(upbeat music) (upbeat music) - Hi there, my name is
Jacco van der Kooij. I'm the founder and co-CEO
of Winning by Design. (upbeat music) And today I'm going to share
review, the mathematical model. (upbeat music) We're going to see that sales and customer success, and marketing are really based on an
exponential and compound model and how this impacts every
part of the business. (upbeat music) So let's get going, let's take a closer look and let's learn that we can
look at sales, marketing, and customer success, from
a scientific perspective. Now, historically what you
have seen me talk about is a series of models and currently, as we are
talking about early January we are seeing that these four models are currently available already describe the videos on our YouTube channel which you can find at
youtube.com/winningbydesign. What we're going to talk about today is the mathematical model and that model is based on the data model. So you've really, if
you haven't seen that, you're better best off to
watch that video first, otherwise, you may have a
few questions here and there. You may not exactly
know what has happened. Now, what I hope is that so far, you have enjoyed what we
have already shared with you. I do not know what you think about it. (audience applauding) Okay, I see you like it. So let's go a little bit
further into that, okay? Yeah, so what are we going to talk about and what this is based
on is the data model. Now in this data model, you're going to see that there's essentially
three specific metrics. Volume metrics down here
measured by M1 to M8. Time metrics, Delta T
and conversion rates. We named these with mnemonics, in other words for short letters, because in many companies and
in many different businesses, they use different things. Sometimes they call it MQL, sometimes it's called
lead ,prospect, SQL, SEL. They have all kinds of terms for it. So you're going to see
that in the data model we have created a uniform data model as long as we know what they're based on. Now, what I'm going to do next, I'm going to share with you how the mathematics apply to that. In this case, we're going
to look first and foremost at volume metrics. What we see that volume metrics are generally based on adding things up. For example, how many MQLs did the marketing department generate? How many leads did the
marketing department generate? How many logos were won by sales? How many customers were
onboarded by the CS team? How much revenue did we make? And so on and so forth. These are referred to as volume metrics and they often involve the
arithmetic of adding up. We also have conversion metric, think of metrics such
as win rate or churn. These involve the
arithmetic of multiplying often by a percentage, for example, a 30% win rate means from
the qualified opportunities 30% converted into a commit or churn can indicate we lost X percent of our clients this month,
this year and so on. Day and month, they use an
arithmetic of multiplication. What you'll see that the
multiplication arithmetic often really well applies
to securing a deal. But we must note that most
of these multiplication are based on what we refer to in industry as an open loop system. Meaning, if I want to have
more coming out of that system, I gotta improve either the performance or increase more on the input. This is open loop. Open loop as you may have
seen me explain before is when you program a car, and you say I need to
drive 65 miles an hour and a car keeps driving
until it hits something, that's open loop. Closed loop means that the
radar indicates something an object is coming up and it originally starts
advising you to slow down but the essentially can
overrule it and slow down. It uses the radar as an
indicator of distance, that is a closed loop system. Today, most organizations
operate on an open loop system while the closed loop is only created through a form of human closing the loop, for example, voice of
the customer programs, you know, learning, you know, NPS score, how much do the client really want? And so on and so forth. However, for us to make
the right decisions in our business, we really need to learn and understand what is the true arithmetic that we're based on? What are the mathematical
models that are based on that arithmetic and what is the impact? What I'm going to do is that I'm going to use some visual charts
in order to explain this. As early on in my life, I was taught math through visual model, I still love that. Desmos.com is a place where
you can find a calculator and where you can draw
a chart for those of you who are interested in. Looking upon this graph chart, I'm first gonna indicate
to you what is adding up. In this case, y equals x plus
N, indicates if x equals zero and I'm, add five stuff,
this line will go up. It's a linear line that is going up. For example, this applies to
when you have a setup fee. The set up fee with $10,000
has only a one-time impact, it's a form of adding up. Here's a mathematical line
of X, of Y equaling X. In this case, what are
the approximates Y equals about half X. You create a linear persistent line, so the further I go to the right, I can calculate what my Y
is because N is constant. If you going to see what
X to the power of N is, Y equals now X to the power of N, you're going to see that
that graph is gonna create, that line is gonna create
an exponential curve and that is what I'm interested in. What we notice is that if
you're starting multiplying, multiple times our conversion rate, we essentially established
that exponential rate, let me explain. Here we have an exponential graph, what we notice, and
