Mock Scenario Comparison - $0-$1.5MM in 12 Months using Outbound Prospecting
about 1 month ago
In this article I’ll be simulating 2 scenarios; scenario A being a $10k B2B SaaS offer, marketing using low-volume outbound prospecting, while not having a set of strong marketing and sales assets or content. This is a common scenario for many entrepreneurs and founders who are attempting to validate their offer, but they are not well-versed in marketing or sales.
Scenario B will outline the same type of offer, while marketing using outbound prospecting at a higher volume with SDRs, and with high-converting assets in place to communicate the core argument to prospects.
The goal of this comparison is to clearly map out the impact of having strong marketing and sales assets along with a high volume of quality outbound prospecting.
If you refer to the model linked above, you will find the full breakdown of inputs that I have provided the modeling tool with.
The screenshot below shows the inputs related to sales and marketing. You can see that this offer is simulated using the founder(s) as the main salespeople, thus the cost to sell (salesperson commission) is 0%.
The sales cycle is set at 60 days, a common length of time for entrepreneurs with underdeveloped sales skills at this ticket price.
As mentioned above, we are focussing solely on outbound prospecting in this comparison, due to the fact that it plays a crucial role in validating marketing messages and offers early on.
This model maps out a scenario in which we have 2 co-founders doing outbound prospecting, sending 20 emails per day for 25 days per month.
The scenario also assumes that there are not strong marketing assets in place such as a sales letter, VSL, or well-built funnel. As a result, the outbound contact to lead conversion rate is set at 0.5%, and the lead to customer conversion rate is set at 4%.
In reference to the above figure, one is able to see that this business, in its current state, is not profitable, consuming almost $1.5MM in cash.
This projection lets us know that this business model and current operations do not work, the model breaks, even if one were to raise the $1.5MM in cash, they would never accrue profits.
The reason being is that the monthly free cash flow is constantly trending below the x-axis, thus indicating negative cash flow.
Why does this model break? There are a few key metrics to look at here (for the sake of this comparison we are not addressing ticket price or time to collect, these will remain constant.) such as - Time to Sell, Number of Contacts per Month, Number of SDR’s, Outbound Contact to Lead Conversion Rate, Lead to Customer Conversion Rate.
If you refer to the Scenario B model below, you can see the adjustments which were made to the outbound sales and marketing inputs.
You can see in the figure above, that with these adjustments, the business becomes profitable after the first 30 days, while only burning $55k in cash.
The market cap increased from -$3.8MM to $40MM, the share price increased from -$3.76 to $40.90, cash consumption decreased from $1.5MM to $55k, and profit per customer per month increased from $1.5k to $1.95k.
The figure above outlines the changes which were made to the relevant inputs - time to sell was taken from 60 days to 14 days, total contacts per month per SDR was taken from 500 to 2500, outbound contact to lead conversion rate was taken from 0.5% to 2%, and lead to customer conversion rate was taken from 4% to 8%.
This model also assumes that a small SDR team of 5 people was built, with each receiving a $3k monthly base salary.
These adjustments to the outbound marketing activities have resulted in a positive Monthly Free Cash Flow curve, which indicates the importance of having strong efforts in this field.
Of course, we cannot just assume that a business can magically improve their efforts here, there needs to be action taken towards building this skillset, and implementing strong content in the form of a sales letter, and a high-converting funnel.
The sales letter and sales argument is a compelling set of reasons as to why a customer should work with you, communicated in a way that the prospect can appreciate and easily consume. This is what we are communicating throughout our marketing funnel.
The way to increase the volume of contacts per SDR per month is to have a detailed workflow in place and an organized CRM system such that the reps can operate efficiently and at such high volume, certain automation tools can also be useful here.
In order to increase the outbound contact to lead conversion rate, there must be a high level of resonance within the outbound emails or LinkedIn messages. This is achieved through foundational copywriting and research on the market. Once one has enough information about their target customer segment, it is possible to derive strong claims that will compel prospects to take action and book a call.
WIth respect to the time to sell, and the lead to customer conversion rate, one can improve these metrics through salesmanship. Once the offer is validated and a detailed sales process is in place, one must continue to develop their sales acumen such that they are able to close deals at a high rate and in a shorter period of time.