THE LEAD QUANTITY MYTH: WHY DELIVERING FEWER LEADS RESULTS IN MORE SALES

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1 THE LEAD QUANTITY MYTH: WHY DELIVERING FEWER LEADS RESULTS IN MORE SALES By Chris Bucholtz

2 Introduction Ask most sales people what they want most from marketing, and the answer you ll get is more leads! Sales is a numbers game, they may say, and so it must be true that the more leads marketing piles on sales, the more deals sales will close. The emotional makeup of salespeople fuels this notion. Their confident nature leads them to believe they have at least a shot with every prospect they speak to. So bring on the leads! The tragic reality is that more leads can sometimes mean fewer sales it can damage sales reps ability to focus on the right deals and drive their conversion rates down. So sheer quantity is not what sales really wants they want a higher quantity of leads that are going to close, not simply more leads. Lead quantity is a mythical objective; the real objectives are more closed deals and more revenue. Even if sales can t articulate it, what sales really wants from marketing is more and better qualified sales. But until sales recognizes this, it s impossible to ask for it. In the same way, unless sales and marketing can work together to define what a qualified lead is, the default approach is to revert back to sheer lead quantity, a practice that helps neither sales nor marketing in the long run. A high quantity of poorly-qualified sales costs your sales team time, drives down lead generation ROI, forces sales people to devote more effort to database clean-up, and requires more sales headcount factors that point out that the default desire for sheer lead quality is a completely self-defeating impulse. How do you change thinking about leads to place the emphasis on quality? We ll define the problem and provide numbers that show that lead quality not quantity is the key to increased revenue, reduced sales workload and greater satisfaction between sales and marketing Callidus Software Inc. All Rights Reserved. 2

3 The Hazards of Linear Thinking!! Some believe sales is an equation: If X number of leads produce Y number of closed deals, then If you make X greater, Y will be greater, too, right? That s a quaint thought, but it s not the way it works. Sales does involve numbers specifically, revenue numbers. To increase those numbers, sales people must focus on productivity. And burying sales people under a load of leads doesn t help with that. A sales manager who subscribes to the lead quantity myth might see other aspects of sales in the same light: If my staff has four appointments a week and we force them to take eight, then sales will double! The problem here is that time itself is not part of his equation it remains constant. Now his sales team is spread thin over the same amount of time, and so they can t devote as much time to each customer. Even with twice the appointments, the sales team is unlikely to convert more leads. In fact, because they have less time for research, preparation and face-to-face meetings, the chances of converting leads drop and more appointments may result in fewer closed deals, not more. The same concept applies to the leads themselves. There are only so many leads a sales rep can work in a week; overloading reps forces them to prioritize leads on their own, taking time away from selling. That also means that leads that don t get priority are never worked, thus wasting marketing s efforts. To get more leads in front of sales, marketing is now passing colder leads to them but makes no differentiation from qualified leads, so sales spends more time with prospects who are less likely to buy and less time with the prospects who are most likely to buy. The diversion of focus from the qualified leads has an impact in the form of lost deals and reduced revenue Callidus Software Inc. All Rights Reserved. 3

4 SQLs vs. MQLs Sales already prioritizes leads the ones that pass muster (and often pass through a lead qualifying team under sales) are described as sales qualified leads (SQLs). The leads that marketing passes to sales, based on its own criteria, are called marketing qualified leads (MQLs). The fact that so many sales and marketing organizations have different criteria is itself an indication of how badly sales and marketing are misaligned. Marketing s definition of an MQL can be fluid and evolve according to changing goals and objectives. Sales definition can change as well, depending on sales managers directives. This can lead to a dramatic disconnect between the two the leads marketing thinks are qualified may not be accepted by sales. It s also important that sales and marketing work from a common set of goals. Marketers may be goaled on lead numbers, while sales is goaled on revenue. When this happens, marketing may meet its objectives while sales fails miserably. Re-orienting goals for both sales and marketing around revenue is critical to ensuring that all processes are aligned toward the business s objectives. While these steps seem logical, most businesses have yet to implement them. According to a 2014 study by CSO Insights, less than half (49.7 percent) of businesses have a formally agreed-upon definition of a qualified lead. About 31 percent said they had an informally agreed-upon definition, and 19.3 percent admitted to having no definition at all. The key to preventing a flood of leads that hinder rather than help sales is to make sure the definitions of MQLs and SQLs are as similar as possible. This can only be done by having sales and marketing cooperate on developing a common set of definitions. This cooperation should be initiated and managed by marketing but the criteria determination should be largely dominated by sales with a first-hand knowledge of what indicates a likely conversion, sales brings real-world experience to the process. Once those definitions are set, they may be revisited but by both sales and marketing. Those definitions should evolve over time but with sales and marketing in conjunction. Drifting away from a common goal will recreate the mismatch that plagues so many sales organizations and damage the mutual objective of finding better qualified leads Callidus Software Inc. All Rights Reserved. 4