then what the nature is of an exponential graph, is the further I go to the right, the more disproportionate
the impact becomes. In this case, I create a
delta, yo A and let's say that the delta A of rom block, let's say that that is a six month period. So we are right now, let's see the first three
blocks we are recovered. So at this point in time,
we may kind of assume that you know, like somewhere
down here, we're at 18 months and this is a six month window, which you're now going to see
is as I increased that Delta, I'm gonna add six more months, not only does it create again B but it creates a bigger impact. Six months in this case
from 18 to 24 months and from 24 to what seems
to be about 30 months that has a bigger impact than earlier. I go even further and what
I see is if once again, I increase by six months, my impact is even more disproportionate. It goes even further, that creates an ID that there's a disproportionate impact that the exponential curve has. Comparing this to a linear model, a linear model doesn't have that. A linear model has the same
impact if I keep moving forward. Now let's apply that and figure out how does that impact sales? If I look at sales and I
look at the bow tie model, only the part that applies to sales that I see that for many what
happens into that specific box into that specific sales
box is pure art or mystery. What I'm going to depict
is that in many cases, we are calculating what the win rate is simply by dividing the number of wins by the amount of leads or opportunities, whatever you may call it, that creates a linear function. A linear function that has two variables. How many wins did I
get, or how much revenue and how many leads did generate? Did I need another or a
number of opportunities. Divide these two and I get
a percentage often like 30%, 20%, 25%. These two variables, how
many leads and how many wins are often also the most
discussed in the boardroom. How many logos they will win? How much new revenue they were secure? How many MQLs were generated
by the marketing department? In a linear model, What we have to realize if I wanna generate twice as much output, I have to generate twice as much input. Hack, look at that, that mystery box in order
to get twice as much because of that function
that I just depicted, I need twice as much on the input. You often hear this in
lingo When for example, in the world of sales, a person may say, a sales leader may say, I need to give my team more advice or and so on and so forth,
or another way is like, I need more shots on goal. Now what you'll see down
here by considering it being a linear function that
may absolute make sense, right? Not only am I adding up more MQL, now I need more shots on goal. I need a multiplying. Hey give me twice as many shots on goal. I'm gonna get twice as my new results. This is the reason shots on goal whether it's your puck related,
the soccer related at bat. This is the terminology. Now, what we are going to look
if I zoom back a little bit, roop, roop, roop, I'll go back, I wanna go back to this spot and at this spot, I am saying is like, "Hey what actually
happens inside that box?" Am no longer Looking
at the excellent part, I'm looking at what's going
in, what's happening internal. What you'll see internally, it is often a function and a product of number of emails, phone
calls, social engagements, a calendar of meetings
and so on and so forth. If you look at that and
I just simply take a look at the meetings to call on the meetings then the win rate is essentially
the product of everyone. Every time I keep multiplying, right? So, first meeting has been successful. Let's say 90% of the time then
I moved to the next meeting. Oh, 70% of that next meeting and so on and the win rate simply is multiplying the success rate of each
of these calendar meetings that you have and often we kind of like know
how many calendar meetings a particular deal needs to take, for example, we know enterprise
a hundred thousand dollars plus deals need an excess
of 10 to 12 meetings, whereas SMB higher velocity deals need a little bit of shorter. If I take that formula and I say like so the win rate equates to
every conversion rate of every meeting and
multiplied to the next one and the next one and the next one. If I now assume that the
conversion rate per meeting it's kind of like the
same that the true nature of the mathematical formula
starts to become clear to me because if each conversion
rate is approximately the same per meeting,
then the win rate equates to the conversion rate
per meeting to the power of the amount of meetings I'm having and that unveils that the
mathematical relationship of sales is not linear
but it's exponential and as a result, we are going
to be able to reap the rewards of that exponential curve,
disproportionate impact. The impact of gaining commitment is an exponential relationship
If you're effectiveness in your efficiency. I'm gonna demonstrate that
if I take that win rate and I use the inverse which
is I'm taking the root of then in order to calculate
how many conversion rates, what the conversion rate per meeting on average is I need to
have across a sale cycle, I can learn something
really, really amazing. In this case, I'm gonna
depict that is going to take on average and enterprise
close 12 meetings, an enterprise commit is gonna take me approximately 12 meetings and on that, in this case, I assume a win
rate of 28 and a half percent, that means that an enterprise deal therefore takes 90% conversion
success rate per meeting to be successful. Now, let me compare this to SMB. In SMBs, we see that the win rate is reasonably amount lower. Why is that? As the price average sales
