For marketing organizations that want to align more closely with sales (and that should be all of you), one of the best ways to do it is to align marketing’s success measures to outcomes sales cares about.
Marketers have historically focused on activity and early-indicator metrics such as lead production and conversion rates. Sales, on the other hand, has been more concerned with things like sales cycle times, deal sizes, close rates, and, of course, revenue production. To align with sales, marketing measures and goals need to shift downstream toward the outcomes that matter most to sales.
In particular, that means adopting cycle time, deal size and close rates for opportunities as key metrics.
However, it’s not as simple as just starting to measure these three key metrics. It is critical to measure and manage how they are balanced. Too much of a focus on one of these metrics could lead to worse performance on the others.
- If you focus on increasing deal size by trying to sell to larger accounts, you may achieve larger deal values but end up lengthening your sales cycle and reducing conversion rates.
- If you focus on minimizing sales cycle times, your sales team may seek out smaller deals, sacrificing deal size.
The key is to find a balance that works for your business. Revenue Per Day — sometimes called Deal (or Sales) Velocity — is the answer. It’s derived by combining all three of these measures into one. It’s the metric that captures that balance.
Defining Revenue Per Day
The formula to calculate Revenue Per Day assembles the three critical elements, deal size, close rate and cycle time in a way that creates the balanced metric revenue teams need. The result is a single metric that captures revenue produced per period of time — an excellent balanced indicator of how efficiently the organization is producing revenue.
To calculate Revenue Per Day, simply take the number of opportunities (say, last month’s 100 opportunities), then multiply it times the average deal size and close rate for those opportunities.
Finally, divide by the average sales cycle length for those deals:
(100 Opportunities x Average Deal Size x Close rate) / Average cycle length
Revenue Per Day as a metric is stated in revenue per day per the number of opportunities from which it was calculated. The standard for calculating Revenue Per Day is to calculate per 100 opportunities, as in the example above.
Using Revenue Per Day
For marketing organizations, calculating Revenue Per Day for deals that marketing surfaces or identifies is a good way to gauge how marketing is helping to make selling more effective. Marketing organizations can also look at Revenue Per Day metrics for opportunities that have received any special treatments.
- How does Revenue Per Day for ABM/X accounts compare to others?
- How does Revenue Per Day compare for opportunities where decision-makers attended special events, such as prospect dinners?
- How does Revenue Per Day compare for opportunities that had multiple individuals fill out forms during the buying process?
- How does Revenue Per Day compare for deals that come through inbound marketing activities versus those that are identified through outbound?
Many organizations will use one metric, typically conversion rate, to evaluate performance, but as should be evident now, conversion rate tells only one part of the story.
At 6sense, our solutions provide the ability to positively impact all three of the component metrics. Sometimes, we help our customers improve performance on all three at once. However, what is more likely is that one or two of the three will move strongly in the right direction, with little or no gain, or perhaps even some slight decrease, of the third.
What happens in virtually all cases is that the balanced metric — Revenue Per Day — substantially improves.
Below is an example comparing performance improvements for 6sense customers with deal sizes under $25,000. In this example, deal sizes identified as sales ready by 6sense achieve an average Revenue Per Day (per 100 opportunities) of 29.2%. Examining Deal Size, Win Rate and Cycle Length, we see that in the Revenue Per Day improvement comes entirely through doubling deal sizes.
The 6sense deals actually had slightly lower conversion rates and slightly longer sales cycles. However, the dramatic improvement in deal size across the sample of 366 customers drove a nearly 30% improvement in Revenue Per Day.
Table 1: Revenue Per Day for Small-sized Deals
For 6sense customers with medium deal sizes, $25k to $50k, the story is similar with a notable difference. Here, the deal size improvement was 70%. But, the Win Rates also improved by 2.5 points. Meanwhile, sales cycles grew longer by five days.
The net gain in Revenue Per Day was 77.2%, or nearly $7,500 per day for each 100 opportunities.
Table 2: Revenue Per Day for Medium-Sized Deals
And then one more example. In this case, considering manufacturers.
Table 3: Revenue Per Day for Manufacturing Companies
Here, the deal size for opportunities that 6sense surfaced were smaller, not larger than other deals our manufacturing customers worked. However, the win percentage was 12.1 points higher, and the deal cycle times were 7 days, roughly 20%, shorter.
The resulting improvement in Revenue Per Day per 100 opportunities was approximately $17,000, or 26.5%.
Getting Onboard with Revenue Per Day
As we said at the beginning of this post, Revenue Per Day is not something new that you, as a marketer, have to educate the sales organization on. It is very likely that they already know and use Revenue Per Day as a metric. If not, they certainly utilize the three components of it.
Introducing the balanced Revenue Per Day metric for marketing is likely to both be well received, and to communicate to sales that you understand what is important and are cognizant of aligning marketing output to what sales needs.