The Law Of Large Numbers in Sales
Updated: Sep 30, 2021
To make your business not just good in sales but excellent, it is necessary to also have a system in place to make sure you can not only produce great results but also to be able to predict certain outcomes. This system can be created easily if you understand the law of large numbers.
And if you have never heard of the law of large numbers, we will give you a quick and easy definition here in this article:
Even if you continually do your best, your business will have to face difficult times and withstand them.
There might be a recession threatening the overall economy, a large buyer of your business could declare bankruptcy, or a major competitor could start dumping the prices in your industry.
All these incidents are very common in basically any industry.
Even if today things might be running well, you can never know how they will continue and what might be around the next corner for you and your business. The recent Coronavirus pandemic was a classic example of a black swan, an event of high improbability nobody expected.
And still it is and was powerful enough to devastate the world economy.
Thus you will need to have a kind of modulator in place which will allow you to take direct influence on your revenues and increase or decrease them depending on the situation you are in.
With such a modulator, you can boost sales and revenues when the going gets tough, and to lower it as you please in times when business is running great all by itself. It will not only help you to weather the storm that you might be in one day, but also to adjust your growth and size of your business as well.
But how can you possibly do this when sales are often a mixture of luck and coincidence in most businesses?
Rule number one:
Don't make your sales a mixture of luck and coincidence!
The most reliable system of that kind you will ever have is the so-called law of large numbers. And its use is actually pretty easy to grasp.
Jim Rohn already said it perfectly:
“If you do something often enough, a ratio will appear.”
That means in the activities you and your people are involved, especially in sales there will be certain patterns that will take place over and over again.
These will become visible to you after a certain time of past business activities.
And here the law of large numbers starts.
For example, one salesperson might be calling 5 people on average in his past record until he gets one appointment per day.
That way you will already know unless that salesperson did make those 5 calls on a given day, he will not even have one appointment per day.
And thus you as the manager will have to make sure that this salesperson calls at least 5 people per day, to guarantee that one appointment at the end of the day.
The ratio with large numbers is very simple.
Sure the results might vary, in some months people will perform better than expected and in others the same person might do worse than expected.
Here the law of large numbers comes into play.
If that person makes 5 calls one day, he might be lucky and get 2 appointments. The other day however, our salesperson is not so lucky and does get zero appointments. So the results will always vary and until this point it still is partly based on luck.
Let's introduce the law of large numbers:
But what if you raised the bar and made 10 calls per day?
On a normal day you might be getting 2 appointments with our ratio in place.
On a bad day, you again might get zero. Hey, everyone has bad days!
But on a good day, our salesperson might be getting 4 appointments.
Now you can probably see where we are getting by making these numbers larger and larger.
What if you called 15 people per day?
How about 25 people per day?
How about 50 people per day?
The larger the numbers in our ratios become, the more we can be sure that our salesperson has at least one appointment per day.
The ratio could also be 1 call out of 10 leading to an appointment, or 1 out of 20.
Actually the ratio itself is less important - what makes sure you will get the results you desire are the higher number of calls the salesperson makes.
Therefore we call it the law of large numbers.
Sales means facing a new environment and new perspectives and obstacles day by day, so this is perfectly normal and should be seen as a given.
But over a long period of time, let’s say a month or even a year, there will always be those clear ratios visible if you decide to look for them. The larger the number of calls, appointments and conversations, the better you can see the ratios beneath them.
Now that you have made sure that your salesperson makes those 5 calls per day and has one appointment per day, you take a look at the past behaviour and results from those appointments.
The numbers might also show you further down the road that the same person needs on average three appointments to get one sale, for example.
Now if we add this data to the previous ratio of 5 calls for one appointment we get the following information:
5 calls = 1 appointment
3 appointments = 1 sale
Result: 15 calls = 1 sale
You now know that it takes this salesperson 15 calls to make one sale for your company. Clearly you can now add further variables to this calculation - as for instance the size of the deals and the resulting profit for the business.
This could even make the sales commission or the revenue generated from one person more predictable.
The larger the number of calls, appointments and conversations becomes, the more you will be able to see the ratios.
Or you could look at the ratios of different people in your sales department and see who needs help, and where you can get the best ROI by investing in training for your people.
Having the law of large numbers and ratio patterns in place will allow you to create a predictable system for your sales, with the choice of fine-tuning every small aspect of it.
After you have looked at all the variables, you can now make a decent plan to predict your revenues for the next months or quarter.
The law of large numbers makes sales management easy.
But what you need for this system to succeed is a decent plan to also make sure there are always enough leads coming in for your salespeople to call on.
If you fail to bring in enough attention and people interested in your products, the whole system will fall apart. You have to provide the necessary value first and generate enough leads before you can predict any results.
With only a small number of leads you cannot successfully use the law of large numbers, obviously.
Sales will be the driving force of your business.
The more revenue comes in, the more you can grow and expand. And sales will always be dependent on the same few factors for all businesses:
the number of people you were making contact with
the number of conversations you had about purchasing the product
the number of deals closed
This is the most basic sales funnel that works across all industries.
Along each of these 3 steps, a certain percentage of potential customers will drop out. You have to measure exactly when and where they dropped out and how your individual people are doing in those sequences.
The law of large numbers suggests that you will always get X people to buy out of 100 you are talking with.
It is basically just the average of sales activity, but it still allows very precise predictions in your business activities. And there will always be at least one person buying out of 100, no matter the industry or the product.
If you get your ratios right, you can plan and predict your revenues with it - and therefore ultimately your success.
According to legendary sales expert and speaker Chett Holmes, across all industries and products you will find that statistically 1 person out of 100 who is about to buy what you offer, for whatever reasons.
And about 3 others of those 100 people are at least considering or thinking about buying the product.
That means if you would take a room filled with 100 people, according to the given ratio there will be 1 person in the room who has just bought a new car or is right now in the process of buying a new car.
At the same instant there would be 3 more people in the room that are at least thinking about buying a new car because their old car is falling apart or they just want to have a new one.
The same ratio will apply to almost any product you can think of - if you would ask about real estate, there will be one person in the room who has just bought or is currently buying a house and 3 others think about moving.
If you ask for wedding dresses, the same ratio will apply.
If you ask for going on vacation, the same ratio will apply, and so forth.
Pay attention that we talk about the average here - that also implies that if you really only ask 100 people!
You might have bad luck and there are zero people in the room who are buying what you offer right now. Likewise, it could happen that you are lucky and there will be 5 people buying in the room right now.
The larger the numbers, the higher your chances for success.
It’s the law.
Obviously, to make effective use of this ratio will require you to execute this strategy into a bigger number.
The more people you talk with, the better.
It will be hard to find this exact ratio with 100 people, but it will be very stable at around 1.000 people and will work perfectly with 10.000 people.
This ratio can thus be referred to as: The Law Of Big Numbers.
If you talk to x amount of people, y people will buy your product.
And like Jim Rohn said it: guess what, there’s lots of people!