Funnel maths for a small business on the back of an envelope

5 days ago
3 min read

Updated: 2 days ago

Introduction

A funnel becomes useful the moment it can be run backwards. Instead of describing what happened, it answers the question every owner actually has: to earn what I need next year, how many enquiries do I need this month, and can I generate that many at a price I can afford?

The arithmetic is four lines long and requires no tools. What makes it valuable is not its sophistication but that it converts a vague ambition into a countable monthly target and, frequently, into the discovery that the target is not reachable — which is far better established in advance than in October.

1. Funnel maths for a small business runs backwards from the target

The direction that produces decisions.

Start with the revenue you need, divide by average order value to get orders, then divide by each stage conversion rate in turn until you reach enquiries. That final number is your actual monthly objective.

2. Use your real average order value

Not the one you would like.

The mean of your last fifty invoices, including the small ones. Using an aspirational figure understates the volume you need by exactly the amount you are being optimistic, which is usually a lot.

3. Use your real conversion rates

Same discipline.

Measured from the last ninety days, not remembered. Owners typically overestimate their close rate by ten to twenty points, and a twenty-point error at two stages compounds into needing twice the enquiries.

4. Check the answer against what you have ever achieved

The sanity test.

If the arithmetic says you need three hundred enquiries a month and your best month ever was ninety, the plan is not a plan. Either the target changes, the conversion rates have to improve, or the average order value does.

5. Improving a rate beats increasing volume

Where the leverage is.

Raising quote-to-order from twenty-five per cent to thirty-five reduces the enquiries needed by nearly a third, at no acquisition cost. Run the numbers both ways and the cheaper route is usually obvious.

6. Put a cost against each route

The comparison that decides.

What would it cost to generate the extra enquiries, and what would it cost to raise the conversion rate? Both are real projects with real costs, and the maths makes them comparable rather than a matter of preference.

7. Include the lag

The timing correction.

If your sale takes three months, the enquiries needed for a target in June have to arrive in March. Funnel maths without the lag produces a plan that is right in quantity and three months late.

8. Check the answer against your capacity

The constraint on the other side.

If the volume you need exceeds what you can deliver, generating it wastes money and produces bad service. The maths should be run against delivery capacity as well as against the revenue target.

9. Redo it quarterly with actual rates

The maintenance.

Conversion rates and order values drift. A model built on last year's numbers gradually stops describing the business, and the drift is invisible because the arithmetic still works.

Be careful about treating the rates as fixed properties. They vary by source, by season and by the mix of work you are quoting, and a single blended rate can hide a channel that converts at half the average.

Conclusion

Run the model backwards from the revenue you need, because that is the version that produces a monthly target.

Use the real average order value from your last fifty invoices and the real conversion rates from the last ninety days, test the resulting enquiry requirement against your best month ever, compare the cost of raising a conversion rate against the cost of generating more volume, build in the lag between enquiry and revenue, check the answer against your delivery capacity, and rerun it every quarter with current numbers.