Guide To: Optimizing Your Leads to Rep Ratio
 

Guide To: Optimizing Your Leads to Rep Ratio

on

  • 340 views

Do you ever wonder if your sales reps have enough leads to work or if they have so many leads that some are going un-contacted or getting lost in the sales funnel. If so, you aren’t alone, many of ...

Do you ever wonder if your sales reps have enough leads to work or if they have so many leads that some are going un-contacted or getting lost in the sales funnel. If so, you aren’t alone, many of our clients have come to us with these same questions, so we thought we’d produce a comprehensive guide to help sales managers better optimize their leads-to-reps ratio.

In this guide, entitled “Guide to: Optimizing Your Leads-to-Rep Ratio,” you will benefit from a sales methodology to help determine optimal lead volume per rep, per day to achieve peak performance from your team. You’ll also gain insights into the recommended practices around the distribution of work assignments and the days and times that reps are most productive and effective in order to help optimize your sales engine.

What you will learn:

- How to calculate the optimal number of leads for maximum revenue and/or profit growth
- Days of the week sales reps are most effective
- Times of the day sales reps are busiest – morning, afternoon, or evening

Statistics

Views

Total Views
340
Slideshare-icon Views on SlideShare
340
Embed Views
0

Actions

Likes
0
Downloads
11
Comments
0

0 Embeds 0

No embeds

Accessibility

Categories

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    Guide To: Optimizing Your Leads to Rep Ratio Guide To: Optimizing Your Leads to Rep Ratio Presentation Transcript

