outperforming those from others?
Where are they dropping out in the waterfall?
How much are those leads costing you?
Step Four: Carve the sales target in stone
Ok, so this sounds obvious – but never underestimate the chances of the goalposts being moved at the last minute. Clearly define what number demand generation is accountable to deliver against. Is inbound demand generation responsible for 100% of the sales target, or just a portion? Ensure all stakeholders agree to this.
If you follow this methodology correctly, your plan will show a direct correlation between closed business and the volume of leads required. If sales target goes up, your budgets will have to increase too (or at least you’ll need to find areas of the waterfall that can be optimized to improve conversion metrics).
"Never underestimate the chances of the [sales target] goalposts being moved at the last minute."
Step Five: Download the Lead Generation Forecasting Calculator
You’ve made it this far - so here's your reward - download our free Lead Generation Forecasting Calculator below.
You'll need the following data points:
The revenue target that demand generation is accountable for (the calculator uses a quarterly target).
The average deal size you expect (ACV / Annual Contract Value)
Your conversion rates across the waterfall. You can also include target conversion rates if you plan optimizations to increase the %.
Note: Only cells in Green can be edited with your own numbers / data points.
1 – The calculator works on a quarterly basis. I’d always recommend working to this cadence to ensure you can pivot and respond to changes in the data. However, if you want to project an annual plan, just multiply by four. Enter the target in the Quarterly Revenue Target cell.
2 – Enter your current lead conversion rates. You can also add target conversion rates to see how discrete optimizations at every stage can reduce your dependence at the top of the funnel.
3 – Enter your ACV. If there’s a product / pricing change happening that you think might impact this, add it in the target ACV cell.
4 – The Required Leads section will show you the leads required at the top of the funnel to reach your target number of closed deals at the bottom of the funnel. You’ll note the benefit of any optimizations you can find in the target column.
5 - So, you now know how many leads you need. The next step is figuring out where they come from. In the budgeting section, make a basic split between the percentage of leads coming from paid channels, and those from organic / direct traffic. There’s always a “cost” associated with organic / direct traffic (website hosting costs, blogging etc), but you’ll find yourself in a whole word of pain trying to apportion costs, so for ease of comparison, I recommend $0 cost for your organic / direct leads.
Step Six: Look for optimizations
Building a demand generation plan shouldn’t just be about asking for budget to “buy” more leads. The calculator includes a column to add target conversion metrics across your waterfall. If you are restricted on budget, it’s worth looking to see if process improvements could improve your lead dependency.
For example; let’s say you need to contribute $100,000 in revenue from inbound demand generation, with an ACV of $10,000. Simply finding a 1% point improvement across each step of the funnel could reduce your lead dependency by 10%. That’s the power of compounded optimizations!
Start factoring in ACV growth, or a change in SDR process that could improve SAL rates, and suddenly your lead target doesn’t look so bad does it!
"Building a demand generation plan shouldn't just be about asking for budget to "buy" more leads."
And that's it! Follow these basic steps and your next demand generation plan will be grounded in enough hard evidence to convince even the most skeptical CFO!
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