Most businesses recognize the importance of a fine-tuned sales funnel, but it’s easy to focus on optimization and neglect the entry point. I have worked with many companies that don’t put enough emphasis on actually creating a specific list of targeted companies and prospects to consistently feed into their sales funnel. This makes it impossible to build a predictable sales funnel and drive consistent business growth.

How Many Leads Do You Need?

It’s a simple question, but you’ll probably get different answers from everyone in your organization. Marketing teams might think they’re generating plenty of leads, but sales teams almost always find lead volume or quality insufficient. Executives might have an entirely different idea than others when it comes to allocating a budget for lead generation activities. It’s important to get everyone on the same page before you can build a predictable sales funnel.

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There are many different strategies for determining how many leads you need to put into your funnel each month and how much of a budget to allocate to it, but it’s often a function of your company’s revenue goals, selling prices, and conversion rates. At the same time, you should keep close watch on how much it costs to generate each lead and customer to assess the return on investment for marketing and advertising budgets.

Here’s a simplified example of calculating how many leads to generate:

Monthly Revenue Target $400,000
Marketing-Derived Revenue Target $200,000
Average Selling Price $4,500
Marketing-Driven Sales Required 45 (200,000 / 4,500)
Opportunity-to-Sales Ratio 5 (1-of-5 opportunities convert to a sale)
Opportunities Required 225
Leads-to-Opportunities Ratio 2 (1-of-2 leads become an opportunity)
Number of Leads Needed 450

In this case, we’ve reverse engineered our lead requirements by looking at a monthly revenue target, average selling price, and two conversion rates for various stages of the sales funnel (opportunities and leads). We can determine the optimal marketing budget by multiplying the required leads by the average cost per lead to come up with a tangible number for an executive team to use when approving a budget.

Targeted Leads Make All the Difference

The quantity of leads is essential – after all, sales is a numbers game – but that doesn’t mean you should ignore quality. Even small improvements in lead quality can make a big difference in your sales and marketing results.

The quantity of leads is essential, but that doesn’t mean that you should ignore quality. Click To Tweet

For example, let’s assume that you’ve found a source of more targeted leads in our example above, which convert from opportunity-to-sale at 1-in-4 instead of 1-in-5.

Monthly Revenue Target $400,000
Marketing-Derived Revenue Target $200,000
Average Selling Price $4,500
Marketing-Driven Sales Required 45 (200,000 / 4,500)
Opportunity-to-Sales Ratio 4 (1-of-4 opportunities convert to a sale)
Opportunities Required 180
Leads-to-Opportunities Ratio 2 (1-of-2 leads become an opportunity)
Number of Leads Needed 360

The relatively modest five percent improvement in the opportunity-to-sales ratio reduced the number of leads by 20 percent, from 450 to 360! Put another way, if the cost per lead was $50.00, the marketing budget would have been reduced from $22,500 to $18,000, a $4,500 savings each month. That’s why it’s important to focus on both lead quality and lead quantity when feeding your sales funnel.

There are many different ways to improve the quality of your leads:

  • Score Your Leads – Lead scoring is the process of ranking a lead’s interest level and sales readiness based on a standardized methodology. Often times, companies will use terms like “hot” or “cold,” or numerical rankings (e.g. 1 through 10).
  • Nurture Leads – Companies that have a strong source of generalized leads might want to consider implementing techniques to nurture them into “hot” leads. For example, marketing automation platforms provide automated ways to improve lead quality.
  • Put in the Time – High-touch sales may require that sales associates simply put in the time to improve lead quality. For instance, you may need to call them multiple times, hold multiple meetings, or meet them in-person to close deals.

The exact process that you use to build a specific list of targeted companies and prospects depends on the nature of your business. If you’re a high-touch business, this might mean meeting with potential customers at conferences, keeping in touch with them over time, and sitting down with them in person. If you’re a low-touch business, it could simply be an inbound expression of interest from a well-placed online advertisement.

Be Sure to Follow Up Over Time

It’s important to ensure that you have the right number of leads and high enough quality leads coming into the sales funnel all the time. After running these initial numbers, it can be easy to forget about them and get caught up in optimizing other parts of the sales funnel.

As an advocate of the Entrepreneur Operating System®, I generally encourage my clients to hold high level meetings on a quarterly basis. These are great opportunities to discuss how the sales funnel is working and potentially address how changing revenue goals might translate to different lead targets and a newly calculated marketing budget. Again, the goal is to keep everyone on the same page and ensure revenue growth is as predictable as possible.

I also find that setting exact numbers of leads helps make it easier to provide accountability. For example, the marketing department knows how many leads they need to provide to the sales department each month, and the sales team knows what conversion rate they need to achieve to reach revenue targets. If revenue falls short, business owners can quickly pinpoint where the problem has occurred and avoid playing the “blame game”.

The Bottom Line

Many business owners recognize the importance of the sales funnel, but few put enough emphasis on filling the funnel with specific and targeted leads. After determining how many leads you need and finding the best ways to generate high quality leads, you should be well-equipped to generate predictable revenue growth from your sales funnel. And even better, you executive, sales, and marketing teams should all be on the same page.

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