    • OPTIMIZINGYOUR GUIDETO: RATIOLEADS TO REP SALES OPTIMIZATION STUDY
    • SALES OPTIMIZATION STUDY 01 Executive summary Imagine a top sales rep underutilized by 50%. Any sales manager having visibility into the rep s utilization level would most certainly look to increase the volume of leads assigned. Often, however, the utilization threshold ‒ where results and productivity are at their optimal level ‒ is incredibly hard to identify. At Velocify, we are often asked by sales leaders how many leads they should be sending to their reps, or if they should hire more reps given the volume of leads generated. This guide presents a methodology to help sales managers determine optimal utilization levels to achieve peak performance. The analysis of millions of sales calls and associated metrics allowed us to create a framework that enables organizations to calculate an expected conversion rate based on the number of new leads assigned per rep per day. This calculation, coupled with a standard profit formula, can also be used to find the optimal lead volume necessary to break even, maximize profits, or maximize revenues, depending on an organization s ultimate goal. In this guide, we also highlight current practices from our research, around the distribution of work assignments and the days and times that reps are most productive and effective in order to help organizations optimize their sales engine. The application of these formulas to the data analyzed revealed that sales reps are often underutilized and that workload is not evenly distributed throughout the day or week.
    • Study Methodology This data reflects results aggregated across multiple industries during a six month period. More than 5 million calls made by more than 2,000 users were analyzed to arrive at the results presented in this study. In order to collect the most detailed call data possible, only Velocify clients and users taking advantage of Dial-IQ, Velocify s intelligent dialer, during the six month period studied were included in this analysis. Additionally, in the analysis of rep data, the numbers reported reflect only the data for reps that appear to be active in the system, meaning that they are being assigned leads and working them during a given hour. It is important to note that while these results and recommendations are widely applicable, they may not reflect the optimal strategy for some businesses. SALES OPTIMIZATION STUDY 02 Many sales organizations experience struggles between their sales and marketing teams. Sales might claim they aren t receiving enough leads, while marketing might claim the leads they re generating aren t receiving the proper attention from sales. So, who is right ‒ sales or marketing? How many new leads should each sales rep get on a daily basis? Are they being given more than they can handle? Is it better to give them a small number of leads to make sure they are doing everything possible to convert every one of those leads? Finding the optimal operating level, given each organization s unique goals and conditions, can be an art form and is usually a guessing game for sales managers. Fortunately, we can use historical data from a large number of sales organizations to predict possible outcomes as lead assignment levels are changed so that each organization can find its optimal leads-to-rep ratio. If changes are necessary to current lead assignment volumes, it is important to understand the level of rep utilization, when reps are the busiest, most effective, and most productive, and the factors that have the greatest impact on those measures in order to identify the ideal days and times to reduce or increase the number of new lead assignments. BACKGROUND
    • SALES OPTIMIZATION STUDY 03 Identifyinga Sales Rep s Peak Performance Zone One of the keys to arriving at an optimal rep utilization level is determining how workload affects reps results. One of the most interesting insights gleaned from this research was the predictability of sales rep performance (measured in terms of conversion rate) using the number of brand new leads assigned to that rep. Figure 1 shows the rate at which a rep s ability to convert a high percentage of leads decreases as that rep is assigned a higher number of new leads per day. In other words, reps assigned more leads will likely convert more leads, but at a lower conversion rate as lead count increases. There are many factors that influence conversion rate, but this study suggests the number of new leads assigned per rep per day is a valuable predictor. Based on this data, Table 1 allows one to estimate expected conversion rates based on the number of new lead assignments per rep per day A . The two primary reasons this negative relationship exists between a rep s conversion rate and the number of new leads assigned are: (1) as workload increases, reps effectiveness is more likely to decrease and (2) in some cases, larger lead volumes usually come from lower quality lead sources. The more new leads reps are assigned, the less likely they are to respond to each new lead quickly. RESULTS APlease see Appendix A for the formula used to create Table 1. One can also use the formula to calculate expected conversion rates for different numbers of new leads assigned per rep per day that may not be shown in the table. Table 1: Conversion rate estimates Figure 1: Impact of lead volume on conversion conversionrateperrep new leads assigned per rep per day 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% 0 5 10 15 20 25 30 35 1 2 3 4 5 8 new leads per rep per day expected conversion rate 10 12 15 20 25 30 24.5% 14.2% 10.3% 8.2% 6.9% 4.8% 4.0% 3.5% 2.9% 2.3% 1.9% 1.7%
