This post builds on my prior post, Win Rates, Close Rates, and Milestone vs. Flow Analysis. In it, I will take the ideas in that post, expand on them a bit, and then apply them to difficult problem of ensuring you have enough marketing demand generation budget to hit your sales targets.
Let’s pretend it’s 4Q17 and that we need to model 2018 sales based solely on marketing-generated SALs (sales accepted leads). To do that, we need to decompose our close rate over time because knowing we eventually close 40% of SALs is less useful than knowing the typical timing in how they close over time.
In a perfect world, we’d have 6-8 cohorts, not two. The goal is to produce the last line, the average of the in-quarter, first-quarter, second-quarter, and so on close rates for a SAL.
Using these time-based average close rates, we can build a waterfall that takes historical, forecast (for the current quarter), and planned 2018 SALs and converts them into deals.
This analysis suggests that with the currently planned SALs you can support an ARR number of $16.35M. If sales needs more than that, you either need to assume an improvement in close rates or an increase in SAL generation.
Once you’ve established the required number of SALs, you can then back into a total demand-generation budget by knowing your cost/SAL, and then building out a marketing mix of programs (each with their own cost/SAL) that generates the requisite SALs at the targeted overall cost.