In A158 How much money do I need to make?, you learned what to take into account when trying to figure out how much money you need to make.
What you’ll learn today is activity based selling. Which boils down to looking at what you can do today, not what happened yesterday, to reach your goals.
What it really comes down to is breaking it into chunks. You started off knowing what things you enjoy and totaled all them up into a yearly number. You figured out what your total revenue number is too based on your aspirations and the reality of your expenses.
Lagging vs Leading Indicators
Here’s the shocking point, you have zero control over this number. It’s solely based on someone else handing over money to you. The amount paid to you is a lagging indicator, it’s the output or result. It’s easy to measure but hard to improve or influence because you don’t have the control.
The concept of activity based selling is a focus on leading indicators. These are the inputs or effort you put forward. They are hard to measure, but easy to influence because they are what you do control.
Example of lagging vs leading indicators
Let me explain this concept with a simple example. For many of us a personal goal is weight loss. A lagging indicator that is easy to measure is the weight lost. You literally go on the scale every week and see the decrease in weight.
But how you reach that goal are leading indicators. For weight loss there’s really 2 leading indicators, calories in and burned. Easily influenced by you and within your control.
Now let’s take this concept and apply it to yesterday’s episode.
Real life business example of activity based selling
Say you want to make $120,000 per year. That means you need to make $10,000 per month.
If you have an average project price of $5,000, you’ll need 2 new clients per month.
All these are lagging indicators. You really don’t have any control over how many clients you get per month. Sure you can hustle and land none, or sit back and get someone to fall into your lap.
Obviously, not the way to run a successful business.
What you do control though is the number of leads, number of sales calls you make, number of proposals you send out, etc.
In between each of those stages will be a conversion rate too. Not everyone who is a lead will turn into a sales call. Not every sales call turns into a proposal. And I hate to break the news, but not every proposal turns into a paying client.
You won’t know this at the start, but you can put an good estimate on them to give yourself some context. As you start using this system, you can then tweak your percentages accordingly to get more accurate numbers.
With these leading indicators in mind, you can take the 2 clients you need and work backwards from there and figure out how many proposals you need to send out.
The math to figure out how many leads you need to talk to
At a 50% close rate, you’ll need to send out 4 proposals a month (or 1 a week).
Say 30% of your sales calls result in sending out a proposal. That means you’ll need to have 12 sales calls per month.
Say 10% of your leads result in a sales call, that means you need 120 leads into your business.
Now you have certain numbers that you do have control over and influence because the number of calls and proposals that you send out is based the effort you put into your sales.
Based around the conversions you have at the present time, you can be assured to get those 2 clients you need per month.
You aren’t looking back at the previous month’s revenue anymore wondering if you are going to hit your numbers.
You simply look at certain key stages in your sales and if you haven’t had any sales calls this week, then time to move some folks through that pipeline to get them booked.
Here are some further resources that you'll want to check out that directly relate to the show.
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