    • SALES OPTIMIZATION STUDY 04 At some point, reps may receive so many new leads that efforts to contact all of them would leave no time for follow-up attempts. Eventually, their only conversions might come from those they are able to close on the first call, which for most industries can be extremely difficult, if not impossible (please refer to prior Velocify research on the Ultimate Contact Strategy, which illustrates what methods to use and how often to contact a prospect). Moreover, if lead volume were to increase even further, reps would not have enough time to even attempt to contact all newly assigned leads. At this point of oversaturation, any additional leads assigned would be completely wasted. These findings reveal something most sales managers already know: there is both a minimum and maximum lead volume per rep that is necessary to break even. If you operate with a lead volume below the minimum number, the small revenues you may be able to generate will not cover the costs of running your business. On the other hand, if you operate with a lead volume above the maximum number, the cost of generating a large number of leads will exceed the benefit gained from additional revenue. Logically, the key to maximizing profits is finding the peak performance point between the minimum and maximum lead volumes, as illustrated in Figure 2A. RESULTS Figure 2A: Maximizing profit (example) profitpersalesrepperday new leads assigned per rep per day $200.00 $150.00 $100.00 $50.00 $0 $(50.00) $(100.00) $(150.00) 0 5 10 15 20 25 30
    • SALES OPTIMIZATION STUDY 05 Obviously, finding those values is different for every organization and is dependent on a number of factors, which include the Lifetime Value of a customer (LTV), the Number of New leads assigned per rep per day (N), the Expected Conversion Rate (ECR), the Commission per Sale (CPS), the Cost per Lead (CPL), the Direct Cost per Rep per day (DCR), and the Other Costs of Sales (OCS) B . Figure 2 shows that for an organization with values similar to those used in this example, each rep would need to be assigned an average of just over two new leads per day in order to add value to the company and for the company to be profitable. Also, the maximum profit contribution per sales rep would be achieved at approximately 11 new leads per rep per day. Finally, for an organization that is most interested in growth and not necessarily profit without adding more reps, the highest volume that still allows them to break even is shown to be about 28 new leads per rep per day. The maximum value is not indicative of a rep s actual capacity, which is dependent on an individual rep s skill level. Instead, it is just the value at which most companies will begin to incur losses from a typical rep because they re wasting away too many leads. RESULTS B See Appendix B for the complete profit formula and sample values used to generate Figure 2 Figure 2B: Maximizing profit (example) profitpersalesrepperday new leads assigned per rep per day $200.00 $150.00 $100.00 $50.00 $0 $(50.00) $(100.00) $(150.00) 0 5 10 15 20 25 30 Optimal Minimum Maximum
    • SALES OPTIMIZATION STUDY 06 Table 2 summarizes these three key values for the example given. Just as the expected conversion rate can be calculated using a formula based on data from this research A , a detailed profit formula B , which is dependent on the expected conversion rate, can be used to calculate expected profits given a variety of different inputs, allowing organizations to find their breakeven lead volumes and their optimal lead volume for maximum profit. A little bit of calculus results in an optimal lead volume formula C that is only dependent on LTV, CPS, and CPL, assuming all other factors stay fixed as lead volume per rep changes. RESULTS A Please see Appendix A B Please see Appendix B C Please see Appendix C Table 2: Critical lead volumes (example) 10.6 28.2 new leads per rep per day expected conversion rate sales profit per rep per day significance 3.81% 1.77% 2.1 13.6% 0.00 0.00 180.85 $ $ $ Minimum lead volume per rep to be profitable Optimal lead volume for maximum profit Maximum lead volume for highest revenue without profit losses
    • SALES OPTIMIZATION STUDY 07 The optimal lead assignment level can be calculated using the optimal lead volume formula C or it can be estimated using the values for CPL and LTV ‒ CPS along with Table 3. For example, for a company with an LTV of $9,000, a CPS of $1,000, and a CPL of $50, we would need to look across the $50 row and down the $8,000 column (LTV-CPS=$8,000), and we would find that 15 is the optimal number of leads we should assign each rep per day for maximum profit. If this company were currently assigning fewer than 15 new leads per rep, they should work on increasing the number of new lead assignments. On the other hand, if they were RESULTS C Please see Appendix C (cont. on next page) Table 3: Finding the number of new leads to assign each rep per day to maximize profits (CPL) $500 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $8,000 $10,000 $15,000 $20,000 $25,000 $30,000 $5 8 20 48 $10 3 8 20 33 48 $15 2 5 12 20 28 38 $20 3 8 14 20 26 33 $30 5 8 12 16 20 28 $40 6 8 11 14 20 26 152 192 277 367 615 886 1176 1486 115 152 255 367 488 615 152 219 291 367 106 152 202 255 121 152 106 $50 6 8 10 15 20 33 $60 6 8 12 16 26 38 $80 6 8 11 18 26 35 $100 6 8 14 20 26 33 $150 5 8 12 16 20 $200 0 0 0 0 0 0 0 0 0 0 80 115 63 80 48 68 91 1 48 63 1 2 38 63 91 1 1 3 44 63 84 1 3 4 48 63 80 1 2 3 5 50 63 1 1 2 3 4 44 1 2 3 3 4 1 1 2 2 3 4 1 1 1 2 3 3 6 8 11 14 Cost per Lead Lifetime Value (LTV) minus Commission per Sale (CPS)
