The Critical Components of Service Level Agreements (And How To Build Your Own)
Sales and Marketing weren't designed to communicate.
In many organizations, you'll often see a back-and-forth, "he said, she said" form of arguments between the two departments.
And while this feud is well-known across nearly all industries, few are actively trying to bring peace within their organization. It appears they're satisfied with lowered efficiency, poorly managed leads, and a lack of communication. But, if the company is making money, why get involved in this forever-war?
Well, what if I told you that if you could get Sales and Marketing aligned, your close rate could skyrocket?
Well, you may want your teams to shake hands, because with the proper execution of one agreement, massive results could be yours.
Creating Your Own Service Level Agreements
An internal service level agreement (SLA) is a powerful accountability tool that identifies the responsibilities of Sales and Marketing in the sales process. An SLA will include:
A breakdown of conversion rates
A lead value structure
An SLA statement
A feedback loop
But while SLAs are important, they're only effective if your team understands a simple philosophy.
The issue many companies have is that they see Sales and Marketing as separate entities, working towards different goals. And while both are critical to the success of your company, if you want massive, abundant growth, you need to acknowledge one fact:
Marketing works for Sales.
While this isn't some carte blanche for Sales to start running the show, it's important. Sales closes deals. In B2B, no one looks at a marketing asset and throws their money at the computer monitor. Customers collect all the information they need from Marketing and then go to Sales to talk business.
The sooner your company can acknowledge this fact and focus on sales enablement, the faster you'll see your revenue climb.
It's not easy to handle a philosophical transition like that, but with the right processes, on the right platform, it becomes a whole lot easier. That's one of the reasons we provide all three—Platform, Process, and Performance—within our Sales System. It completes the sales triad and delivers results you could only hope to achieve without a streamlined system.
1. Identify Your Goals
It's quite difficult to achieve goals if you don't know where you're headed. But more often than not, there's no lack of goals within a business. In fact, there's normally too many.
It's not uncommon for every team, inside every department, to have goals they want to hit. The issue is how those goals are nested with yours.
If each department's goals don't drive your company closer to reaching the organization's primary goal, then they're actually detracting from your success.
For example, your Marketing department is probably very interested in how many views your website is receiving. Does this actually drive sales, though? What they should really care about are marketing qualified leads (MQL). If 10,000 visitors reach your site, but none are marketing qualified, nothing happens to your sales numbers.
To ensure everyone is on the right track with your goal setting, it starts with you setting an overarching goal for what the company needs to achieve. More specifically, you're setting a revenue goal, something that's tangible, and everyone understands.
If you're looking to increase revenue enough that you can double your marketing team, figure out how much you'd need to make, set the goal, and share that reasoning with the company. Expressing why you're trying to achieve a goal makes it easier to get everyone on board. Departments should be encouraged to create goals that align with the bigger picture.
Goals should be challenging yet achievable. If they're set too high, your team could feel overwhelmed by the workload. Set too low, and they may lose the motivation that provides focus. Your goals should be continuously refined as you achieve or fail to meet them.
2. Breakdown the Numbers
Once you have a goal, you're able to then breakdown the numbers for how to achieve it. This requires your previous year's metrics, broken into quarters.
The specific information you need is:
From there, you need to do some simple math to figure out your conversion rates. The information critical to your SLA creation are ratios for leads-to-opportunities, opportunities-to-customers, and the average deal size.
Knowing your average conversion rates illustrates how many total leads you'll need to reach your goal. It also gives you insights into where the flaws in your sales process may lie.
With the current ratios, the first thing you need to do is figure out how many customers you'll need to reach the revenue goals you set. For example, if your average deal from the previous year was $10,000, and your revenue goal for this year is $1 million, you know you need 100 deals to do it.
Now, just because you have 100 leads doesn't mean they're all going to be closed wins. If you had a 50% conversion from opportunity-to-close, then you'll actually need 200 leads for your new goal.
But it goes further, because not every qualified lead becomes an opportunity. Even if your leads-to-opportunities rate is 70%, you'll still need at least 285 leads based on your previous year's ratios.
So, for 100 deals, you'll need 285 leads. Broken into monthly goals, that's roughly 24 qualified leads that Marketing needs to generate every month.
3. Define Your Lead Value
Now, knowing the number of leads you need is useful, but there's an important item it ignores: lead value.
Providing a set value to each lead, and basing your SLA on that, gives Marketing more flexibility in how they bring in leads. Instead of locking them down to a very specific requirement, a value-based SLA lets them spread their efforts to attract good fitting leads from any marketing asset.
Giving Marketing this flexibility is critical because not all leads are equal. Some are worth significantly more to your company, and some are worth less. For example, if someone is a Hand Raiser, an individual who finds your site and immediately asks to talk to Sales, they're more likely to close, and therefore, more valuable to your business.
The easiest way to determine the value of your leads is through a Lead Value Chart. This includes the quality of the lead and the actions a lead takes.
Often, companies will segment their audience based on personas. They include things like fears, aspirations, occupation, and salary and help marketers nail down their messaging. For the sake of our SLAs, though, we need a way to differentiate between a high-value lead, a moderate-value lead, and a low-value lead, so we understand what each type of customer is actually worth.
The criteria you select for differentiating these leads are very specific to your brand. It could be the annual company revenue, or maybe the job title of the lead. Whatever the case, there should be a distinguishable way to tell each tier of lead from each other.