5 The Implications for Sales, and the Implications for Marketing When a sales organization gets more leads but delivers poorer results, the implications are grave. If managers believe in the Lead Quantity Myth, they re likely to show their team s poor performers the door, and criticize the survivors who couldn t do more with the leads they were given. The blame goes in the other direction, too from a sales perspective, clearly the leads were substandard, and sales managers are likely to accuse marketing of being the source of the problem. Marketers are equally frustrated. Sales received more leads than ever, but their performance deteriorated? Clearly, the reps in sales aren t good at their jobs. Marketing gives sales what it asks for, then sales can t close the deals! The average tenure for a vice president of sales is months, according to Miller Heiman. At the same time, average tenure for chief marketing officers has been trending up now at 45 months, according to Spencer Stuart. That means that tenures for the roles have flip-flopped in duration over the last 10 years; marketing is no longer the first fall guy for a failed sales/ marketing approach. Both sales and marketing are on the chopping block. But there s still a lot to lose jobs and, in sales case, commissions. The key is to escape the fallacy of lead numbers and balance quantity with quality. Quality & Quantity Balancing Quality and Quantity: the Numbers When they attain their objectives, marketers goaled on pure lead numbers and on low per-lead costs don t actually increase sales, and the leads they generate are more expensive to work. This paradox is well illustrated by a 2014 study by Ascend2, that showed that lead sources that marketers viewed as having the highest costs trade shows, advertising in traditional media, third-party publishing and third-party webinars also were found to be the best sources of high-quality leads. Cost per lead was greater but so was the close rate. With fewer leads sourced and less sales time invested, value per lead was far greater with quality leads. In a study of over 3000 meetings split between vendors whose lead generation goals had different emphases around quantity and quality, demand gen expert Mike Damphousse 2014 Callidus Software Inc. All Rights Reserved. 5

6 demonstrated Quality-vs-Quantity the economic value of balancing lead quality and lead quantity. He discovered that the cancel/reject rate of leads was lower for vendors who emphasized quality over quantity (12 percent vs 20 percent); leads converted to the pipeline at a higher rate (36 percent to 31 percent). Getting more granular, he discovered that, when it came to appointments, the numbers seemed to favor quantity at the start of the process, but by the end of the process it was clear that quality delivered results far more economically. The quantity vendors set 100 meetings, to the quality vendor s 80 but 20 of those 100 were rejected (vs. 10 for the quality vendor). That still meant the quantity vendor completed 80 meetings to the quality vendor s 70. But in both cases, 25 of these meetings converted to deals in the pipeline. At a cost of $750 per meeting, 80 meetings cost $60,000, or $2,400 per conversion, while the quality vendor s cost was $52,000 for 70 meetings, or $2,100 per conversion. And while the number of meetings is the same in this example, by better qualifying leads marketing can give sales an advantage in securing, on average, bigger deal sizes. The result is that, for a lower cost, sales can close higher-value deals and do so at a higher rate because it can focus its efforts on the leads most likely to close more deals for more money in less time. Conclusion Mandating a large number of leads from marketing without understanding how well they ll be qualified is a guaranteed way to frustrate both sales and marketing. Instead, step back and remember your real goal increased revenue and focus on aligning sales and marketing around what a qualified lead is and how sales and marketing can work together to set that definition. Then, give marketing the resources to effectively pursue quality leads that match those criteria. The initial cost of lead gen may be higher per lead, but in the end the average value of each lead will be much greater as well. At the same time, passing fewer, betterqualified leads to sales means that sales can limit its participation in lead qualification and do more of what it does best: selling Callidus Software Inc. All Rights Reserved. 6