Sales and Sales Management Blog

March 18, 2008

Guest Article: “The Rule of 45: Predicting Sales Results From Inquiries,” by James Obermayer


The Rule of 45: Predicting Sales Results From Inquiries
by James Obermayer

The Rule of 45 is the basic measurement premise from which you can measure the effectiveness of virtually all lead generation programs. It is a steady, reliable rule which simply says that 45% of all inquiries (not just qualified sales leads), will buy from someone. The timeframe for this purchase is usually, but not always within 12 months. The percent that buys in three months is between 10%-15% and the percent that buys in six months is 26%.

If you follow-up 100% of the inquiries, the biggest variable in this formula is the time needed to reach the 45% threshold. Every product has a typical average time frame for the majority of the interested parties to make a decision. For consumer products this could be a few months, for B2B products the Rule of 45 is completed within 12 months.

On average the following rules apply:

  • Within 3 months 10%-15% of business to business prospects will buy someone’s product.
  • Within 6 months, 26% will buy someone’s product.
  • Within one year 45% will buy someone’s product.

While time is a pacing item, the most influential issue for a company to attain it’s fullest share of the market place is the follow-up by the salesperson. Follow-up only 25% (a consistent number I hear from many companies), and you’ll only compete in 25% of the available deals.

How important is this variable? The following example shows what happens when sales follow-up dips to 25%. First, let’s look at the potential in a group of 1000 inquiries if follow-up is 100%.

  • 1000 Inquiries X 45%% = 450 potential buyers
  • X Follow-up of 100% and you still have 450 buyers
  • X 25% market share = 112 buyers
  • X ASP (average sales price) of $10,000 = $1,120,000 in sales

Reduce the follow-up to 25% and this is the result:

1000 inquiries, x 45% x 25% Follow-up X 25% X $10,000 = $280,000

Your own market share is projected as a percent of the buyers. I have been involved in over 100 Did You Buy Studies on a variety of products, and the Rule of 45 is consistent.

Pretty brutal isn’t it. Spend 2%-20% of yearly revenue on marketing and because of poor follow-up your sales will be 25% of what could have been. This calls for a mandate from sales management: 100% Sales inquiry follow-up is part of every salesperson’s job description. At some companies, this is a condition of employment.

Copyright 2008, James Obermayer. Published with permission.

James W. Obermayer is a principal in Sales Leakage Consulting, Inc., an Orange County, California based sales and marketing strategy consulting firm and a principal of Cerius Consulting. He specializes in helping small to medium-size companies identify sales and marketing leakage issues that stifle sales growth and waste valuable marketing dollars. Aside from consulting, his career has been equally divided between sales and marketing positions in business-to-business corporations. In addition, Obermayer is the author of “Managing Sales Leads, Turning Cold Prospects into Hot Customers” and “Sales & Marketing 365”, and co-author of “Managing Sales Leads, How to Turn Every Prospect into a Customer.” Visit his company’s website at http://www.salesleakage.com

Paul McCord of the Sales and Sales Management Blog may be reached at pmccord@mccordandassociates.com

Advertisements

Leave a Comment »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: