This video is part of Pipeline Essentials, a video course on how to get started using Activity-Based Selling and a Sales CRM to take control of your pipeline.
Presentation Transcript: Activity-Based Selling
This is an overview of activity-based selling, a method you could use in your sales process to close more deals. What is activity-based selling? Activity-based selling is based on focusing on actions, not results. You want to focus on the leading indicators, what you’re doing to close deals, rather than lagging indicators, the number of deals closed. If you only focus on lagging indicators in your business, such as revenue or number of deals closed, you don’t really have any indication of what you’re doing right now, today or next week, to help close future deals. You’re only able to look at past performance. We closed X deals last month. We received X revenue last month or last year. Instead, by focusing on the leading indicators, you are more easily able to see exactly what you’re working on. Really, this is what it breaks down to. When you focus on loading indicators with activity-based selling, you focus on what you do, not what happens.
What are examples of leading versus lagging indicators? Leading indicators would be calls, conversations you have with prospects, meetings scheduled, proposals set, things that you do that move the deal forward. Lagging indicators would be deals won or revenue, things that have indicated the deal has happened. By focusing on leading indicators and scheduling your activities with prospects and in deals to focus on these leading indicators of future success, you’re able to more accurately estimate your sales process and understand specifically what to do to reach your revenue or sales goals.
Let’s talk about using activity-based selling. Activity-based selling breaks down to this. You’re calculating your activity metrics to let you know how many prospects each month you need to meet with to meet your goals. First off, we want to determine our goals. We’ll start off with a target on revenue. Our target is $100,000 in revenue. Based on this, we want to plan out our actions and our activity based on historic data, what we know about our past performance. Let’s walk through this for the example.
We start off with our goal, $100,00 in revenue, and we calculate our average deal size. We might look at the past year or a few years of performance to figure out what an average deal is. In this case we find out that it’s $5,000. We divide our goal in revenue, $100,000 by our average deal size, $5,000, and come up the number of deals we need to close in our year to reach our revenue goal: 20 deals.
From there it’s a matter of calculating how many proposals we need to send out. We could look at our historic information and figure out that our proposal close rate, the number of proposals we send out before we get one accepted, is 25%. One in four proposals closes into a deal. Based on that, we could divide the number of deals we need to close, 20, by our close rate, 25%, and figure out we need to, over the course of the year, send out 80 proposals to prospects.
From there we could look at our meeting to proposal conversion rate. We might look and see that, on average, 40% of meetings we have turn into proposals that we send out. Now we’re able to convert proposals into the number of meetings we need to have in a year. 80 proposals divided by our 40% meeting conversion rate is 200 meetings.
From there, we’ll want to incorporate our prospect to meeting conversion rate. How many prospects do we have to connect with before we generate a meeting? In this case, let’s say it’s 20%, so we’ll divide the number of meetings we need to target in a year, 200, by our prospect conversion rate, 20%, and we come up with the number of prospects we need to contact in a year: 1,000. This gives us an outline of our activity-based sales for the year. We want to talk to 1,000 prospects over the year, generate 200 meetings, send out 80 proposals. 20 of those should close into deals averaging $5,000, giving us our target of $100,00 in revenue.
The important thing is we want to convert this into monthly and weekly goals. What actions should we be taking every month to reach our overall goal? What actions should we be taking this week to reach our monthly or overall goal? We could start off with the information we had before. Our goal is $100,000 in revenue and our average deal size is $5,000. We know our annual number of deals, 20. We could divide that by 12 and figure out the monthly number of deals we need to close is around 1.5. Great. We know the annual number of proposals we need to send out. We could convert that into monthly and we see that we need to be sending out seven proposals each month on average.
We could take our annual number of meetings that we need to target, 200, and divide that by 12 and figure out every month we need to be having 17 meetings with prospects. We could figure out the number of prospects we need to connect with, have a conversation with each month, by taking that annual number of prospects, 1,000, and breaking it down into a monthly number, just about 83 prospects. In this way we could more easily see the specific actions we need to be taking each month to achieve our overall goal.
It’s important to think about this as backwards planning your sales process. We are taking what we know about our business, our historic performance, and our goals, and using that to backwards plan exactly what we need to target in terms of goals and actions to reach our overall goal. If we want $100,000 in revenue, we can see that we need to close one and a half deals each month. We’ll need to send out seven proposals each month. We need to have 17 meetings each month. We need to talk to 83 prospects each month. Each week we’ll need to talk to around 20 prospects. In this way we’re more easily able to see what specific actions and activities we need to take part in to achieve our revenue goal.
What’s important is monitoring and optimizing this over time. We base this on a lot of assumptions around average deal value, conversion rate from proposal to deal, or from prospect to meeting, or meeting to proposal. But those are assumptions. That’s based on historic data. That’s based on our assumptions. What’s important is we start with these base assumptions to see, okay, this is what the shape and form of our sales process needs to look like. These are our first draft activities and actions we need to be taking each month. By monitoring these activities, you’re able to then optimize over time. Maybe you determine your conversion rate is more like 60 or 70% in terms of getting from a meeting to a proposal. You’re able to input those new numbers and adjust your expectations to be a more realistic model based on what actually happens over time in your business. It’s important to continually monitor and optimize this model so you understand what activities you really need to take to reach your revenue goals.
If we want to achieve our overall goal of $100,000 in revenue, based on the assumptions we made around conversion rates, we could see that each month we need to talk with 83 prospects, and that should generate around 17 meetings for us, which would generate around seven proposals, turning into one and a half deals. That would bring in around $7,500, leading towards our overall goal of $100,000 in revenue.