Marketing and sales team alignment is the mythical holy grail for most companies.
Good cooperation between these two can skyrocket your growth, while the opposite might turn out to be a dead-end for further scaling.
The truth is that most companies fail to get it right. Salespeople complain about the quality of leads they are getting. Marketing teams find it hard to accept that all those opportunities they worked so hard to create failed to close.
Sounds familiar? To boost marketing and sales cooperation, many companies use SLA agreements. The idea is to describe a set of rules aimed to streamline the collaboration between both teams.
Unfortunately, these also tend to fail mainly because the rules are overcomplicated. But even more often because they are focused on low-level goals, individual for each team. Instead of bonding teams, it creates more silos.
So is it possible to create a marketing and sales SLA that actually works?
How to form a marketing and sales SLA that works
The trick is to set your SLA up around one goal, which is mutual for everyone on both teams: the revenue.
Using our example in this article, we’ll show you not only how to see the exact way that we’ve created the SLA that’s the heartbeat of what we do, but you’ll also get access to the exact calculator that we created and use ourselves.
Lay the ground rules first
Before we jump into more complex calculations, let’s start with some basics. You need to remember a couple of things if you want your team members to stay committed.
Make sure it’s symmetrical
What people often get wrong about SLAs is that they focus too much on marketing and sales metrics which are not connected in any way. Usually, SLAs describe the number of leads that the marketing team needs to generate, lead quality, or quota salespeople need to reach.
But with this kind of approach, some things get lost in translation or forgotten about entirely. From the marketing side, it’s easy to get caught up in numbers. Lead demand, conversion rates – these are all metrics tracked by every company.
For the sales side, apart from the sales itself, it’s usually neglected. But to make the SLA symmetrical, you need to use qualitative metrics on the sales side as well.
You can try to define the sales process with numbers: time to first contact, the number of follow-ups, timing between each follow-up. These all determine the win likelihood and should be included in the SLA.
Reverse engineering is the key
How do you come up with the correct numbers? Start from the metric that is given – usually this is the sales quota – and work your way up the funnel.
You’ll need to know some basic funnel metrics (conversion rates on each step, average deal values, etc.). Even if you don’t know them now, you should be able to calculate them pretty easily.
What’s also super important to add here is to show them to the team once you have these numbers. It’s vital to be transparent in the whole process.
This transparency creates the feeling of working toward a common goal and creates a bond between everyone involved. All people working on the SLA must understand the plan entirely, including all metrics and where they come from.
Monitor your SLA daily/weekly
Once the SLA is ready, it should become the new heartbeat of your revenue generation activities. Track all parts of the SLA as often as you can. Include all people taking part in the process from both marketing and sales teams. It can become a quick 15-minute stand-up meeting scheduled every morning to kick off the day.
Sign the contract
An SLA is a contract. Like every other contract, to make it valid, it needs signatures of people involved. No exceptions. Try to run a kickoff meeting that involves a solid walk-through on all calculations. End it with a signature from each team member on a paper version of the SLA contract. This will help you create commitment and a feeling of importance.
Divide your sales quota
The first step is pretty straightforward. You have to divide your sales quota by revenue streams and customer retention.
If your company has one revenue stream, you can skip this part. But if your revenue structure is more complex, you have to do the math per each stream.
Why? Because the funnel performs differently for each stream.
Using one-size-fits-all values would be too inaccurate. Although we will use some average values, we need to try to be as precise as possible. So don’t be afraid to get more granular in your calculations.
What does “revenue streams” mean? For some companies, these might be the classic definition of different business units. But it can also mean customer segments divided by their scale.
If you work for both SMEs and Enterprises, it’s obvious your sales cycle is entirely different in each segment. Customer retention is another divider. An SLA focuses only on new customer acquisition, so we need to exclude sales retention of already acquired customers.
Try to work your way around retention metrics to end up with new customer revenue only.
Understand your funnel metrics
Like most companies, you’re probably testing out different lead generation strategies.
Lead generation forms, outbound prospecting, content downloads, demo bookings, live chat conversations, and incoming emails.
You’ve probably also been wondering if focusing on those best-performing activities would be the way to go. The truth is that a good and healthy lead gen mix will bring you the best results. The question is how do you make sure you’re on the right path to hit your quota with different lead types coming in? And this SLA is your answer.
Once you use different strategies, you should track their main metrics. These are usually:
- Conversion rates between different funnel stages (MQL to SQL, SQL to Opportunity, Opportunity to won deal)
- AOV (average order value / average deal value)
- Time to close
These metrics will differ depending on the lead type. Make sure to measure them separately so that we’ll be able to calculate exchange rates from one to the other later on.
Calculate the lead demand (marketing SLA)
Usually, the simplified version of your SLA leads to calculating how many leads salespeople need to reach the target. In other words, what do they need precisely from the marketing team? It’s time to run calculations.