    • SALES OPTIMIZATION STUDY 08 exceeding that lead volume, they should probably consider hiring more reps to reduce the workload at that lead volume because it is likely that the cost of wasted leads is reducing their profits. Similarly, a company can calculate how many reps they need by taking their daily lead volume and dividing it by the optimal number resulting from Table 3. For example, if the company in the example above generates 600 new leads per day, the number of reps that will result in maximum profits is equal to 600/15= 40 reps. For reference, and as a point of comparison, the average sales rep in our study was assigned less than six new leads per day. Given the results shown in Table 3, most organizations would likely benefit from increasing the number of new leads they are assigning their reps each day because most probably fall within the green operating range of Table 3, which generally suggests that optimal lead volumes should be at least double what they are currently for maximum profit. At those volumes, the expected conversion rates are between two and five percent. Comparably, lead volumes should be even larger for maximum revenue growth. One of the easiest and fastest ways to achieve larger lead volumes without significantly impacting other costs of sales (OCS) is simply to purchase more leads, but regardless of how new lead volumes are increased, it is not advised that one just increase new lead assignments indiscriminately. As the remainder of this study shows, there are clearly better and worse days and times to increase or decrease the number of new leads assignments based on rep availability, productivity, and effectiveness. RESULTS
    • SALES OPTIMIZATION STUDY 09 Lead Volume Decreases Considerably onWeekends One of the first set of factors that an organization should look at when considering lead assignment changes is their current distribution of leads throughout the different days of the week. Overall, the number of lead assignments is pretty evenly distributed throughout the first four days of the workweek. As Figure 3 illustrates, there is approximately a 30% drop in lead volume on Fridays and about a 90% drop on Saturdays. However, the average number of lead assignments per rep per hour remains about the same Monday through Saturday, indicating that most companies reduce the number of active sales staff and/or the number of hours worked on Fridays and Saturdays in proportion to the drop in lead volume. Figure 3 also reveals that the total number of lead assignments is clearly lowest on Sundays. Additionally, sales reps that do actively work leads on Sundays, on average, are assigned 20% fewer leads per hour than they are during the other days of the week. The drop in total lead volume on weekends is probably not a surprise given the majority of sales organizations do not operate on weekends. RESULTS Figure 3: Total lead volume assigned 19.6% 22.0% 21.3% 20.1% 14.1% Friday Saturday Sunday 0.3%2.5% Monday Tuesday Wednesday Thursday
    • SALES OPTIMIZATION STUDY 10 Lead Assignments and Activity per Rep Decrease throughout the Day Although the average number of lead assignments per rep per hour is evenly distributed throughout the different days of the week, except Sunday, lead assignments per rep per hour are not evenly distributed throughout each day. Figure 4 shows that the total number of newly assigned leads per rep per hour is highest early in the day and declines as the day progresses. Notice the total number of lead assignments is comprised of both brand new leads and re-assigned leads. Re-assigned leads, which typically outnumber brand new leads, are leads that have been previously assigned to one rep, but for a variety of reasons are re-assigned to a different rep. RESULTS Our research found that the bigger the sales team, the more likely reps will receive a higher proportion of re-assigned leads. Lead re-assignments are normally highest earlier in the morning as reps catch up on prospects requiring follow-up that accumulated overnight. This is especially true in cases where a number of reps start earlier in the day, before the rest of the team, driving lead re-assignments when reps originally assigned to certain leads have not started working yet. Consequently, the total number of lead assignments per hour per rep decreases throughout the day, primarily because the number of re-assigned leads decreases. But also, as shown in Figure 4, the number of brand new leads assigned per rep is slightly higher earlier in the day. Figure 4: Lead volume by time of day new leads re-assigned leads averagenumberofassignedleads perhourperrep 6.00 5.00 4.00 3.00 2.00 1.00 0.00 6:00 am 7:00 am 8:00 am 9:00 am 10:00 am 11:00 am 12:00 pm 1:00 pm 2:00 pm 3:00 pm 4:00 pm 5:00 pm 6:00 pm 7:00 pm 8:00 pm after hours
    • SALES OPTIMIZATION STUDY 11 Our research found that for the most part, time spent on the phone and the number of phone calls and actions taken on a lead were very much in line with lead volume assignments. In other words, the more leads a rep is assigned per hour, the more time one can expect the rep to be on the phone and the higher the activity one can expect on leads. Consequently, since reps typically have a larger number of lead assignments earlier in the day (Figure 4), they tend to make more phone calls, take more actions in the system, and spend a higher proportion of their time on the phone earlier in the day, leaving them with more available time in the afternoon and early evening. ProductivityandEffectivenessPeakonWeekends Similarly, since the average lead assignments per hour are fairly constant across each day of the workweek, the average time spent on the phone per hour is also fairly constant. Interestingly, Saturday and Sunday had higher percentages of phone time per hour than Monday through Friday even though the number of leads assigned per rep are the same on Saturdays as they are during the workweek, and even lower on Sundays than they are any other day. On average, sales reps spend approximately 20 minutes per hour on the phone on weekends versus only 15 minutes on the phone per hour during the workweek. The fact that sales reps are spending only a quarter, or at best a third, of their time on the phone also suggests that most reps are probably being underutilized from an overall capacity standpoint. Most sales organizations would probably not want or need their sales reps to spend 100% of their time on the phone either, but these results indicate the opportunity for added phone time per rep exists, further supporting the earlier finding that most organizations would probably benefit from assigning a higher number of new leads per rep. RESULTS
