Most businesses obsess over lead generation. Unfortunately they fail to realize there is something else that delivers 3-5 times the ROI. That’s right. They could be growing their business faster with fewer leads. It’s mathematical. And we have the proof.
While we were doing a pipeline assessment for one of our consulting customers we discovered a remarkably simple mathematical relationship. But to understand it, you have to understand a little bit about the math that drives the business pipeline.
You don’t bid all the leads you find. You only bid a percentage of them. If you’re smart, you’ll qualify your leads through several steps, with fewer leads making it past each one. The final step before you start working on the proposal is usually a bid/no bid decision that comes once the RFP is released. One of the things we do in assessing the health of a company’s pipeline is to determine how many bids they throw out at each qualification step. If they aren’t throwing any out, they aren’t being selective.
When a proposal is complete and submitted, it doesn't always win. The percentage that wins becomes the revenue that drives your business. If you want a certain amount of revenue, you can backtrack the percentages and calculate how many leads you need to identify to hit your revenue number, even after you throw some out along the way.
The key variable in this is your proposal win rate. If your win rate is high, then you need fewer leads to hit your revenue goal. If your win rate is low, you need more leads. Consider this scenario:
- You start off with $10M in leads and you drop some of them along the way and only end up submitting $7M in proposals
- Your win rate is 30%
- It took $10M in leads to score $2.1M in revenue
If you change the win rate to 31%, you only need $9.67M in leads instead of $10M. Not impressed yet?
What if I told you that for that 1% change in win rate, you needed 3% fewer leads?
What if I told you that if you increase your win rate by 10% you’ll be able to hit your numbers with 30% fewer leads? Still not impressed?
What if I said that increasing your win rate 10% would have the same impact on your revenue as finding 30% more leads?
I call this “fun with math!”
But if only it were that simple. If your proposal volume is low, you won’t be able to discern a 1% difference in your win rate. If you do five proposals a year, your win rate will only change in 20% increments! If you do 24 proposals, it will only change in 4.2% increments. However, the multiplier effect of win rate on ROI will remain true over time.
If you only submit five proposals next year, going from winning one to winning two doubles your win rate (and potentially your revenue). If you focus on lead generation instead, you would have to double the number of leads to achieve the same thing. You would need an additional five leads instead of one more win. If you plan to submit 20 proposals next year, going from a 20% to a 30% win rate increases your wins by 50%, from 4 to 6. Achieving that through lead generation requires that you go from 29 leads to 42 leads you have to find. If you focus on win rate, you need two more wins from the leads you already have. If you focus on leads you need 13 more leads to achieve the same increase.
A spreadsheet model PropLIBRARY Subscribers can download free of charge
The custom models we create for our consulting customers can get quite involved, because they reflect the specifics of a particular business. We’re in the process of creating a generic model that you can use so you can see how it works and play your own “what if” scenarios. It will be free for PropLIBRARY Subscribers. If you are not a subscriber, you should join now so you can download it when we post it.
Leads are good. If you have zero leads, it doesn’t matter how high your win rate is. But the human nature mistake is to assume that each new lead is a new win and that adding more leads adds directly to your revenue. The truth is that each new lead adds a percentage chance at new wins and averages out. But increasing your win rate adds a much, much larger percentage, which means much, much more revenue.
Leads are good and I wouldn’t give up on lead generation. When you’ve maximized your win rate, leads become the key to growth. But if you are like the vast majority of companies and haven’t come close to maximizing your win rate, leads may not be the highest priority for achieving growth. Plus, if you focus on your win rate it will tell you a lot about what kind of leads you want, and what kind of leads aren’t worth bothering with. Better quality leads produce an even higher win rate.
What else can you tell from pipeline analysis?
When we do a pipeline assessment for one of our consulting customers, we look at your targets and what it will take to achieve them. We create a mathematical model of your pipeline in a spreadsheet. We look at how many leads you need, how many proposals you’ll have to submit, and how many resources you’ll need to handle the volume. We look at how much time you should be investing in each phase of lead qualification and how that correlates with your win rate. And we look at what size proposal is too small to bother with, based on what it costs to produce a proposal. We also look at critical numbers like your win rate and what can be done to change them, so that everything you do is based on achieving the highest ROI possible.
But instead of just discovering interesting facts about your business, we turn the pipeline into an ROI progress tracking tool.
As leads come in and go through the qualification phases, you use the model to track whether you are on target to meet your goals. You can also see the impact of being above or below your targets, and what that means to your bottom line. We create a feedback loop so that any assumptions we make in the model are continuously refined by reality. It’s so much easier to look at your business development and proposal functions as an investment and not a cost when you can see that you’re hitting your numbers, and that the return will be far greater than the cost.
Breaking out of the habit of chasing every lead you can find and submitting proposals just because you can is easier when you can see that mathematically there are better ways. It also helps with that human nature defect that wants instant gratification, when you can see that whether you pursue, no bid, win, or lose a particular lead, it’s all part of hitting your numbers and you can see that you are on the path to success. And if, just by chance, you stray from the path to success, it’s extremely helpful to be able to see exactly where it happened.
At the end of the day it’s all about decisions and whether you make them informed or not.
If you are a PropLIBRARY Subscriber feel free to contact us with questions about the model and how a little “fun with math!” can give you insight and confidence in the future of your business. If you’d like a private session to learn more about pipeline modelling and assessment, contact me through PropLIBRARY.
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The materials he has published have helped millions of people develop business and write better proposals. Carl is an expert at winning in writing. He is a prolific author, frequent speaker, trainer, and consultant.
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