To make it easier to understand, we’ll use some example values:
- Monthly quota (new business): $500,000
- MQL to SQL Conversion Rate (CR): 34%
- SQL to Opportunity CR: 82%
- Win-rate: 23%
- AOV: $2,000
To calculate the lead demand needed to cover the quota, we’ll start from the quota and move up the funnel:
- Number of deals you need to close: $500,000 / $2,000 = 250 deals
- Number opportunities needed to close 250 deals: 250 deals / 23% = ~1087 opportunities
- Number of SQLs needed to create 1087 opportunities: 1087 / 82% = 1326 SQLs
- Number of MQLs need to generate 1326 SQLs: 1326 / 34% = 3 900 MQLs
The first calculation is pretty simple. Without improving any funnel metrics, we would need 3900 MQLs to hit the quota.Now, let’s go a step further and put your marketing team on the revenue quota.
Divide your quota by the number of MQLs needed, and that’s it. In our example, we can say that every lead is worth $128. Now you can track both marketing and sales the same way and follow their quota achievement.
Make your calculations bulletproof
We’ve managed to calculate the basics. Now we need to take care of the funnel complexity. Many different aspects seem to complicate the situation. The reality is that we can quickly address most of them:
Take time to close into consideration
Of course, you need leads before the start of the cycle. Take that into consideration. If your average time to close is around one month, you need to offset the lead demand accordingly.
Calculate exchange rates for different lead types
Of course, the example we used was a simplified version with one lead type. If you have more, the best way is to repeat the math per every lead type. You will end up with different values for different lead types. The easiest way to track your progress is to use the revenue quota on marketing described in the point above.
Let’s say we generate leads through a website form and outbound prospecting. Of course, they will come with different funnel metrics.
This comparison shows that to hit the $500k quota, we would need either 3,900 website form leads or 2,661 leads generated through outbound prospecting. Once again, you should mix these lead generation strategies.
The best way to track your current progress is by calculating your current result with lead values (WL = number of website leads, OL = number of outbound leads):
Current lead result = (WL x $128) + (OL x $187)
Create at least a 12-month plan
For best results, it’s good to create a plan for a more extended period.
It’s hard to be that precise in lead generation, so it’s normal to have +/- 10% over-or under-delivery within a month. Keep in mind that constant lead over-delivery is dangerous in the long term.
The sales quota is usually set, taking into account your current salesforce headcount. If you bury them with leads, it will surely be reflected in the level of service and eventually will lead to drops in conversion rates and win rates.
Adjust metrics regularly
Even if you’re very precise with delivering the right amount of leads, main funnel metrics will change in time. There are so many factors that can influence it that it’s inevitable: improving the sales process, current market situation, changing pre-sales activities, and more.
Make sure to track these changes and adjust your SLA accordingly. It’s also a good idea to include improvements as objectives for different teams (for example, quarterly or yearly OKRs).
The fewer leads you need to hit the quota, the better. Burning fewer leads on the way will always be an upside in terms of sales and marketing efficiency. Update funnel metrics in your SLA at least once per quarter.
Set up the perfect sales process
At this point, we’re pretty much done with the marketing side of the SLA. Many companies finish at this stage, but in fact, it’s a huge (and the most common) mistake.
If you want your SLA to become the company’s heartbeat, you need to set your expectations on both sides of the equation. The marketing team also needs to be sure that their lead generation efforts are well taken care of once they’re done with their part. This means that you have to describe the sales process in your SLA.
This part is a little bit more flexible than the others. You have to consider what’s influencing your win rate and then set the process around metrics, which can either keep it on the current level or enable uplifts in the mid- and long-term.
This could be:
- Time to first contact (the sooner salespeople contact leads, the higher chance of a close)
- The number of effective follow-ups (the optimal amount of follow-ups can be magic, e.g. three effective contacts within the first two weeks, five within the first four weeks, seven within eight weeks)
- Sales process described in steps (this is hard to attach to a metric, but it’s good to explain the details of your sales process to everyone involved)
- Win-rate (this is the result of your process)
It’s easy to set the rules, a little bit harder to control them. I recommend setting up proper reporting once you’re kicking off your SLA.
Make a big deal out of it
We already know what the marketing needs to do and how sales should proceed. What we need to do now is some finishing moves. This might seem a little bit too much, but write all this down and sign a formal contract between everyone involved.
Why? Because it makes it feel like something important that everyone understands, agrees, and commits to deliver. It creates a sense of a common goal and bonds both teams together. Of course, it’s not obligatory, but making a small scene out of it will push everyone over the edge when it’s needed to fulfill their part of the contract.
Take improvement into consideration. You want to set your expectations on funnel metric improvement right from the beginning, which you should include in the agreement. Of course, don’t try to push people’s limits here.
Set ambitious yet achievable goals on conversion rates and win rates. You can achieve this by going further on the learning curve – perfecting the sales process and generating better quality leads over time.
Every business is different so that it might require some minor tweaks, but this step-by-step plan will make it work from day one. To make it easier, we’ve included a calculator to help you get your numbers right.