Tuesday Marketing Notes (Number 105—December 11th, 2007)


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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. 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. 

If you follow up with 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 the 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 its fullest share of the marketplace 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

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. It can be a condition of employment.

James Obermayer is CEO of the Sales Lead Management Association  www.salesleadmgmtassn.com and is also a principal with Sales Leakage Consulting. Obermayer is a thought leader who has authored three published books and over 80 articles in the business press.
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