This is a broad general statement, so let’s examine one of the methods you can use as a sales leader to accomplish this.
The chart above represents the total market available for ACME Software company in a hot new software product in the West Region of North America. Now, as a sales leader, how can this rough concept of “potential” and future sales be built out and related into actual meaningful financial results that you can staff around? This question can be solved through the following calculation.
#1 – Prospect Universe – The first step is to identify the market. In this case, the software organization has estimated that there are roughly 25,000 businesses that might be in the market for this new software product.
#2 – Based upon historical precedent, you must calculate the likely conversion rate for these prospects to leads. ACME Software company estimates that its Salesforce will be able to convert about 2% of the market prospects into opportunities, so 2% x 25,000 prospects = 500 new opportunities on an annual basis.
#3 – Now for the crucial question – how many of these opportunities can they reasonably expect be converted into new customers? Historical trends indicate that ACME Company’s Salesforce is capable of converting about 6% of its qualified opportunities into new customers. Taking a 6% customer win rate and applying to the 500 qualified opportunities in the sale funnel yields an estimate of 32 new logo customers.
#4 – Incorporate product marketing’s best estimate of an average deal size at a total booking of $400,000/new customer x 32 new logo customers, and the total sales impact is roughly $13M, and $7M in Margin.
#5 – The final step requires taking the $12.8M sales estimate, comparing this to reasonable sales rep quotas, and preparing a sales executive headcount estimate.
Bottom line, once a sales leader has identified a reasonable territory potential projection of the addressable market. He or she can take a compelling argument to finance and senior management on what the required West Region staffing should be in North America. We will examine how to continue to estimate the total required territories in future blog articles.