price of a deal goes down, more unqualified buyers are
getting into the process. High dollar deals often
require your company approval before you go start entering
the sale cycle process, the buying cycle process and
so if you're buying $250,000, your company often first
require you to have budget, therefore you're automatically
a more qualified buyer. As the dollar value drops
let's say to $10,000, you see there's more dis unqualified buyer and as a result, we're going
to see that win rate drop to about 20%. That still means that the average meetings are still gonna be about
five meetings to close, you just disqualify faster. You need to disqualify faster,
however, what you'll see now where I calculated that 12 meetings, we have an approximate
one-third win rate required. 90% success rate for meeting for an SMB that means I have to have
on average a 72% win rate across five meetings and
that is a very different kind of sale. That's the reason why SMB
sales often higher velocity and have a different profile
and why it is so hard for an SMB rep to step up
to become an enterprise rep, it gives you an explanation of that. If I go back to that win rate which is a function of a
conversion rate per meeting to the power of number of
meetings, what I'm going to see that if I take that 90%
and due to the reverse, you're gonna get the 28
and a half percent right? Now look what happens whenever deuce from 12 meetings through 11 meetings. Look what happens, what
we're noticing is the impact of fewer meetings that
our win rate goes up. I know you may say Jacco is not that easy to reduce the amount of meetings, let that be for another day, in some of the other videos we
explain how you can do that. All I'm proving down here
is the mathematical impact of reducing the amount of
meetings and what it has, Next what I'm going to see is what the mathematical inbox is if I increase the win rate, look at that. I'm upping the win rate
from 90%, for sorry, from 28 and a half percent close to 37%, simply by improving the performance to success rate per meeting. If I do both at the
same time, look at that. I am now improving the win rate and I'm reducing the meeting. Combined this gives me a 40% win rate. Again, is this realistic
with this happen overnight? Not per se, we would reduce the meeting from 12 meetings to
let's say 11.5 or 11.6. All I'm saying is marginal
gain has huge impact and this is because it is based
on an exponential function. That explains why the
execution of a process that has proven actions is so important because there's a
mathematical relationship. Let's summarize this, okay? When we look historically at sales, we've always thought it
was a linear function. However, what we see what
happened from the outside of the box, what we see
when we look inside the box, we see it actually has
an exponential function. A linear function means
that in order for me to get twice as many wins,
I need twice as many leads. However, as we see, since it's based on an exponential function,
we know that in order to create twice as many wins, we can also improve 15%
improvement five actionized, if we improve five meetings each by a small percentage of 15%, it will give us two extra sales and when I say 15% improvement, I mean if you go on
average, let's say from, normally we convert a meeting
or we convert something at 20%, a 50% improvement
means we now converting at 23%. That is a 50% improvement,
not a 50% percent point. This even is more so when
we look at customer success, when we look at customer
success, we have to think, will this system
constantly be exponential? And the truth is it is not because we do have outside of sales and inside customer success, we see a closed loop system. This is the very nature of SAS. If you achieve the impact
that the client wants, they are coming and they're
gonna keep buying from you. Recurring impact results
and recurring revenue and if you make small
improvements month after month after month, this has a huge
impact, we call that compound and this is because the
impact of previous months has an impact on the next month whereas with sales, once
the deal is committed, there is no like further thing happening, the deal is committed. Customer success, however,
it keeps making an impact. Now, what I'm going to do is I'm going to share, to visualize the
impact in the compound domain. Exponential, If I only compounded once, in this case I'm only going to do it once like gaining the original commitment, you know like it is the exact
same thing as exponential. However, if I keep renewing
and renewing month after month, year after year, you're
going to see that essentially that curve start to create
an even steeper curve, it becomes steeper and
steeper and that points out that the extending of a
customer lifetime value by two to three months has
a disproportionate impact as I earlier explained into the future. This is super important because
it shows that the impact of delivering the impact
actually gave your renewal again and again and again
gives us an immense amount of impact. Now, what I wanna demonstrate is, is how does what you see a
common practical scenario, we see down here, magazine
manager of a CSD, Meg is being asked to cut costs. So I'm going to show
what would happen if Meg in this case reduces to
headcount by one person, you know, let's say that
the headcount is $80,000. What would do you think would
be the impact on Meg's budget? What would happen? What I'm going to show you is the impact it has on a business. For starters, when Meg started, she managed let's say 20
accounts and let's say that those 20 accounts were
really big accounts on average, whatever that ends up
