Sales & Marketing

Who Needs Leads?

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In high-tech marketing, most of the attention is paid to lead generation and piling more prospects into the pipeline.

If you remember the movie “Glengarry, Glen Ross,” Alec Baldwin held the pile of Glengarry leads like they were sacred.

Problem is, most leads just aren’t worth that much. The vast majority of them will never go anywhere, and too many marketing programs are a waste.

Worse, sales reps – the best-paid individual contributors in the company – waste time and effort on duds.

In the Enterprise sales model, the true cost of acquiring a new customer can easily exceed $40,000. While follow-on business makes for cash-flow, the initial cost of growing your customer base makes for a serious cash burn.

Of course small companies need to start somewhere: customers don’t come out of thin air.

But with a failure rate of 95 percent or more, you have to ask yourself “who needs leads?”

Look at revenue generation another way – skipping the conventional pipeline or waterfall models for now – and view it as a business process. The outputs of the business process are revenues, fat commissions, and happy customers.

But are leads the critical input to the business process?

If you take the data from your SFA system and do some serious analysis, you’re likely to discover three things:

  • The data is flakey and may have been gamed by both Sales and Marketing
  • Many leads have been dropped on the floor
  • Only a small portion of closed deals can be conclusively linked to leads

Even leads from events that Sales is very enthusiastic about probably don’t produce that much revenue.

So where are the juicy deals coming from? Sales will say the whales come from their black books, and they’re right: people buy from people, and previous relationships count for a lot. These relationship sells may make for some big deals, but not many of them – the typical rep can only pull a couple of rabbits out of their hat before their black book runs dry.

Research across B2B and B2C industries show that the most profitable business comes from upsells, cross-sells, and expansions from existing customers. Repeat business costs between 1/3 and 1/10th of what new business costs.

Further, analysis from Bazaarvoice and Forrester Research shows that customer references are the single most credible and effective source of information for influencing purchase decisions. So, happy customers really matter for both profitable deals and new customer acquisition.

But you can’t limit yourself to your customer base and their friends.

Using your existing lead database as a starter, companies can develop communities of interest, growing large groups of individuals who really care about a topic. Do this by giving away educational information, publishing best practices, blogging, hosting forums, and participating in online conversations.

Make your web site become the destination for anyone who is interested in your product category. Make sure the information you provide is vendor neutral, credible, and above all relevant.

Be patient. These communities take time to mature. This is what the Open Source vendors do. This is what companies like Projector People do. If you build a community of interest, the leads will comeand they’ll be more motivated to engage because they’ll be educated about your way of doing business. Use social networking techniques to build the size and vibrancy of the community, but don’t expect it to be a driving force in immediate revenue generation.

Recent surveys by Knowledge Networks and others show that over 80 percent of the Internet population (U.S. ages 18-54) participates in social media, but less than five percent of them look to social media for guidance on purchase decisions.

The best use of social networking tools is to build awareness that the community exists and to monitor interactions among community members. Using tag-clouds, alerts on keywords, and posting frequency, your community manager (you will have a community manager) can sense and guide the undercurrents of community enthusiasm. If you don’t have time to do all this, at the very least put up a simple voting system (product ratings) and a way for community members to recommend products (this can be just a “topic” within the product forum).

But the “leads 2.0″ that come from the community (in the form of user registrations) are not ready to take a sales call. They’re aware and interested in the product category, but not necessarily interested in your product yet. Think of leads as low-quality ore that must be highly purified before it can be commercially useful.

Sales reps are not good refiners of low-grade ore, as they waste time and motivation. Instead, add a lead refinery that looks like this:

  • A marketing automation system focused on growing the lead’s interest and motivation level, at near-zero costs, and
  • Telephone-based sales development reps (SDRs) whose only job is to cultivate leads, qualify them, and get them ready to take a sales call (these reps need an incentive system, but it generally should not be a sales commission).

The output of your refinery is the input that Sales reps need: people who are aware of your product category, interested in your value proposition, and building desire for your product or service.

In terms, the reps no longer see (nor care about) leads. They’re given only opportunities (deals in the formative stages) and contacts (fully qualified people) to work with. If you want to take it to extremes, you can even have the SDRs set up the appointments for the sales reps. Companies such as By Appointment Only have been performing this kind of service for years on an outsourced basis.

The BAO people only connect sales reps to people want to actually engage in a sales call. In this model, your sales reps don’t have any knowledge of who “the leads are” – and they don’t really care. So why can’t you use the same approach in-house? By focusing everyone’s attention on “sales cycle starts” rather than “leads,” measurements become a lot more meaningful.

You can put in place service-level agreements and metrics between marketing and the SDRs, and between the SDRs and the field reps. You definitely will want to set up reports and dashboards in your SFA system to make this work. If you see a lot of opportunities lost almost immediately after handoff to sales, it means that the refinery isn’t putting out high-quality ore and needs to qualify harder.

On the other hand, if the win/loss ratio of opportunities is over 50 percent, it may mean that the refinery is being too picky and you’re losing out on some potential growth. If there aren’t enough leads to keep the SDRs busy, it means marketing needs to put more incentives for people in the community to register.

In building and “tuning” your refinery, you’ll need to develop a model of your best customers. ou develop this model by mining the data in your SFA system, typically using tools that go beyond the built-in reports.

What are the characteristics of customers who most strongly benefit from your value proposition, become loyal buyers, and recommend others? What are the sources and buying patterns of customers who are more trouble than they are worth? It may take time to discover these contrasting characteristics, but they will allow you to dramatically improve both the quantity and profitability of deals.

In looking at revenue as a business process, it’s important to examine all the activities that go into a sales cycle. Looking objectively, we may find that some “great ideas” (or sacred-cow policies) actually get in the way of a sale.

For example, in a $100K deal a proof of concept stage or executive visit may be essential, but in a $20K deal these steps may actually stretch out the sales cycle or lower the win percentage.

Of course, each of the recommendations above means some organizational change, budgetary re-alignment, and new policies. It can also mean some serious rework of your SFA system.

Your company may not have an SDR function, or know how to effectively manage one. This all means emotions, budgets, and political turf – but that’s why they pay you the big bucks.

The CEO needs to put the Sales and Marketing VPs into problem-solving mode, working as a team to evaluate what’s working and diagnose what isn’t. The CEO also needs to set reasonable expectations at the board level, so that there’s measurable performance but also enough time for the refinery system to work.

David Taber is principal of Taber Consulting. His new book, “Salesforce.com: Secrets of Success and Profitability” is available at Amazon.com.

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