Imagine you are a sales leader. Your goal is $20,000,000 in new sales. You have a 40 percent win rate, a little bit better than average in your industry. You’ve got a good team, and you are doing pretty good work. But maybe you are doing bad sales math.
A 40 percent win rate means that yielding 20M in new sales requires 50M in opportunities, giving you the ability to lose 30M in opportunities (gasp) and still make your number. Right now you may be staring at a pipeline worth 3M, in which case your heart just skipped a beat, or one with 6M, in which case you may feel a little better but are more likely deluding yourself. The 40 percent of 3M is worth 1.2M, and the 40 percent of 6M is worth 2.4M (maybe okay if that’s a month, but devastating if that’s a quarter).
The math here is important, and weeks are better than months or quarters. Let’s look at the real match here it takes to produce 20M. Each week of a month, you have to win $370,000 in new business, all of which adds up to $1.66M. This is math, and it doesn’t look all that intimidating when you look at as it is written here.
So let’s look at it another way, a way in which the value will be immediately clear (provided you survive the reading of this post). Each week, your team needs to produce just over $961,000 worth of opportunities (remember, you are losing 60 percent of this value based on your win rate). You need a staggering $4.166M in new opportunities a month to be able to yield your 1.66M in new business (which is why increases to goals should include a discussion about the additional resources necessary to produce them, even when the bean counters think that the sales force only needs to be more productive).
The bad math we do is believing the math that says 25 percent more than the goal in the pipeline is enough to achieve the goal for that period. It’s also bad math to believe that the value of the total pipeline needs to be 3X the goal, when the real math suggests it needs to be that for the period, which means deals closing in that period.
Wait. Are you okay? Do you need a glass of water?
Math is brutal. It is emotionless. It offers no sympathy, nor does it concern itself with your constraints or your challenges. Math is just math.
Just as we overestimate what we can do in a week and underestimate what we can do in a year, we overestimate what we can do with the sales force we have now, and underestimate what is really necessary to reach big goals. Either way, do good math, and then figure out how you are going to create all those opportunities.
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