'Think and Grow Rich"

In his best selling book, 'Think and Grow Rich", Napoleon Hill said that having a goal of making a definite amount of money was a critical success factor in achieving success. He laid out many other factors of success, but this one fact, that of having a definite financial goal, is right at the top of the list of critical success factors or CSKs as they are known today.Think and Grow Rich Mindmap


How Do You Set a Practical Financial Target



It may seem obvious, but a surprisingly large number of the customers we talk to, at least initially, don't have a target sales goal. We admit, it can be tough to actually hold yourself accountable when it comes to revenue. In the early days of a business, survival is usually the goal. But survival, though necessary, is not how financial goals are met.
How to Calculate Number of Leads Needed



There is really a straight forward 3 step process for setting a top line revenue goal and is the first step in determining how many leads you need to generate:

Set an Annual Sales Target in Terms of Annual Revenue Earned.
Determine your Average Order Value
Divide your Annual Sales Target by your Average Order Value

This will tell you how many customers you need to close this year.

So, for example, let's say you sell Sales Consulting Services and charge $5,000 for a 2 day onsite Sales Training session. You're a hungry Sales Trainer and this year, you want to hit 7 figures, or $1,000,000.
How many Sales Training sessions are you going to need to deliver?

Don't you hate word problems...

Let's do the first pass on the math. $1,000,000/$5,000=200

That means you're going to be on the road the entire year in case you were wondering.
Let's do one more word problem but for an e-commerce scenario.

Let's say you sell an item for a fairly typical $150 per unit (ARPU). So how many sales are you going to need to make to hit $1,000,000? Again, fairly simple math $1,000,000/$150=6,666 sales for the year, or 555 items per month or about 19 items per day.

There's always one tricky part to this seemingly simple process - Setting that Annual Sales Target.
Did You Happen To See The Constraints In Both Scenarios?

You see, in both of these scenarios, there is a constraint rearing its ugly head. In the first scenario, there is an obvious constraint, with other constraints that will surely show up when you've optimized around the constraint.

In the second scenario, the constraint may or may not exist, but in our experience, we almost always see this constraint appear.
Do You Have The Delivery Capability?

The constraint in this scenario is delivery capability. If you truly want to earn a million dollars a year, you better have a lead generation and sales closing machine that never allows you to miss a paid Sales Training Session opportunity or else you won't hit your goal.

Let's be honest, if you're a one man show or even if you're part of a larger organization but you're the person who delivers the training, you're not going to be able to deliver 200 on-the-road sessions a year, even if you have a full up sales and marketing team.
You Cannot Deliver At 100% Utilization

In reality, you're going to be constrained to delivering about 66% of that number. That's because, like any professional services firm, you cannot use 100% utilization as your baseline performance metric. You might wish you could, but experience tells us that you have to take into account a number of factors, like sick days, vacation days, training days, travel days, and on an on.


How Many Leads Can You Generate Per Month?
How Many Leads Will You Need To Hit Your Sales Target?

So, how do you hit your financial target of $1,000,000 a year in this scenario? You've either got to charge higher prices, which you would probably already be doing if you could or you have to increase the number of people available to deliver training, again, not any easy task. There are some other ways to get there, and we'll circle back to some of them later on.

What about the second scenario? Where might the e-commerce entrepreneur run into a constraint? As it turns out, he too, will have a delivery capability constraint, but it will present itself by another name or names. If the marketing operation is delivering the leads and the store and all its sales channels are converting at predictable rates, then you should have plenty of runway to make unlimited sales.
Successful E-Commerce Depends Upon Having Inventory Available
Here's How To Calculate Your Required Inventory Levels

Unfortunately, this is never the case. Online retailers of physical products are constrained by inventory availability. Even drop shippers can run into this constraint if they move a lot of product. Putting on my Supply Chain hat, let's do some high level math on this one. Let's say you are moving 600 units a month of product, each of which sells for $150 per unit, on average. So far, so good. You will easily exceed your $1,000,000 annual target revenue.
Minimum Order Quantity (MOQ) May Not Match Your Economic Order Quantity (EOQ)

Now let's dive a little further into operations to find the probable constraint. Assume your product is manufactured in China, and your Factory Gate Pricing is $40 USD per unit. The total lead time on orders is 80 days including transportation, from order drop, to factory gate to on your shelf, ready to sell. Your factory is extremely flexible but has a minimum order quantity (MOQ) of 1,000 units. This number is unlikely to match your EOQ or economic order quantity.

That means each order you place is going to tie up a minimum of 1,000 x $40 or $40,000. You're consuming 600 units a month with no seasonal or other variation (highly unlikely, but hey, I like to keep it simple). Annually, you're consuming 12 * 600 or 7,200 units. That means you will need to replenish at least 8 times during the year. It also means you, the e-commerce business, is going to tie up almost $100,000 in inventory at any one time, in rolling inventory restocks. Now you know why retailers want good credit terms with suppliers.
Increasing Sales Drives Increased Inventory Throughput

As sales increase, your inventory throughput will increase. Any problems you have in your supply chain inventory management system will quickly show up.

Supplies delayed in port √
Demurrage charges √
Quality problems with the stock √
Factory missed its delivery date √
Unexpected consumer returns √
Drop in Sales, too much inventory √

You get the drift. Running a business is far more complicated than one might imagine.
Those Constraints Only Appear When You Have Enough Customers

In the previous scenarios, and indeed, in almost every business scenario you'll likely run across these days, much of the demand side of the problem will be generated via the web using digital marketing.

