The reverse sales funnel

21/04/2021

How much should you be spending on your sales and marketing activities? How much time, money or effort?

You’ve probably seen the familiar graphic of the sales funnel – with a huge number of leads into the top that turn into appointments, quotations, proposals and ultimately customers. This is a classic tool available in many dashboarding systems.

The reverse sales funnel is a tool you can use in conjunction with your long-term company plans to calculate how much investment needs to be made in a given department.

The long-version, for those who prefer detail

Scenario:

  • Your leads come through your website
  • You would like to win £1m of new business, and one customer is worth £50k to you.
  • You probably know how many quotations turn into work, let’s say it’s 1 in every 3 quotations.
  • It’s likely that you know some other metrics too. Such as how many meetings turn into quotations, how many discovery calls turn into meetings and how many web-visitors turn into discovery calls.
  • You know how many hours those meetings, quotations and discovery calls take to carry out.
  • You also know how much your marketing company will charge you to drive traffic to your website.

So if you have awareness of the numbers for every phase of the sales funnel, you can flip the funnel upside down and work backwards to calculate how much money needs to be spent on your sales and marketing to hit your Annual Recurring Revenue goal of £1m new business.

The short-version, for those who just want an overview

  1. Take your annual Growth Target, and the Lifetime Value (LTV) of a customer
  2. From “we got that customer!”, run your entire sales process backwards.
  3. That will tell you how many leads you’ll need to generate the required numbers of discovery calls, resulting in meetings, resulting in quotations, resulting in customers.
  4. And finally, that’ll tell you how much to spend on lead-generation.

A run-through of the process

  1. You have a revenue-goal of £1m.
  2. A customer’s ARR is £50k.
    £1,000,000 / 50,000 = 20 customers required.
  3. Every 3 quotations you send out generally wins a customer.
    3 quotations x 20 customers = 60 quotations required.
  4. Half of the customers you meet with will accept a quotation from you. So every other meeting results in a quotation.
    2 meetings x 60 quotations required = 120 meetings required.
  5. Every 3 discovery calls you have generally leads to a meeting.
    3 calls x 120 meetings = 360 discovery calls.

You may use various methods to obtain your 360 discovery calls, if so then just continue the reverse sales funnel for each of them.

It could be that 360 discovery calls means you need to make 3,600 cold-calls, or you need to get 72,000 visitors to your website, etc.

The big takeaways

  1. Know your process
    Do you know what your sales process look like? Does the team know the process?
  2. Know your numbers
    What’s your end goal? What is a customer worth? How many visitors turn into enquiries?
  3. Have visibility
    Do you have a system at the core of everything, logging the enquiry as it moves through the system?
    Do you have visibility of your numbers so you can measure if targets are being hit?
  4. There are lots of levers to pull
    Once your process is known & documented, you’ll find lots of ways to improve parts of it.
    Can you automate the discovery phase? is the meeting really required? what will improve the conversion rate? etc…
  5. Better data
    By using the process above you can calculate costs and staffing resources required at any stage of the process, so you know what investment of money, time and training you’ll need to hit your goals.
    The process may even tell you that to hit your £1m revenue goal, you’ll need better management processes in place to support the staff you’re going to need!

Further reading:

If you’d like to dive a little deeper then either arrange a call with me or fire up Google and check out the items below!

  • LTV – Lifetime Value of a customer
  • CAC – Customer Acquisition Cost
  • Conversion Rate on website
  • CRM – a Customer Relationship Management system, so incredibly critical to obtain visibility of your sales process, and one of the most important investments you can make
  • Sales Funnel
  • Rule of 72 – I didn’t go into this in the example above as I didn’t want to overcomplicate it. But the rule of 72 is incredible important for a company looking to hit a recurring revenue goal.