Even though it’s what everyone seeks, finding more leads to bid may not be the best way to grow your business. There’s a good chance it will produce a low return on investment. The reason is simple math. When you understand the math, you can make better decisions about how to grow. Unfortunately most companies leave a key variable out of their win rate analyses, which leads to poor decisions and lower growth.
Let’s start with the basics. If you submit 20 proposals and win 6, you have a 30% win rate. If you are bidding all of your leads, something is wrong. It means you’re not being selective. So it probably took 30 leads to get you to 20 proposals.
Creating a mathematical model for your pipeline is critical for understanding it. If you don’t have the real world data you should, you’ll have to start off with assumptions and replace them over time. If you don’t start doing this now, you may never get around to it.
After you identify a certain number of leads, as you qualify those leads you will lose interest in some (and that’s a good thing). This is a percentage you should track. You will lose some more when the RFP is released and you make your bid/no bid decision. This is also a percentage you should track.
This leaves you with a number of bids. You will lose some of what you bid. The percentage you win is your win rate. Your win rate depends on your market and effectiveness. I’ve seen it as low as 10% and as high as 87%. Most of the win rates I see are around 30%.
If you start with a number of leads, multiply it by the percentage you anticipate will be qualified, then multiply that number by the percentage you expect to bid, and then multiply that by your win rate, you’ll get an estimate of the number of wins for that number of leads.
This equation is critical to understanding where you should invest in order to grow. However, it’s not complete. Let’s say you want to double the number of leads you pursue. If you can do that, will it increase the size of your company by 100%? The answer is probably not. It may not increase it much at all, even if you are successful. The reason is mathematical. The impact of your win rate percentage is greater than the impact of adding more leads. You can easily try different numbers at either end of the equation and prove it for yourself.
If you pursue twice the number of leads without improving your proposal capacity, you can expect your win rate to go down.
What’s missing from the win rate analysis above is a percentage for the change in win rate.
We’ll start with the numbers above: 30 leads, down to 20 bids, resulting in 6 wins. If you double the number of leads, but the win rate goes down to 20%, instead of the 12 wins you’d expect, you only get 8 wins. Doubling your leads and the number of proposals submitted, and presumably your pursuit costs, got you only two more wins. A 30% increase is nice, but not when it takes double the effort.
Now let’s try something different. Start with the same number of leads, only increase your win rate to 40%. You get the same 8 wins. That 10% change in win rate produced just as much revenue as doubling your number of bids. And it did so without doubling your pursuit costs, giving you a potentially even greater boost in profitability.
The key takeaways are:
- The data that drives pipeline math may very well be the most important asset your entire business possesses. If you are not tracking it, then you’re not really in business. You’re just gambling.
- If you care about growth or return on investment, you either need to become an expert in pipeline math or get good at gambling.
- Doing things without considering the impact on your win rate is a great way to run your business into the ground. In fact, if you’re looking for ways to quickly double your leads, you’ve probably already done that. Not only must all your decisions related to growth involve a win rate analysis, but you need to add the percentage for what the anticipated impact might be to your win rate.
- You shouldn’t over invest in lead generation until you’ve invested in maximizing your win rate. This is the path to the best ROI.
- Tracking is as important as analysis. You will never have all the data you’d like to have when it’s time to make decisions. And predicting the impact of a course of action on your win rate is a guessing game. That’s why it’s critical to track your actuals against your projections in as close to real time as you can get while considering statistical significance. If you are betting that something will or won’t impact your win rate, you need to isolate the variables as best you can and track events as they happen, in case you need to change course while you still can.
Consider a football analogy. Which is the better way to end the season with the most wins? Would it be to double the number of games you play, or would it be to focus on playing better? If you double the number of games, what will the impact of fatigue, injuries, and personnel quitting have? Will you be able to fill the stadium seats for that many games, or will you see reductions in profitability, even if wins go up? How will next year’s play be impacted? Will wins go up a little and then crash back down in a way that will take years to recover from?
The biggest reason people focus on lead generation is that they don’t know how to increase their win rate. And even if they do, the best investments in win rate improvement take time to pay off. When their numbers are going up, most companies ignore win rate and related data tracking. When the numbers go down and don’t come back up, then suddenly they focus on lead generation, looking for the quick turnaround. When things get to that point, it’s often too late. But the good news is that if you can force uncomfortable change, there are things you can do to boost your win rate with the potential to increase revenue faster than identifying and pursuing new leads. But it will involve taking on some sacred cows, forcing some discipline, and worst of all having the endurance to see things through. In the face of this, most companies opt for the path of least resistance and target lead generation as their path to growth.
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Carl is the Founder and President of CapturePlanning.com and PropLIBRARY.
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.
Carl can be reached at firstname.lastname@example.org
To find out more about him, you can also connect with Carl on LinkedIn.
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