Posted by Marty Dickinson on Feb 16, 2010
How many sales do you need to make the amount of money you want to have in a year? As simple as this question might be, I’ve found very few people actually have this number in the top of their minds.
If you want to take home $500,000 over the next 12 months, you either need one big sale at the end of the year, or an average of $42,000 each month, right? Of course, that’s figuring you have no costs involved.
Once you do have costs to add to the equation, the calculation gets more complicated. And, costs can fluctuate from month to month. Now managing that almost sounds too much like work, doesn’t it?
Y’know, there are a few things that I consider myself to be at least semi-skilled at doing…but accounting is not one of them! So, I’m not even going to suggest how to come up with a formula for calculating required sales to generate $500,000 net profit, by subtracting fixed and variable costs.
No, I have an accounting system to do that for me.
What I will say is that it will take more than monitoring leads to get to your number of sales needed for your desired income level. Here is a short sequence to demonstrate what I’m talking about.
1. Determine your sales goal. Let’s say you want to make $100,000 in sales next month.
2. Calculate your current conversion rates. For this example, let’s just keep it easy and say the only way you get leads and sales is through your website.
Now let’s say that for every 1000 visitors, you “convert” 2.5 of those visitors to leads. That’s a .25% conversion rate. Let’s also say you are a master seller and convert every lead that comes to you into a sale. Good job! You’re a sales machine! Again, we’re just trying to make the calculation easier for the example.
3. Use this formula to figure out how many visitors you would need to your website to acquire enough leads to get the sales you want.
(Desired Sales / Sale Price / Conversion Rate) X 100
Now, let me explain that…
The / marks signify “division,” so you have to remember your old math here and do all your divisions first and then multiply X 100.
So, if I want $100,000 in sales and my sale price is, say a $20 ebook, and I only have a conversion rate of a measly .25%, my formula would look like this:
(100,000 / 20 / .25) X 100 = 2,000,000 Visitors Needed to achieve $100,000 in sales
Now, there are only a few things you can change about this fact. You can change your price. You can change your visitation or you can change your conversion rate. In your situation, what would be easiest to change?
For most people, it’s the conversion rate. If you test a bit, it’s actually quite easy to bring a .25% conversion rate into the 1.5% or even 2% range.
Let’s look at the difference using the formula:
(100,000 / 20 / 2) X 100 = 250,000 visitors.
That’s a huge difference my friend!
Now let’s say that simple ebook is raised in price to $47. Quite possibly your conversion rate will stay the same or even go up. It’s not unusual! So, let’s continue with the example and just say:
(100,000 / 47 / 2) X 100 = 106,383
You can hopefully see how important it is to start playing with numbers when planning for the coming months and year of your business. Of course this calculation can be expanded to include suspects, prospects, leads, and sales, but I just wanted to keep this example easy.
We’re only part way through the seven though, so stay tuned until next time where I’ll reveal the third number to watch in your business.
The key to knowing how many sales you will get is knowing how many leads you need.
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