As a sales rep you need to deliver closed won deals to meet your quota. As with all journeys to a goal, there is a hard, rough road and a superhighway, fast and smooth as a baby’s butt. To earn your commission the most efficient way possible, wouldn’t you want to be on the superhighway? Of course!
The Math Every Sales Rep Must Do
Let me show you how to do some math to start you down your sales superhighway. The key is to leverage data as much as possible along your journey. To get started, you’ll need a few data points. If you don’t have historical trends to use, an estimation is fine. In fact, you might want to do the math a few times using different number so you understand the impact each variable might have.
Here’s what you need to get started:
- Monthly, Quarterly, and Annual Quota
- Average Deal Size
- Sales Cycle
- Ideally, Lead Create to Opp Close, but Opp Create to Opp Close can work for expansion reps
- Win Rate / Close Ratio
- Both Count of Opps and Value of Opps
- Lead to Opp Conversion Rate
We will use these metrics and KPIs to calculate a few additional data points. The first is translate our quota numbers to the number of deals we’ll need to close. The second is to understand what size pipeline we’ll need to target to hit our number. Finally, we’ll calculate how many quarters we need to project out and how much pipeline we need.
The Deal Count
The first calculation is quite simple and uses quota and average deal size. Simply divide the quota for the period by the average deal size and it will tell you how many deals you need to hit your number. As a best practice, add 1 to the number you get:
(Quota for period / Average Deal Size ) + 1 = number of deals you need to hit your quota
Write these numbers down in a book or journal so you can refer back to them. You may also want to use an Excel spreadsheet and keep track of the number of deals you need and which accounts will give you those deals.
2. What Size Pipeline Do I Need?
Once we know how many deals we need, we also need to know what size pipeline we need to close those deals. This is where win rate (also known as Close Ratio) comes in. You should have two win rate numbers, one based on COUNT of opportunities and another based on DOLLAR VALUE of opportunities.
Depending on which you want to calculate, use the appropriate set for count of deals and quota. The math is:
Count of Pipeline Size: number of deals needed to hit quota +1 / win rate of count
Dollar value of pipeline needed: quota for period + Avg Deal Size / win rate of dollar value
Again, write these number down. This is the size of the pipeline you will need to build to make sure you hit the quota number based on your historical win rate.
3. How Far Do You Plan Ahead?
You may be wondering why we haven’t used Sales Cycle yet. While we aren’t going to use it in a calculation, we will use to see how far ahead we need to be planning. to hit our number.
Sales cycle can be calculated a number of ways so be careful and understand what the number you have means. For instance, many clients I have worked with in the past have used a sales cycle which measures Opportunity close age, i.e. Opp Close Date minus Opp Create Date. This is misleading if your business includes prospecting. A true sales cycle uses either Lead/Contact create date or Account First Activity Date. Make sure the number you are using a sales cycle which represents the true time frame you need to work your leads/contacts and close your opportunities.
quota period in days / sales cycle in days
If your sales cycle is 45 days, planning one quarter ahead is sufficient. But if your sales cycle is 105 days, you must plan two quarters ahead.
It’s a Wrap
With these three pieces of math in mind, you are well on your to establishing the foundation for your superhighway to 100%. Understanding what it takes to hit your quota number, how long and planning far enough ahead is huge and gives you a head start against your peers. You may be amazed at how many reps don’t DO THE MATH.