Who Needs Leads?
There isn't a sales team on the planet who'll say they have enough leads. But what if "more leads" is the wrong answerâ€Â¦to the wrong question?
By David Taber, Taber Consulting
Jun. 16, 2009
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% 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:
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.
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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% 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.
-