Your selected criteria should be influenced by the lifetime value of each customer type. For ease, plan your customer lifetime value from the average five year revenue. We'll then divide it by five to get our single year average value. This is what our customer's actions will be compared against.
For actions, a simple breakdown would include booking a call as the highest value action, downloading a lead magnet as the next, and finally, downloading a content upgrade or subscribing to a newsletter.
So, if we refer back to our Lead Value Chart, the most valuable lead Marketing can create is in the top right corner. The customer's lifetime value is higher than the others and has a greater chance to close, given they've already asked to speak to sales.
Here's a separate chart for understanding:
The challenging part of this exercise is determining how valuable a lead actually is. So, let's use our example from earlier to figure it out.
To determine value, we divide the lead's annual lifetime value by the number of SQLs required for a deal. This is done for the entire Action 3 column.
Action 2's column is a bit different. We'll do the same math as above, but then divide the results by the number of required MQLs divided by SQLs. So for Action 2:
Action 1 is much easier to figure out. Whatever the result of the corresponding row's Action 2 is divided by 20. This number is variable, as Action 1 is by far the least valuable action a lead can take. We recommend starting with 20, but adjusting after you see what these leads are actually worth to your brand. As with everything else in your sales process, you should continuously refine it.
Now that you know the actual value of each lead, Marketing can decide how they want to approach their strategy for that month. With the chart above, an SLA of $500,000 can be hit with one of our most valuable customers. It could also be met if five Customer B's take Action 2.
4. Determine Your Marketing Resources
Before you can set an SLA, you need to determine some other details. The main factor being your marketing budget.
Telling Marketing to bring in $84,000 in leads with a $5,000 budget will yield far different assets than a $20,000 budget. Since the business who can profitably acquire the most customers is the one that wins, your SLA may be a worthwhile method of determining how much to spend on marketing each month.
The SLA will also drive how Marketing will approach their lead generation. For the first half of the month, they may try a social campaign. Then, by mid-month, if they're not on track for their goals, they could switch to a paid advertising approach for a quick boost in traffic.
Without knowing how much they can spend, Marketing has no certainty in whether they can achieve their portion of the SLA. Once that's set, you can create your official SLA Statement.
5. Building Your SLA Statement
An SLA statement is templated and provides a clear understanding for everyone in your company. It explains what's expected from each department. Here's the template:
"Every month, Marketing will deliver XX in qualified leads to Sales, and Sales will contact each of those within XX hours of receiving it."
For your first month, we recommend your revenue goal be as lofty as you set the requirement. It gives everyone a chance to feel out the system and see what's possible. If Marketing hits their numbers, you can change your SLA from 1:1 (SLA Goal to Revenue Goal) to 2:1. So the $84,000 they need to earn this month turns into $168,000 for the next.
If your Marketing team continues to hit these goals, they're on fire. Your business is fast-tracked for success. If they can't, and after a review, you determine it's of no fault of their own, you can scale it back to a previous level until they're able to achieve that one again.
The second portion of the SLA is for your Sales team. It determines how fast Sales will contact leads after they're handed off. It's well-known that leads contacted within five minutes of becoming sales qualified have a greater chance of closing. This, however, may not be possible with the size of your team or the volume of leads.
We recommend starting with 24 hours. This gives Sales enough time to assign the contact, do any research necessary, and contact the lead. If you later find it's not fast enough, or you see that Sales could actually manage first-touches faster, you can alter as necessary.
So, based on our example, our SLA would be:
"Every month, Marketing will deliver $84,000 in qualified leads to Sales, and Sales will contact each of those within 24 hours of receiving it."
This statement appears simple, but only if you ignore the work you did to end up with these numbers.
6. Report and Provide Feedback
Finally, we've mentioned how a lot of things need to be refined over time. No SLA will be perfect on the first go. There will always be a value or metric that needs tweaking for your teams to accurately meet their requirements every month.
We also mentioned how Marketing and Sales don't get along. One of the core issues is that Marketing is focused long term, while Sales is focused on the short. Rather than seeing this as a problem, though, consider it an opportunity.
Sales gets immediate feedback from leads. They get to know what resonated with them, what didn't, and whether there was something else that could have been more effective. They have all the information to create outstanding resources for your audience, but don't necessarily have the skillset.
If Sales can pass all of their knowledge to Marketing, and Marketing is actually receptive of the information, your marketing efforts will explode in success.
This process is known as the feedback loop.
Marketing creates an asset, Sales gets feedback, Sales delivers the feedback, and Marketing creates new assets.
A feedback loop is often missing from companies, and their sales performance suffers because of it. What's worse is that one single meeting, held at whatever cadence works best for your business, is all that's required, and many companies still aren't doing it.
A Sales and Marketing Alignment meeting will keep everyone on the same page. It gives both departments a chance to explain their numbers, based on the shared report, and address any issues they're having. It's a fantastic venue for both teams to meet as equals, working towards a common goal, and can solve many problems in your sales process before they grow out of control.
Optimize Your Team With Service Level Agreements
Service Level Agreements are a tool that can revolutionize your sales process. But, as mentioned earlier, you need your teams on the same page. The revenue goal of your company is tied to sales, so if Marketing isn't doing what they can to support that, you're losing ground.
While useful, an SLA is only one critical piece of what you need in your sales system to be successful. Check out our dedicated Sales System page to learn about some of the other common problems companies face, as well as our methods of handling them.
Chris is the CEO at Lean Labs. He enjoys strategizing and creating content that drives results. When not typing away, Chris is exploring nature with his two daughters, wife, and dogs.