1. What this is
Four numbers you already have tell you the most you should pay for one new sales conversation, and whether you should be buying them at all. The four are your average deal size, your gross margin, the share of serious sales conversations you go on to win, and what one of those conversations costs you to get today.
It returns no as readily as it returns yes. It is for anyone at an aerospace or defense company deciding whether to pay for marketing work that produces sales conversations, from anyone. The formula is below; check the math yourself.
One term below is a defined one.
A qualified opportunity is a sales conversation that met a definition written down before work started; the full definition is published at /measurement-standard.
2. The four numbers, and the formula
What you need
Average deal value. The revenue of one closed deal, before cost of goods. Use your median, and skip your best year.
Gross margin. Gross margin on that deal, as a percentage. Gross, before overhead.
Opportunity-to-win rate. Of the qualified opportunities you open, the percentage you go on to win. This is not your lead-to-win rate. Lead-to-win is a much smaller number, and using it here will return an answer that is wrong by roughly a factor of ten.
Cost per qualified opportunity. Use it directly if somebody has quoted you a per-opportunity price. If you have been quoted a monthly fee instead, work it out in the open:
monthly cost of what you are considering ÷ qualified opportunities a month = cost per qualified opportunity
The opportunities-a-month number is the one you are negotiating with any vendor, so nobody should supply it for you. Use the volume you would hold a vendor to in writing, and run the test against that.
The formula
Value of one qualified opportunity = average deal value × gross margin × opportunity-to-win rate
Ratio = value of one qualified opportunity ÷ cost per qualified opportunity
Most you should pay for one qualified opportunity = value of one qualified opportunity ÷ 4
Four results: the value of one qualified opportunity, the ratio against what one costs you, the most you should pay for one, and the verdict. Work it on paper and check every line.
The four is our bar. We set it at four so the return survives a win rate half as good as you think yours is. Halve the win rate and the ratio halves with it. At four it is still two, which is still worth doing.
What the formula leaves out, so you can add it back yourself. It counts gross margin on one deal and stops. No repeat purchase, no programme life, no aftermarket revenue, which in aerospace and defense usually means it understates what a won account is worth to you. It also leaves out your own cost to serve an opportunity, which pushes the other way. If either of those is large in your business, run it twice and read the pair.
3. What the answer means
Four or above: yes
One opportunity is worth enough that the cost of producing it is not the constraint. What is left to settle is volume: how many opportunities a vendor can actually produce in your market. That is the first question to ask on any call.
Between three and four: marginal, and here is the thing to check
We call this band marginal because the four numbers are estimates, and a twenty percent error is normal on most of them. The lower edge at three is our choice, made for that reason.
At a marginal ratio, the volume assumption carries the whole decision. A shortfall in volume that a company well above the bar would absorb is the thing that ends the contract at three to one.
So check whether the opportunity volume is achievable at all. The question is narrower than it sounds: how many companies in the market you actually sell to are in a position to buy in a given year. Your own account list answers that. An industry average does not. Put that question to any vendor before signing, and ask what their answer is based on.
Below three: no
The answer is no, from everyone selling this work.
Take the third result, the most you should pay for one qualified opportunity, into every vendor conversation you have. If nobody in the market can produce one for that money, you have your answer, and you have it before you have spent anything.
A no here says that at these four numbers, the cost of one opportunity sits too close to what one is worth. One bad quarter and the return is gone.
The numbers that move a no are average deal value, gross margin and win rate. All three are product, pricing and sales problems. A marketing campaign does not fix them, and any firm that offers to is selling you something.
The same test, worked twice, including the time it says no
The inputs below are illustrative, chosen to show both verdicts.
An avionics manufacturer. Average deal value $150,000, gross margin 60 percent, opportunity-to-win rate 25 percent. One qualified opportunity is worth $22,500, and the most that company should pay for one is $5,625. Any cost per qualified opportunity at or below $5,625 clears the bar. That is a straightforward yes, and the conversation moves to volume.
A components supplier. Average deal value $25,000, gross margin 55 percent, opportunity-to-win rate 20 percent. One qualified opportunity is worth $2,750, and the most that company should pay for one is $687.50. That is a no. A ceiling of $687.50 sits inside what the appointment-setting market charges for a single booked meeting at its most rigorous tier, the one verified for budget, authority, need and timing. A booked meeting is a lesser product than a qualified opportunity; the next section says why. So a company at those numbers should not buy this work from anyone, and should hear that in the first ten minutes.
4. What a qualified opportunity has to be for any of this to hold
This math holds only if the thing you are counting is a qualified opportunity.
A booked meeting is a calendar event with someone who accepted an invitation, and it will divide into a flattering number that means nothing.
A qualified opportunity is defined by you, in writing, before work starts, and it typically requires a named buying-committee role, a stated problem and a timeframe.
If the cost you used was quoted to you per meeting, you have priced two different products against each other.
/measurement-standard carries the full definition, the method behind it, and the reason that comparison goes wrong in both directions.
5. Where to go next
Send us a link to something your company has published → /record/submit
What a channel is, and what it costs → /publish
- The cases where this is the wrong purchase, including where hiring someone beats buying →
/publish/when-not-to-buy-this - What counts as a qualified opportunity, and how credit is calculated →
/measurement-standard