You can use the principles of Revenue Funnel Science to calculate goals for higher stages in your funnel.
First, divide your overall marketing and sales funnel into multiple segments or sub funnels. The most common sub funnels are lead source, marketing campaign or program, sales rep or sales team. Depending on your business, you may have other important sub funnels such as different products or regions.
Second, pick one of the sets of sub funnels to focus in on for initial goal planning and determine what your revenue growth goals are for the future for each major sub funnel. You can do this in a very detailed manner, with specific dollar amount goals by month or by quarter for the next couple years, or you can do it more generally with an annual growth target or year-over-year growth percent (for example, growing 20% per year).
Then select the funnel stage to set a goal for, such as the Marketing Qualified Lead (MQL) stage. There are three key metrics from Revenue Funnel Science that you need to understand to perform the goal calculation:
1. Duration to Won – This is the total velocity for the stage from initial stage entry to closed won. In other words, it is the average number of days it takes from when records enter the stage to when they eventually become closed won.
2. Win Rate – This is the conversion rate or total percentage of records entering this stage that will become closed won over time.
3. Average Sale Price – This is the average dollar amount of closed won records.
These metrics usually vary some from one sub funnel to the next, which is why it is important to understand them for each of your major funnels. For example, it is common to see that MQLs from one of your major lead sources may close win at a higher rate or with a different velocity than MQLs from a different lead source.
To calculate goals, take the duration to won and determine what future time period the records you are generating today will impact. For example, if you are calculating an MQL goal for Q1 and the average duration to won for your MQLs is 180 days, then you will want to look at what your revenue goal is for Q3. This is because, on average, the MQLs you generate today will not close until six months from now.
Once you have identified the revenue goal for the appropriate future time period based on the average duration to won, you then divide the future revenue goal by the average sale price and win rate to arrive at a goal amount.
Let’s look at a specific example: Say you are setting goals for the 2017 calendar year. You set a revenue goal of $2 million for the year and a 50% annual growth target. The growth target means you would like 2018 revenue to be 50% higher than 2017, or $3 million.
Then, let’s say you are setting a goal for the MQL stage in your funnel and your tradeshow/events lead source. To keep our example simple, let’s assume there is an average of 365 days from MQL to closed won for your tradeshow leads, a 10 percent win rate and a $50,000 average sale price.
The 365-day duration to closed won means your 2017 MQLs will impact your 2018 revenue. The 2018 revenue goal is $3 million based on the 50% growth rate you previously entered. Therefore, you can take the $3 million divided by $50,000 to determine that you need 60 closed won sales. The 60 sales divided by the 10% win rate means you need 600 MQLs.
This example is intentionally simple.
A more complicated example would be if you were setting goals for Q1 2017 (1/1-3/31) and the average duration to won was 292 days. In that scenario, you would want to look at the revenue goal for the time period 10/20/2017 (1/1 plus 292 days) through 1/17/2018 (3/31 plus 292 days). You would calculate the revenue goal for this time period by taking the revenue from 10/20/2016-1/17/2017 (one year earlier) and adding 50%.
After setting the goal for one funnel, you should continue adding goals for all of your other funnels. Then, the real trick is to monitor goal performance and assumptions continuously and in real-time. For example, if your velocity to closed won or win rate changes for any of your funnels, you may need to adjust your MQL goal partway through a time period. You can accomplish this by building a complicated spreadsheet and constantly updating it with real-time information from your funnel performance. Or, you could implement revenue funnel software like FunnelWise that does this analysis automatically and also provides a full early warning system by alerting you if changes occur that may impact your ability to hit your future goals.
Learn More About Goal Setting with Revenue Funnel Science
Learn more about how to use the Revenue Funnel Science methodology to set goals by downloading “The Ultimate Guide to Revenue Funnel Science,” or schedule a demo to see how goal setting analysis and recommendations are provided based on your historical data.