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The secret of the revenue formula: Hit your ARR goal without bringing in more leads

Recently, a client shared that their quarterly goal for Marketing is securing 50 Sales Meetings / product demos. Not unreasonable… except that they target a certain industry within the US Fortune 500, and their TAM (Total Addressable Market) is only 150 companies. Getting meetings with a third of their entire audience in one quarter is incredibly ambitious / borderline crazy.

For a while, we brainstormed ways to hit this number. What if we increase the marketing budget and “throw money at the problem?” What if we try new demand generation tactics

The goal still seemed insurmountable. 

Then, we decided to tackle the challenge from another perspective. The meeting goal is just one variable in the formula laddering up to the top-line New ARR goal for the quarter (and the year). Sure, increasing the number of meetings is one way to hit the goal. But perhaps we stand a better chance if we pull one (or more) other levers?

The formula for New ARR is as follows:

Couple of notes: 

• In this post, we discuss only ARR from new business (new Closed-Won deals), not upsells and account expansion of existing customers, which are other ways to add new ARR.

• “A meeting” in this context is the first sales meeting – sometimes called “demo” or “discovery.” A Sales Opportunity (or Opp) has different definitions, but it’s essentially a later stage in the sales funnel. The names for these stages can also include terms like MQL / SQL / SAL – the name doesn’t matter, as the formula remains the same.

All the variables in the formula above are levers the marketing and sales teams can pull. Let’s see how we can improve each one. 

1. ACV (Annual contract value)

Early on, you may be able to increase your ACV relatively easily. The story about the first sales person who joins a startup and says “let’s double the price” and hits their goal for the year just by doing that is real. But later on, upping your ACV takes time and investment. It depends on competitive pricing, your position in the market, your feature set, and perceived budget for the category.

2. Win rate  = conversion from Opportunity to Closed-Won deal. 

Improving this figure should always be a goal for the Sales team, with support from the Marketing team. No shortcuts here: You have to invest time and resources in sales training, sales enablement material, and product improvements. Not to mention indirect activities like brand marketing and conferences.

3. Meeting to Opportunity conversion rate

We can write a whole post about opportunities in this area (stay tuned). In the meantime, here are a few ideas for improvements that Marketing and Sales can act on:

  • Process improvement and automation: Who’s doing what, and when? For example, if a prospect doesn’t show up to the meeting, who follows up to get another meeting? 
  • Better leads: Are Marketing and Sales aligned on the definition of a qualified lead? Do they hold regular feedback and debrief meetings? Is Marketing listening in on sales calls and recordings? 
  • Nailing the first meeting: Is your sales deck polished enough? Do you have a good first meeting / demo script?
  • Post-meeting follow up: What’s the process and timeline? Is your collateral good enough?

4. Number of meetings

Coming full circle, bringing in more meetings should always be top of mind for Marketing. If you’re looking for more inspiration in this area, check out our demand generation and content marketing crash courses.

So what did our client end up doing? We decided to focus on #3: increasing the conversion rate from meetings to opportunities. Working closely with Sales, we discovered that the first meeting was often held with prospects who were too junior to move the sale forward. We focused on arming them with more collateral, and trying to secure meetings with more senior prospects to begin with. It’s still too early for results, but we’re optimistic. 

Let’s see how the math plays out. Suppose the original goals were:

New ARR =ACV *Number of meetings *Meeting to Opp conversion rate *Win rate
$1M =$100K5060%33%

If we’re able to improve #3 – meeting to Opp conversion rate – from 60% to 70%, everything else being equal, we’re now on the hook for only 43 meetings (14% reduction!): 

New ARR =ACV *Number of meetings *Meeting to Opp conversion rate *Win rate
~$1M = $100K4370%33%

The bottom line

“More leads!” is all too often the rallying cry of Sales and Marketing teams. While we’re all for it, understanding the other levers that revenue teams can pull is just as important. What if instead of more leads, you can bring better leads? Or close more leads? Or make them pay more? All of these are viable paths to hitting your revenue and growth goals. 

Netta is the founder and CEO of Blue Seedling. She loves third wave coffee, thin crust pizza, and B2B marketing.

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