Launch objectives tied to revenue are common. Understanding how to get to a revenue-based launch objective is far less common.
This article takes a revenue-based launch objective and breaks it down to help you understand what it really takes to make it happen. A revenue objective on a PowerPoint slide is always successful. In real life, not so much.
Launch Objective Assumptions
You're in a meeting to discuss revenue goals for your product. The revenue goal that was handed to you is $10,000,000. The product is new, and it targets familiar buyers in familiar companies. It should be a slam dunk.
Before you leave the meeting, you ask a question to determine the timeframe to achieve the revenue launch objective. The answer is eight months. There are 50 salespeople eager to sell.
Let's assess the situation. First, it's a new product, and the sales team is clamoring to sell it. The obstacle of selling to unfamiliar buyers in unfamiliar markets won't be a problem. You may think it's all up to sales to make it happen. You have a great product. You'll hand them some sales tools and watch the magic happen. But will it?
Step 1: How Many Deals With It Take?
A simple first step in breaking down a revenue-based launch objective is calculating how many deals are needed to get $10,000,000. This calculation starts with the average deal price (or average sales price). In your organization, some calculus went into arriving at $10,000,000. Most likely, the number isn't arbitrary.
The revenue objective divided by the average deal price equals the number of deals needed to reach $10,000,000.
Let's assume an average deal price of $100,000. That means you will need to close 100 deals to reach $10,000,000.
Step 2: How Many Salespeople Will Sell Your Product?
Counting the number of salespeople selling your product may sound utterly ridiculous. It's easy to assume 100% of them are eager to sell your new product. That's not always the case. Let me explain.
You have 50 salespeople selling other products to earn their quota and get paid a commission. Those products have a proven sales track record. The product you are launching does not. A few of the 50 salespeople have a pipeline filled with sales opportunities that occupy all of their time. Those individuals are less likely to invest time selling a product with an unproven sales track record. Even when you generate highly qualified leads for them.
The later in the fiscal year your product launches, the less likely any salesperson will focus on selling your new product. Why? Because they are focused on their existing pipeline of deals.
For the sake of argument, 25% of your sales team will put energy into selling your product. The number of salespeople dropped from 50 to 12.
Step 3: How Many Sales Opportunities Will You Need?
Let's recap... You need 100 deals at an average deal price of $100,000 closed within six months to achieve $10,000,000.
So you need 100 qualified sales opportunities, right? Wrong. It's only on a spreadsheet that your sales team closes 100% of every sales opportunity. You need a more practical number of sales opportunities (AKA "sales pipeline"), and you get that from determining the average close rate.
You don't need to calculate the average close rate with high precision. You merely need an estimate what is believable by your sales team. If they say 10%, use it. If they say 50%, be skeptical. If they say 100%, call BS. Start with a lower average close rate and adjust as selling data becomes available.
Let's say the close rate is 33%. That's not an unreasonable number, given you are selling a new product to a familiar buyer in a familiar market. I'd be more skeptical if the scenario was a new product in a new market. Let's go with 33%.
The number of qualified sales opportunities is the number of deals divided by the average close ratio. In this case, it's 100 divided by 33%, which equals 303. You will need 303 qualified sales opportunities (not leads) to get to $10,000,000.
You need qualified leads to get to qualified opportunities. Make an educated guess at the rate of converting qualified sales leads to qualified sales opportunities. This involves a discussion with your lead generation team. Based on historical data, they can approximate the ratio of sales leads to qualified sales opportunities. Again, don't worry about the precision.
If your leadgen team is unsure of the ratio or is unwilling to propose a ratio, use something safe, like 10%. For every 10 qualified sales leads, assume one will convert to a qualified sales opportunity.
Determine the number of qualified sales leads by dividing the number of qualified sales opportunities by the qualified sales lead to qualified sales opportunity ratio. In this case, it's 10%. You need 303 sales qualified opportunities divided by a qualified sales lead to sales qualified opportunity of 10%, which equals 3,030.
Step 4: How Long is the Sales Cycle?
Let's recap... You need 100 deals at an average deal price of $100,000 closed within six months to achieve $10,000,000. Based on a close rate of 33%, you need 303 qualified sales opportunities. You need 3,030 qualified sales leads to make it all happen.
You might wonder why I'm walking you through this. It's because a launch objective isn't achieved with magic fairies. An understanding of the path to get to an objective shapes launch strategy, readiness, and execution.
There is one more thing you need to factor in: the length of the sales cycle. In other words, how long it takes for a qualified opportunity to make a purchase.
There is always an educated guess on sales cycle duration. It's used to shape quotas and commission structures, among other things. It's also a reminder that sales opportunities rarely close in a few days. They spread out over time.
Let's assume the average sales cycle duration is three months from qualified opportunity to closing a deal. Since you're working with a six-month measurement window (to get to $10,000,000), you need to front-load the sales pipeline in the first three months to hit the revenue objective.
All this means is you need 3,030 qualified leads in the first three months after the launch date. You don't have six months; it's too late by then. This means another visit to your friends on the leadgen team to reset expectations and create urgency. Is it possible? Do they have what they need? Are other priorities an obstacle?
One Last Thing
Remember the number of salespeople I asked you about? By now, you realize that 100% of your sales team won't spend 100% of their time selling your new product. That adds a new wrinkle to the calculations.
Recall that you determined that 25% of your salespeople will dedicate at least some time to selling your product. Let's assume that it's 100% of their time. That's a naive assumption, but let's go with it.
You have 12 salespeople focused on selling your product, and they need to close 100 deals. That means each salesperson, on average, must close at least 8 deals (8.33). To achieve the launch objective, all of those deals must close in months four through six following the launch date (there is a three-month sales cycle).
The inexperienced planner takes the total number of deals (100) and divides it by the total number of salespeople (50) to arrive at two deals per salesperson. Then concludes that only two deals closed per salesperson are needed. It's never that easy.
The entire point of this article isn't about arithmetic; it's strategic planning. It's having a command of the path to achieving an objective and being realistic about what you don't know or the data you don't have access to. It's about aligning the entire revenue value chain to understand what the scope and effort is before them and what's expected.
It's recognizing when the launch objective is impossible because the math doesn't work out. Optimism is powerful but not as powerful as the laws of mathematics.