Are you fascinated with numbers or do you cringe when you hear the word “spreadsheet?” For me, I love to do analysis, so in sales, it is important for me to map and analyze where I am going, how I am going to get there, and who is going to help me. We have built a model for you to have, free of charge, no strings attached and I know you will find it useful.
Do you have a way to communicate to your manager why you are targeting a certain market segment or customer?
In B2B sales it is important to know the math behind your plan. In this model, we leverage the Pareto Principle and Dunbar’s number. The assumptions are 80% of your revenue will come from 20% of the customers and humans can comfortably maintain ~150 relationships (the approximate total number of customers) respectively.
Looking more closely at Pareto Principle, customers fall into one of four quadrants outlined below. The graphic below will help you figure out where you need to start, which customers to focus on and how many customers you need to have to be successful (no more guessing — SWEET).
We discovered ~3-5% of our business customers generate ~64% of the revenue! The remaining 16-points (80%-64% = 16-points) of revenue comes from ~15–17% of our business customers. I know this is a lot of a lot but as the author Steven Pressfield says “Trust the Soup.” The second assumption is Dunbar’s Number, which brings the entire model together.
Dunbar’s theorizes a human can only manage ~150 close relationships or what Seth Godin refers to as a “Tribe,” so we came up with a way to fit Dunbar’s number into the model.
To mimic Dunbar’s number, we leveraged the natural log base 2 (Excel function: Log((target revenue), 2), which depending on you revenue target is either approaching or just barely exceeds 150 business customers. So, there you have it, Pareto and Dunbar are the key components to this model, so let’s keep moving along.
Would it be helpful to understand how many customers you need to have to hit your quota, goal, or target? To find out, download the model below but wait! I have good news! There are only five inputs for the model and the easiest input is your target or revenue budget for the respective time period.
Download the model below:
Updating the Model in Five Steps
Enter your sales target for the respective time (cell D9).
Update the close rate for each quadrant of the 80/20 model. For example, you 20% customer base that will drive 80% of your revenue will have a low close rate of somewhere between 8–12%.
New Customers: Lower close rate
Repeat Customers: Higher close rate
Growth Customers: mid-high close rate
Potential Growth Customers: highest close rate but these customers purchase on price and probably will not buy an again
Do a mental deep-dive into your current pipeline and map your potential customers by quadrant. Remember the model will help you calculate how many customers you need to map to hit your sales goal.
For example, the model tells me I need to close four customers to hit 64% of my revenue target but I set my close rate to 10%. So, I need to have 10x or 40 customer engagement to hit my number of four customers!
Review on a daily and weekly basis to ensure you are tracking your pipeline and close customers that are closed or cold.
Share this model with your manager and team to gain more insight and buy-in.
Do you need motivation to do customer outreach? Remember, each customer you contact has value and it is measurable. For example, a $1M dollar quota has a revenue per contact of ~$837. So, each time you pick up the phone you are generating $837 of revenue, which is why we do what we do.
Calling all Sales Managers
Last but not least, if you’re a sales manager, you need this model for each person on your team. Please download it and share it with your team. It will change the way your team communicates and it will help you hit your numbers. At the end of the day we do what we do for our customers and now you know which customers to focus on!
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