But this is like watching what comes out of a company’s digestive tract and not what goes into it.
Instead, some simple and effective metrics can be deployed to help plot the entire ‘business tract’ of a company, to see what goes in and where it comes from, what’s currently in the business and being worked, and what’s coming through in the way of earnings.
And once these metrics are used, and their figures plotted in a dashboard, the company can take actions far earlier, and change course well ahead of competitors.
The start of the business tract
What goes into a business tract is money and this comes from sales and marketing activities. So the first part of the company’s business tract is a kind of extended sales pipeline. Not a lot of companies use a pipeline. And of those that do, not a lot use it thoroughly. But a simple pipeline that’s kept up-to-date is a remarkably accurate indicator and a key part of a map of the entire business tract.
The core of a pipeline is simply the prospective sales, the potential value of those sales and the probability of getting those sales. A prospect called Fred might be a candidate to buy some services from your company, and the potential sale value is $15,000. Because it’s only early days, there might be a 25 per cent chance he’ll buy.
So the pipeline has been boosted 25 per cent of $15,000 or $3750. In gross value, the pipeline might be $800,000 and after applying many different leads and different probabilities it might total $300,000. Obviously, not all entries in the pipeline will come good. Fred might be nurtured until he’s deemed 90 per cent certain to buy, yet an unforeseen issue kills the deal. That’s all right, because the law of averages suggests that the more leads you map, the more accurate the final figure. Where one lead fails, another succeeds.
And while account managers, sales people and marketers might begin metrics like a pipeline with overly optimistic or pessimistic figures, the metrics soon show what’s real and cleanse themselves of poor forecasts.
Once the pipeline is created and populated, it’s a strong lead indicator of what new sales are coming. And it’s a metric that’s also a tool for changing outcomes. Leads with a large potential value can get priorities in time, effort, funding and staff. And a growing net pipeline might allow confidence in making major purchases and investments.
So we have a formula, here – leads multiplied by probability equals pipeline of new customer sales.
The metrics that lead to those sales
Before these prospects in the pipeline come the various activities that generate them. These are the marketing and promotional activities that trawl for potential customers, and the conversion rates of these activities.For example, running a given display advertisement might typically produce 10 leads for your company. If you run that ad every fortnight between February and November, that might mean 20 advertisements. That suggests 200 new leads from that source. So at the front end of that sales pipeline is another metric that plots the lead generation activities and their success rates. Plot the activities and those conversion rates and you can see what’s likely to fall into the pipeline. But you also have a lead indicator that, should the indication be a little grim, lets you change course. If the conversion rate can be improved to generate 12 leads instead of 10 by testing and finding a stronger offer, then that metric is going to grow by 40 new leads a year. So we have a new lead indicator to add to our pipeline – potential customers multiplied by conversion rate equals leads.
