DANGER! DANGER! The Reverse Pyramid

Posted on by Pam Casale

Companies often compile what I call the reverse pyramid and use it to direct Marketing activities and spend in order to achieve targeted growth.

The thinking goes something like this:  Take the average deal size (ADS) – calculate the average selling price (ASP) – then compute how many MORE ASDs at the known ASP will be needed to generate or to fill the gap between current year and previous year bookings. For simplicity – let’s just call this the GROWTH number.

Example (oversimplified to tell the story):

  • Previous year:  200 deals @ $40K each = $8M in bookings
  • Current NEW year with 20% Growth Target:  20% growth yields $9.6M – a delta of $1.6M or 40 additional deals – 240 in all
  • In its simplest form, we would reason that – all things being equal – 40 additional deals at $40K each would generate the Growth number.

There are some product and competitive factors that could impact the GROWTH number positively and negatively. For this blog, I’m just focusing on marketing.

Marketing’s Assessment:  Marketing might start with the 200 deals that generated the $8M in bookings and work backward:

  • How many new contacts did we have/add to the database that enabled the 200 deals – how many more contacts do we need to add to get to the GROWTH number?
  • How long did it take to nurture the new contacts/leads to become ENGAGED buyers – what was the % of leads that engaged?
  • How many engaged leads convert to qualified opportunities?
  • How many of the opportunities demonstrated INTENT to buy – do we have a way to characterize this behavior?
  • How many Qualified Opportunities converted to pipeline, then forecast? What % of forecast convert to bookings?

All good questions! How you interpret the answers make all the difference.  

Often when these calculations are computed – marketing starts at the top of the funnel and makes the incorrect assumption that if they add more contacts at the top, the ripple effect will result in MORE prospects or Qualified Opportunities, resulting in MORE deals in the pipeline and then MORE closed deals. This creates problems of its own – but let's just stay the course on the reasoning.

The reasoning continues that if MARKETING can convert more leads to Qualified Opportunities, then MORE deals will end up in the pipeline and that MORE sales will close.

MORE often than not, marketing gets distracted and may spend to add MORE to the top of the funnel. More IN will result in more OUT, right?

Instead, marketing needs to be more DELIBERATE about the messaging, content and experiences that will engage the companies most likely to buy.  I would read this sentence twice – it says a lot.

For the sake of discussion, let’s look at an oversimplified example.

  • Previous year 12,000 leads or new contacts (1000 per month) are added to the database; after list hygiene, there are 6,000 net new contacts or leads
  • 3,000 engage with content – the remaining 3,000 stop engaging and some number unsubscribe
  • Of these about a third (a rolling 1,000) exhibit behavior that demonstrates the INTENT to buy (we know this by scoring methodology, type of content they engage with, they ask for a meeting, takes a free trial, see a demo, ask Gartner for a referral, ask for a price quote)
  • Sales converts 1 in 3 to pipeline – roughly 300 deals to the pipeline
  • Sales forecasts 80 of them (25%)
  • Sales closes 40 (50%)

There is no truth that adding 1000 more leads per month at the top of the funnel (doubling what goes into the funnel) will result in doubling the number of conversions to qualified opportunities,  or the number of conversions to the pipeline. The sheer number of opportunities to the pipeline may well remain the SAME – unless . . . .

Marketing focuses in the middle the of the funnel. Creating more opportunities for engagement at each stage of the buying cycle and for every member of the buying team; creating compelling content that is personalized by vertical, by buyer; acquiring credible content from influencers like analysts, content developers like TechTarget, thought leaders and your cultivated customer advocates.

Here’s a worthwhile activity that might take a few days to accomplish, but the value is astonishing!

Gather all the details of the FIVE most recent sales.  What are the facts? (In this example company=new customer)

  • What do we know about the full tech stack at that company?
  • Were there any significant changes to the buying team that occurred before or during the sale (new leaders, budget increases, increase in hardware, network or the addition of a big new mission critical application)?
  • Was the company making money, growing through acquisition or struggling to keep the doors open – was the purchase of your product related to enabling the growth or cutting costs or both?
  • What partners were involved and did their services play a role in accelerating and/or closing the sales?

What we learn from the data enables marketing to CREATE OPPORTUNITIES that look just like these sales. The same data can be used to give SALES valuable insight into repeatable sales activity and used by PRODUCT to gain insight into pricing preferences, preferred feature/functions and perceived product value.