The Revenue Funnel: a crucial tool for your GTM success

A carefully constructed ‘revenue funnel’ plan is a vitally important tool for your go-to-market success. The image of the funnel is used because in this metaphorical funnel, a large number of ‘suspects’ (people and organizations who you can reasonably suspect need your product or service) go into the top, some progress through being Leads and then Opportunities/Deals, and then revenue drops out the bottom.

The best way to proceed in building your funnel plan is ‘from the bottom, up’ – meaning, that you start with your revenue goals for the year. Then, based on conversion rates from each level of marketing and sales activity to the next, you calculate how many engagements need to exist at that level. In this way you proceed all the way to the ‘top of the funnel,’ which means the total number of suspects with which you need to engage during the course of the year. The four basic levels of the funnel are:

·      Closed deals (which should always mean signed contracts), corresponding directly to your revenue goals;

·      Opportunities that must be worked in order to produce those closed deals;

·      Active leads that need to be engaged in order to produce those opportunities;

·      And suspects (‘top of funnel’) that need to be engaged in order to produce those active leads.

To take an example using very simple numbers, let’s say that your revenue plan for the year is an additional $10M in annual recurring revenue (ARR). And let’s say that you sell into the upper mid-market and enterprise segments of your target industry or industries, with an average deal size of $500,000 ARR. That means you must close 20 deals this year. (For purposes of this example, we are ignoring additional revenue sources such as upsells, cross-sells, organic expansions of current contracts, etc.) Now let’s say that your projected close rate on your active Opportunities is 25%. This means that you must work 80 Opportunities in the course of the year. Now let’s say that your Leads convert to Opportunities at an average rate of 25%. This means that you must work 320 Leads in the course of the year to produce those 80 Opportunities. Finally, let’s say that top-of-funnel Suspects (whether outbound or inbound) convert to engaged Leads at a rate of 10%. This means that you must engage at the top of the funnel with 3,200 Suspects, which of course equates to an average of 267 Suspects per month.

After you have built your funnel plan, it is crucial that you track reality versus projections at each of level of the funnel, on a monthly basis, for several reasons. First, you need to constantly vet your assumptions and adjust the plan accordingly. Perhaps you are underperforming at the top of the funnel, but overperforming your project Lead-to-Opp conversion. This means that the numbers change somewhat throughout the funnel and you may or may not be on track toward your revenue goals. Second, it will help you spot the specific areas of your go-to-market (GTM) machine that need work. For example, if your lead flow at the top of the funnel and your conversion to Opportunities are great, but your revenue goals aren’t being met, you may need to work on a stronger value proposition, make changes to your sales team, or even re-focus on different target profiles. Third, constant updating of your funnel is important for resource planning. To use extreme numbers for the purpose of illustration, if you build your funnel and realize that you need to contact only 10 enterprise targets per week, founder-led sales may be sufficient at this point in your organizational life. But if you realize you need to work 500 Suspects a week in order for your funnel to work properly, it may well be time to set up a BDR team. Fourth, the funnel math will help you greatly to determine where to allocate budget and effort and the top of the funnel. For example, you may look at the needed number of top-of-funnel Suspects and use that number to inform your decisions about events, digital marketing, referral and integration partnerships, and cold prospecting.

In conclusion, your funnel plan will never be a finished project. You will always be tweaking and adjusting it as conditions change, new data emerges, and your business grows. But without it you are ‘flying blind’ and your revenue plan is a collection of hopeful wishes. Completely unsure how to build your funnel metrics? Reach out – I’d be delighted to help.