being and the revenue that mag really got from
that was $6.1 million. The revenue keeps growing
and Meg eventually at some point in time hired a new person. We'll call that person Jacob, and Jacob you know, together
with Jacob over a year, one, Jacob wasn't able to ramp up. Meg and Jacob together
were doing 35 accounts and as a result, they
brought in $10.7 million. Now Meg was unfortunate and
so she had to let go of Jacob, Jacob, you know like handwork
was fired in this case and Meg was tasked to make sure that same headcount now
delivered the same revenue because you know, like how
much good it impact, right? And so the question now is
how much would firing Jacob you know, a year or two years
later impact the revenue. What you going to see is horizontally, I'm going to depict right now what it takes in order for
Meg to increase that revenue. So down here, you're going to
see the accounts go up over. Now, you're going to see
the churn was impacted, the upsell nature, the amount of periods, everything is going to be impacted, We're not just gonna compound one factor, there's multiple things
are going to happen. So we're going to increase,
Meg is now going to increase and originally she was
managing 20 accounts, Meg is now going to increase
and she's now personally asked to manage 35 accounts. What is going to happen? What is going to happen is logically because Meg has less time per client. The churn, the losing of the
account is going to increase and I simply improved it, you know, made this go up by
one percentage point, right? Oh my gosh, more accounts, Meg has less, fewer lesser time to spend on it. We're going to see that
the upsell opportunity because Meg really doesn't have
time to spend with clients. So that is going to
reduce and on top of that, yo Meg is gonna churn
faster so the lifetime value of a client is going to reduce. Again, I just hear what
you're see down here is I reduced it by months
and months and months. What you're going to see
because of the compound nature, the lifetime value of
that client is significant and if I then multiply that
by the amount of accounts, you're gonna see an even bigger impact. Now, understanding how
compound impact work, you'd often have to type
in this particular formula. You can say in Excel's or in Google sheets or X times Y, you have to use a function and this function is
referred to as future value. What you'll see if you
type in this function, it says it shows that
the future value a.k.a the lifetime value of a client is based on these multiple factors. That calculates out to
have a significant impact on the revenue. What you are going to
see down here is that as Meg nearly doubled the accounts that you asked to cover for, she went from managing 20 accounts to personally managing
35 accounts that due to the compound impact,
it hardly had an impact on the revenue. She forgone with all that the upsell and the length accentuation
of the contracts that is significant. That shows you that Meg
didn't save $80,000 per year but by her cutting that headcount, she actually reduced in
this mathematical example the revenue by $3.95 million and that points to us
that what is the impact on the budget a.k.a 4 million
something close to $4 million. Meg did not know that, the
company did not know that, they didn't think about
the compound impact. Again, they weren't thinking about it in a linear perspective. Hey, two people bring in $20 million, how much will Meg really lose? But when you start seeing
all these little things that they're impacting,
I'm gonna go even further and give you an explanation why that is. If you look at customer success, we see that customer success
is based on a compound formula. What we see is that the
small improvement here in churn and upsell to the
power of high repetition, for example, monthly contracts, we're talking about 24, 36,
48 kind of repetitions, right? That has a huge impact
on the lifetime value which is where most of
the profit comes from. What we see is that sales
genuinely operates predominantly in the exponential domain whereas the compound
impact really takes place in the customer success
department, think of that. If I now look at that formula, what created at lifetime value, I'm going to see that sale's
exponential Impact is felt in one super important variable,
make that variable zero and everything else doesn't matter but also that customer
success has a huge impact on the three super
valuable factors in this. Some people may refer upsells
and put that back into sales, we got that but the idea
down here is that it works on a compound impact which
is often not something that sales is very familiar with and therefore they may take, you know, different kinds of actions. I certainly hope that with this, I have given you great
insights on what we can do and how you can apply this and I'm looking forward
at some point in time that you find a way to
apply this in your world because thinking about sales
from a scientific perspective has a such a bigger
impact on your business and with that, I wanna say
and thank you very much for attending, I really appreciate it. I wanna let you know that
there are several more of these models coming out, that you can find them on YouTube and hope that you enjoy these process. Thank you again, please
subscribe to the channel by clicking on subscribe
and with that said, I'm gonna let you go. Thank you for having
spending the time with me. ♪ Where do we go from ♪ ♪ Here ♪ ♪ No one can save us ♪ ♪ Save us from keeping clean ♪ ♪ I don't wanna lose you ♪ ♪ I don't wanna lose you now ♪ ♪ 'Cause there's only one thing ♪ ♪ Only one thing on my mind ♪ ♪ Hey, hey, hey ♪