Knowing this, you may start to wonder just how many leads you need to generate to hit these challenging financial targets. Is that possible? Is there a magic formula that can tell you this? If there is, can you extend the concept and figure out how many website visitors you're going to need to hit your financial goals?
How to Calculate Number of Leads Needed

Yes, there is, and it is called by the pithy name "website visits and leads generated required" calculation. It is a conversion rate formula, which means it works in both directions. You can either figure out how many sales you will get from a given set of website visits, or and of much more interest, you can figure out how many website visits you must get in order to hit a given sales target, given a known or assumed set of conversion rates.
How to Calculate Website Traffic

If you have the right tools in place such as our website traffic calculator coupled with the right measurement tools, you can determine not just how many website visits you need to hit a certain sales target, but how many website visits from each particular source of website visits are needed. There are many sources of website visits, including:

Organic
Direct
Social
Referral
E-Mail
Paid Advertising
Paid Social Media Advertising
Offline

Each of these traffic sources will have their own conversion rates, and your marketing efforts should be focused on how well they work or don't work at generating sales.

For instance, if you look at the Hubspot Sources Report below, you can see that we mostly get our traffic from organic sources. Other businesses with less of a developed content strategy may well depend on paid advertising to hit their goals. The good thing about having the right tools in place is that you can measure your results regardless of source. Remember, your General Ledger doesn't care which channel the revenue came from, only that it did.
Website Traffic and Leads Analytics


Combine Offline with Digital For Better Results

It may sound counterintuitive coming from hard-core Inbound Marketers, but we've found that the best results for some businesses come when they combine offline, face-to-face sales with digital marketing efforts. We've seen plenty of examples where professional services have been converted into products that can be sold entirely online. For example, there are many writing platforms out there that have evolved into 'wordsmiths' for hire operations that are generating millions in annual operating revenue.

We've also seen how for very complex services, for example, SAP consulting services, what works best is a hybrid approach, combing digital lead generation with face-to-face sales. There's a range of service delivery models between these two approaches. But, there is one key takeaway we've come up with in regards to selling services online.
Productize Your Service For Online Success
The Riches Are In The Niches

You must productize your service, and this means, niching down on what you offer. While companies like SAP have a range of service offerings that can be delivered remotely, it makes up only a small fraction of the SAP consulting market and then, is fairly focused.

We've also seen that many large businesses have a very complex buying process. In almost every case, it tends to 'break' any sales process you may design. This often translates into they are buying differently than the way you're selling.
Packaged Expertise

For the smaller professional service organization, as in the first scenario, the strategy that works to help them meet their revenue goals is to package their expertise into either books or training courses, or both. This does a couple of important things; it provides an up-sell opportunity, which can be significant, and it provides a way to scale your knowledge. Finally, it often provides additional referral revenue opportunities, but this typically takes longer and is hard to attribute back to the original channel, though not impossible.


How E-Commerce Firms Reduce Cash Required



For the e-commerce operators, there are a multitude of ways to address the cash required constraint. The best methods we've seen used is to seek better Credit and Delivery terms from suppliers (INCOTERMS), use 'pre-orders' or the Dell model or lines of credit. Each has its plus' and minus', and requires active management and proper systems to make it work as hoped.
Don't Waste Web Traffic By Not Solving The Constraint

We started this blog off by stating that you need to set a definite revenue target. We then dove into some of the issues and constraints you need to consider when setting your annual sales target. We arbitrarily chose a million dollars as an annual revenue target for two different types of businesses, service business' and ecommerce business', and demonstrated how they both can run into delivery constraints. It's also just easier to do the math with round numbers.
It Cost Money To Generate Web Traffic - No Matter Which Approach You Take

You might be wondering what we meant by 'don't waste web traffic'. Here's the hard truth all business owners must face - web traffic cost money no matter how you generate it. Some of those cost are easier to see and measure than others. For instance, the cost of paid traffic is clearly visible. However, organic traffic, which would appear to be free, is far from it.
Organic Traffic Builds Business Value

Not when you consider the cost of generating high quality content to drive traffic and deliver inbound leads and the expertise it requires to develop and deliver a comprehensive content strategy and Inbound Marketing enabled website. The difference between paid and all the rest, particularly organic, is that paid is renting eyeballs, one time use type of traffic, while content driven traffic accumulates clicks and views over time, sort of like compound interest.


Deep SEO Expertise Is Expensive But Worth Every Penny



Of course, there is the cost of high quality SEO to consider as well. Deep SEO expertise comes at a steep price. Think between $200 to $750 an hour and up. Finally, copywriting can add up as well. Top of the line Sales Copywriting can run into the six figure range plus a percentage of revenue. When you take all these costs into consideration, it is not unusual to find out every website visit is costing you at least $6 dollars per visit. So if you have 5,000 visits a month, you're really seeing about $30,000 in website visit value. It means you better have a working sales funnel or you will be wasting traffic.
You Can Set Realistic Sales Goals and Website Visits and Leads Required

I've left out quite a bit of the details on the Supply Chain Constraints you might encounter as you experience growth, regardless of the type of business you're in. Finally, I gave you a brief explanation of how you can run the simple mathematics behind any conversion rate both forwards and backwards. This math also serves as a ecommerce conversion rate calculator.
You Know More Than You Think

That's a key point you should take away from this - that you can pick any sales target you like, and as long as you know a couple of pieces of data, like your average order value and your website visits to contact conversion rate, you can calculate just how many website visits you need to generate any amount of revenue you want.
Lead Generation Calculator

Sometimes, this calculation can be somewhat complicated to remember how to do in your head or even to set up in Excel. That's why we developed an online version of it you can use to determine how many website visits you need in order to hit your sales target. Press the button to find your number now. If you get stuck or need help with it, we can help you figure it out.