    • SALES OPTIMIZATION STUDY 12 One of the main reasons reps tend to spend more time on the phone per hour on weekends is that they spend a lower percentage of their time on the phone waiting to connect and a higher percentage of their phone time actually connected. Reps spend 25% of their phone time waiting and trying to connect during the workweek but only about 20% of their phone time on weekends. This is largely because reps are more successful in contacting a higher percentage of their leads on the weekends, with the greatest success rate on Sundays, when 11% of all calls made successfully connect. That s almost double the 6% connection rate of weekdays. For more information about the largely untapped opportunities that exist for working on weekends, please see Velocify s study on The Value of Weekend Leads Unveiled. Furthermore, Saturdays are when reps are most productive, making 25% more calls than they normally make during the workweek, as shown in Figure 5. RESULTS Figure 5: Average Calls per Hour per Rep 16 14 12 10 8 6 4 2 0 Monday Tuesday W ednesday Thursday Friday Saturday Sunday
    • Note: While these results may provide a benchmark and a point of reference, the best way to make use of this information is to actually compare them to your team’s specific metrics and performance. Velocify’s solutions allow you to track and monitor your team’s activity and effectiveness so that you too can optimize your sales engine. SALES OPTIMIZATION STUDY 13 Takeaways and Recommendations While a rep s productivity usually increases as more leads are assigned, conversion rate drops as reps are assigned a higher number of new leads per day. It is possible to calculate the expected conversion rate of a rep based on the number of new leads assigned per rep per day A . This calculation provides a higher degree of clarity around rep utilization. The expected conversion rate formula A coupled with a detailed profit formula B can be used to calculate three key lead volume operating levels for an organization. • The first breakeven point can provide the minimum number of new leads a rep needs to be assigned per day in order to make profitable contributions. • The second breakeven point provides the maximum number of leads that can be assigned without losing too much money on wasted leads- this is the optimal volume for organizations interested in revenue growth rather than maximum profit. • The final key operating level is between the two breakeven points, where the number of new leads assigned per rep maximizes the rep s profit contribution C . Data suggests that most organizations would likely benefit from increasing the average number of new leads assigned per rep per day. Lead assignments per rep per day are fairly constant Monday through Saturday but drop about 20% on Sundays. Lead assignments per rep decrease throughout the day. Reps typically make more calls, take more actions, and spend more time on the phone when they are assigned more leads. Reps are generally most productive on Saturdays and most effective in contacting leads on Sundays, signaling an untapped opportunity. Ideally, organizations should try to increase the number of new leads assigned to reps during the hours and days in which reps tend to be most available, productive, and/or effective, which means in the afternoons, for most companies, and on weekends, for those companies whose industry and business conditions allow for that option. SUMMARY& CONCLUSIONS A Please see Appendix A B Please see Appendix B C Please see Appendix C
    • Call: (888) 843-1777 Email: sales@velocify.com Visit our website: www.velocify.com Visit our blog: velocify.com/blog LIKETHISSTUDY? WHYNOTSHARE: DOYOU HAVE THE TOOLS NEEDED TO MEASURE YOUR TEAM'S PERFORMANCE AND TO ENABLE THEM TO MAKE THE MOST OUT OF EVERY LEAD ASSIGNED? Get a Demo Today SALES OPTIMIZATION STUDY 14 About Velocify Velocify is a market leading provider of cloud-based intelligent sales automation solutions that drive more effective and efficient sales processes and improved conversion rates. With unmatched expertise, drawn from a dedication to helping more than 5,000 clients automate and improve their lead response and selling processes, Velocify has become the platform of choice for organizations focused on improving customer acquisition practices and business performance. Velocify is a privately held company, recently recognized as one of the fastest growing companies in North America on Deloitte s 2012 Technology Fast 500. Please visit www.velocify.com for more information. CONTACT&SHARE
    • SALES OPTIMIZATION STUDY 15WPLM0313 Appendix A Expected Conversion Rate Formula: The measure for reliability (R 2 ) for the equation derived from the analysis of real performance data indicates that more than 43% of the variability of reps conversion rate can be explained by the rate at which they are assigned brand new leads. Therefore, the following equation can be used to predict a rep s expected conversion rate: Appendix B Detailed Profit Formula: Appendix C Optimal Lead Volume Formula: Optimal number of new lead assignments per rep per day = Conversion rate = 0.245×(Number of new assigned leads per rep per day)-0.787 Profit per rep per day = (LTV×N×ECR)-(CPS×N×ECR)-(CPL×N)-DCR-OCS, where: LTV = Lifetime Value of a Customer = (Expected revenue over the lifetime of a customer-Cost of product or services) or = (Expected revenue over the lifetime of a customer×Gross margin) = Used $4,000 in Figure 2 N = Number of New Leads Assigned per Rep per Day = Independent Variable ECR = Expected Conversion Rate = 0.245×(N)-0.787 = Calculated using N values CPS = Commission per Sale = Average $ amount paid to a rep for each closed sale = Used $300 in Figure 2 CPL = Cost per Lead = Average direct cost to generate or purchase a lead = Used $30 in Figure 2 DCR = Direct Cost per Rep per Day = Base salary and benefits for a rep per day = Used $200 in Figure 2 OCS = Other Costs of Sales per Rep per Day = Other costs including supplies, telephone, facilities, marketing support, etc. broken down per rep per day = Used $800 in Figure 2 APPENDICES .0235× (LTV-CPS) [ ]CPL 1.27