Cedar & Stone Landscape: Diagnosing a B2B Sales Funnel
Cedar & Stone Landscape runs a commercial division that bids on maintenance contracts for office parks, HOAs, and medical campuses. Five outside reps and two inside salespeople generated 1,200 inbound leads last year. Of those, 480 were qualified, 180 received a site visit, 60 received a written proposal, and 18 became customers. The average contract is $34,000 per year at a 38% gross margin, and the sales cycle averages 94 days. Lead generation costs $85 per lead. Reps are paid a straight salary plus a small year-end discretionary bonus, and the owner has noticed they spend much of their week servicing small residential accounts and revising proposals for prospects who never respond. To grow, the owner proposes spending $60,000 on LinkedIn ads and hiring two more outside reps. Cash is tight: the company's line of credit is nearly fully drawn, and the residential division is profitable but seasonal.
1. Calculate the funnel conversion rates and the marketing cost per won customer. Where is the binding constraint, and should Cedar & Stone hire two more reps? Support your answer with numbers.
Read the worked answer
Conversions: 480/1,200 = 40% lead-to-qualified; 180/480 = 37.5% qualified-to-site-visit; 60/180 = 33% visit-to-proposal; 18/60 = 30% proposal-to-win; overall 18/1,200 = 1.5%. Marketing cost per win is 1,200 × $85 = $102,000, divided by 18, or $5,667. Gross profit per win is $34,000 × 38% = $12,920, so first-year marketing cost is 44% of gross profit. Because the contract recurs, lifetime gross profit at 85% retention is about $12,920 / 0.15 = $86,000, which makes the acquisition economics defensible if retention holds. The binding constraint is not rep headcount. Five reps produce only 3.6 wins each, and 120 of 180 site visits never become proposals, which suggests poor qualification and proposal discipline. Adding two salaries before fixing those rates raises fixed cost and spreads 18 wins thinner. Build pipeline coverage of at least 3× quota and raise visit-to-proposal conversion before hiring. A better first move is to require budget, authority, and timeline confirmation before a site visit, cutting wasted visits rather than adding capacity to serve them.
2. Redesign the sales compensation plan to change rep behavior. Explain the specific behaviors your plan rewards and the risks it introduces.
Read the worked answer
Pay for gross profit rather than revenue, and put a floor under margin. A workable design is 60% base and 40% variable at target, with an 8% commission on gross profit for contracts at or above a 36% margin and 4% below that floor. Add a 2% bonus for three-year terms and a 10% accelerator above quota. Gate 20% of commission on CRM discipline: stage, next step, and loss reason completed within 48 hours. This rewards reps for pursuing commercial accounts with healthy margins, documenting the pipeline, and selling multi-year agreements, while making it unprofitable to hide in small residential service or to push premature proposals. The risks are real: reps may avoid strategic accounts that need low introductory pricing, may sandbag the CRM to protect commissions, and may leave during the transition. Mitigate with a two-quarter hold-harmless guarantee, a documented exception process for strategic pricing, and a monthly scorecard showing qualified meetings, proposals, win rate, average margin, and pipeline coverage. Publish the scorecard so the plan is transparent.
3. Evaluate the proposed $60,000 LinkedIn spend. Design a pilot with explicit targets and stop/scale rules, including expected wins and gross profit.
Read the worked answer
The current cost per qualified lead is $102,000 / 480 = $212.50, so LinkedIn must beat that, not merely produce clicks. Run a 90-day pilot of $18,000 with a dedicated landing page, a CRM source code, and an offer aimed at property managers and HOA boards-for example, a snow-and-ice readiness audit with a guaranteed response time. Target cost per qualified lead at or below $200, which buys about 90 qualified leads. At historical conversion, 90 × 37.5% = 34 site visits, × 33% = 11 proposals, × 30% = 3.4 wins. At $12,920 gross profit per win, that is about $43,900 of first-year gross profit against $18,000 in spend, before renewal value. Scale to $60,000 only if cost per qualified lead is at or below $200 and qualified-to-visit holds above 30%. Stop if cost per qualified lead exceeds $250 after 60 days or if fewer than 40 qualified leads arrive. Fix the proposal bottleneck in parallel; otherwise more leads simply create more unpaid proposal work.