GUIDE TO: OPTIMIZING YOUR TO REP

Transcription

1 GUIDE TO: OPTIMIZING YOUR LEADS RATIO TO REP

2 Executive summary Imagine a top sales rep underutilized by 5%. Any sales manager having In this guide, we also highlight current practices from our research, around visibility into the rep s utilization level would most certainly look to the distribution of work assignments and the days and times that reps are increase the volume of leads assigned. Often, however, the utilization most productive and effective in order to help organizations optimize their threshold where results and productivity are at their optimal level is sales engine. The application of these formulas to the data analyzed incredibly hard to identify. At Velocify, we are often asked by sales leaders revealed that sales reps are often underutilized and that workload is not how many leads they should be sending to their reps, or if they should hire evenly distributed throughout the day or week. 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.

3 BACKGROUND Many sales organizations experience struggles between their sales and marketing teams. Sales might claim they aren t receiving enough leads, Study Methodology while marketing might claim the leads they re generating aren t receiving This data reflects results aggregated across multiple industries the proper attention from sales. So, who is right sales or marketing? How during a six month period. More than 5 million calls made by 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 more than, 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, and conditions, can be an art form and is usually a guessing game for sales Velocify s intelligent dialer, during the six month period managers. Fortunately, we can use historical data from a large number of studied were included in this analysis. Additionally, in the sales organizations to predict possible outcomes as lead assignment levels analysis of rep data, the numbers reported reflect only the data are changed so that each organization can find its optimal leads-to-rep for reps that appear to be active in the system, meaning that ratio. If changes are necessary to current lead assignment volumes, it is they are being assigned leads and working them during a 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. 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.

4 Identifying a Sales Rep s Peak Performance Zone Figure : Impact of lead volume on conversion One of the keys to arriving at an optimal rep utilization level is determining 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 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. 5.% 4.%.%.%.%.% new leads assigned per rep per day Table : Conversion rate estimates Based on this data, Table allows one to estimate expected conversion rates based on the number of new lead assignments per rep per day. The two A primary reasons this negative relationship exists between a rep s conversion rate and the number of new leads assigned are: () as workload increases, reps effectiveness is more likely to decrease and () 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. APlease 6.% conversion rate per rep how workload affects reps results. see Appendix A for the formula used to create Table. 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. new leads per rep per day expected conversion rate % 4.%.%.% 6.9% 4.% 4.%.5%.9%.%.9%.7%

5 Figure A: Maximizing profit (example) 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, $5. 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 profit per sales rep per day which illustrates what methods to use and how often to contact a $. $5. $ $(5.) 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 $(5.) large number of leads will exceed the benefit gained from additional revenue. Logically, the key to maximizing profits is finding the peak new leads assigned per rep per day performance point between the minimum and maximum lead volumes, as illustrated in Figure A. 4

6 Figure B: Maximizing profit (example) 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 $5. Optimal of Sales (OCS). Figure 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 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 new leads per rep per profit per sales rep per day B $. $5. $ $(5.) Maximum Minimum $(.) 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. BSee $(5.) new leads assigned per rep per day Appendix B for the complete profit formula and sample values used to generate Figure 5

7 Table : Critical lead volumes (example) new leads per rep per day expected conversion rate sales profit per rep per day significance..6% $. Minimum lead volume per rep to be profitable.6.% $.5 Optimal lead volume for maximum profit..77% $. Maximum lead volume for highest revenue without profit losses Table 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 detailed profit formula, which is dependent on A B 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 that C is only dependent on LTV, CPS, and CPL, assuming all other factors stay fixed as lead volume per rep changes. APlease BPlease CPlease see Appendix A see Appendix B see Appendix C 6

8 Table : Finding the number of new leads to assign each rep per day to maximize profits Lifetime Value (LTV) minus Commission per Sale (CPS) Cost per Lead (CPL) $5 $, $, $, $4, $5, $6, $, $, $5, $5 $ $5 $ $ $4 $5 $6 $ $ $5 $ $, $5, $, The optimal lead assignment level can be calculated using the optimal lead volume formula or it can be estimated using the values for CPL and LTV CPS along C with Table. For example, for a company with an LTV of $9,, a CPS of $,, and a CPL of $5, we would need to look across the $5 row and down the $, column (LTV-CPS=$,), and we would find that 5 is the optimal number of leads we should assign each rep per day for maximum profit. If this company were currently assigning fewer than 5 new leads per rep, they should work on increasing the number of new lead assignments. On the other hand, if they were (cont. on next page) CPlease see Appendix C 7

9 exceeding that lead volume, they should probably consider hiring more One of the easiest and fastest ways to achieve larger lead volumes without reps to reduce the workload at that lead volume because it is likely that the significantly impacting other costs of sales (OCS) is simply to purchase cost of wasted leads is reducing their profits. Similarly, a company can more leads, but regardless of how new lead volumes are increased, it is not calculate how many reps they need by taking their daily lead volume and advised that one just increase new lead assignments indiscriminately. As dividing it by the optimal number resulting from Table. For example, the remainder of this study shows, there are clearly better and worse days if the company in the example above generates 6 new leads per day, and times to increase or decrease the number of new leads assignments the number of reps that will result in maximum profits is equal to based on rep availability, productivity, and effectiveness. 6/5= 4 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, 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, 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.

10 Lead Volume Decreases Considerably on Weekends 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 Figure : Total lead volume assigned Saturday Sunday.5%.% assignments is pretty evenly distributed throughout the first four days of the workweek. As Figure illustrates, there is approximately a % drop in lead volume on Fridays and about a 9% drop on Saturdays. However, the average number of lead assignments per rep per hour remains about the Friday 4.% Monday 9.6% 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 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 Thursday.% Tuesday.% average, are assigned % 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. Wednesday.% 9

11 Lead Assignments and Activity per Rep Decrease throughout the Day 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 Although the average number of lead assignments per rep per hour is normally highest earlier in the morning as reps catch up on prospects evenly distributed throughout the different days of the week, except requiring follow-up that accumulated overnight. This is especially true in Sunday, lead assignments per rep per hour are not evenly distributed cases where a number of reps start earlier in the day, before the rest of the throughout each day. Figure 4 shows that the total number of newly team, driving lead re-assignments when reps originally assigned to certain assigned leads per rep per hour is highest early in the day and declines as leads have not started working yet. Consequently, the total number of the day progresses. Notice the total number of lead assignments is lead assignments per hour per rep decreases throughout the day, comprised of both brand new leads and re-assigned leads. Re-assigned primarily because the number of re-assigned leads decreases. But also, as leads, which typically outnumber brand new leads, are leads that have shown in Figure 4, the number of brand new leads assigned per rep is been previously assigned to one rep, but for a variety of reasons are slightly higher earlier in the day. re-assigned to a different rep. average number of assigned leads per hour per rep Figure 4: Lead volume by time of day : am 7: am : am 9: am : am : am : : : : 4: new leads 5: 6: 7: : rs hou r e aft re-assigned leads

12 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 Productivity and Effectiveness Peak on Weekends Similarly, since the average lead assignments per hour are fairly constant in line with lead volume assignments. In other words, the more leads a across each day of the workweek, the average time spent on the phone rep is assigned per hour, the more time one can expect the rep to be on per hour is also fairly constant. Interestingly, Saturday and Sunday had the phone and the higher the activity one can expect on leads. higher percentages of phone time per hour than Monday through Friday Consequently, since reps typically have a larger number of lead even though the number of leads assigned per rep are the same on assignments earlier in the day (Figure 4), they tend to make more phone Saturdays as they are during the workweek, and even lower on Sundays calls, take more actions in the system, and spend a higher proportion of than they are any other day. On average, sales reps spend approximately their time on the phone earlier in the day, leaving them with more minutes per hour on the phone on weekends versus only 5 minutes available time in the afternoon and early evening. 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 % 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.

13 Figure 5: Average Calls per Hour per Rep One of the main reasons reps tend to spend more time on the phone per 4 and trying to connect during the workweek but only about % of their phone time on weekends. calls made successfully connect. That s almost double the 6% connection 6 rate of weekdays. For more information about the largely untapped 4 opportunities that exist for working on weekends, please see Velocify s ay Su Sa tu rd nd ay y ida Fr ay sd ur Th ay sd ne normally make during the workweek, as shown in Figure 5. ed are when reps are most productive, making 5% more calls than they ay study on The Value of Weekend Leads Unveiled. Furthermore, Saturdays W weekends, with the greatest success rate on Sundays, when % of all sd successful in contacting a higher percentage of their leads on the Tu e This is largely because reps are more ay time actually connected. Reps spend 5% of their phone time waiting nd the phone waiting to connect and a higher percentage of their phone 6 Mo hour on weekends is that they spend a lower percentage of their time on

14 SUMMARY & CONCLUSIONS Takeaways and Recommendations While a rep s productivity usually increases as more leads are Data suggests that most organizations would likely benefit from number of new leads per day. day. assigned, conversion rate drops as reps are assigned a higher It is possible to calculate the expected conversion rate of a rep based on the number of new leads assigned per rep per day. This A calculation provides a higher degree of clarity around rep utilization. The expected conversion rate formula coupled with a detailed A profit formula can be used to calculate three key lead volume B operating levels for an organization. increasing the average number of new leads assigned per rep per Lead assignments per rep per day are fairly constant Monday through Saturday but drop about % 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 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. opportunity. Ideally, organizations should try to increase the number of new leads assigned to reps during the hours and days in which reps tend 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 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. than maximum profit. The final key operating level is between the two Note: breakeven points, where the number of new leads assigned per rep maximizes the rep s profit contribution. C 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 APlease see Appendix A see Appendix B CPlease see Appendix C BPlease your sales engine.

15 CONTACT & SHARE About Velocify Velocify is a market leading provider of cloud-based intelligent sales DO YOU HAVE THE TOOLS NEEDED automation solutions that drive more effective and efficient sales TO MEASURE YOUR TEAM'S processes and improved conversion rates. With unmatched expertise, PERFORMANCE AND TO ENABLE drawn from a dedication to helping more than 5, clients automate and THEM TO MAKE THE MOST OUT OF improve their lead response and selling processes, Velocify has become EVERY LEAD ASSIGNED? the platform of choice for organizations focused on improving customer acquisition practices and business performance. Velocify is a privately held Get a Demo Today company, recently recognized as one of the fastest growing companies in North America on Deloitte s Technology Fast 5. Please visit LIKE THIS STUDY? WHY NOT SHARE: for more information. Call: () sales@velocify.com Visit our website: Visit our blog: velocify.com/blog 4

16 APPENDICES Appendix A Expected Conversion Rate Formula: The measure for reliability (R) for the equation derived from the analysis of real performance data indicates that more than 4% 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: Conversion rate =.45 (Number of new assigned leads per rep per day)-.77 Appendix B Detailed Profit Formula: 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, in Figure N = Number of New Leads Assigned per Rep per Day = Independent Variable ECR = Expected Conversion Rate =.45 (N)-.77 = Calculated using N values CPS = Commission per Sale = Average $ amount paid to a rep for each closed sale = Used $ in Figure CPL = Cost per Lead = Average direct cost to generate or purchase a lead = Used $ in Figure DCR = Direct Cost per Rep per Day = Base salary and benefits for a rep per day = Used $ in Figure 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 $ in Figure Appendix C Optimal Lead Volume Formula: [ Optimal number of new lead assignments per rep per day =.5 (LTV-CPS) CPL ].7 WPLM 5