Why “More” Is Not Always the First Goal of Lead Generation Strategies
As a demand generation specialist, you will surely agree that any successful lead generation strategy is centered around one, age-old adage:
Quality over quantity.
It is not about the number of leads in your pipeline; it is about your conversion rate, the percentage of your overall leads that actually end up as customers.
There is no point in sugar-coating it; that metric is a lot harder to master.
You see, bringing leads into the pipeline has not ever really been the challenge for most marketers (though proving that leads in the pipeline were the result of marketing certainly has a storied history).
If you invest enough money in the right areas where your target audience spends their time, you will undoubtedly get people to check out your website and possibly even take an action that brings them into your sales funnel, like signing up for a mailing list or a free trial of your solution.
However, as you know, that is rarely enough.
Top-of-the-funnel leads need nurturing to:
- Understand they have a problem in need of solving
- Begin the search for a solution
- Actually decide that your solution is the right one for them and their business.
That is ultimately why the role of a demand generation strategist came into being. Your job is to appropriately nurture leads at every stage of the sales funnel to increase your lead conversion ratio and ultimately increase revenue.
That does not mean you will not find some old-school thinkers out there in leadership or sales (or both), who feel the old way of doing things is the right way and that sales is a numbers game and volume will ultimately yield the best results.
When you encounter those people, here is how you argue (politely, of course) that demand generation is the new and improved way marketing increases company revenue.
Lead Nurturing Means a More Consistent Pipeline
Here is a crazy statistic for you:
73 percent of leads that enter your pipeline are not “sales-ready.”
That means if you run a campaign and it conservatively brings 1,000 people into your pipeline, only about 270 of those leads are ready to have any sort of conversation with sales.
What do you do with the other 730 leads? Do you send them off to sales anyway when nearly half of all sales reps give up on a lead after one follow-up?
Consider how that would work:
Suppose 250 leads get sent immediately to sales reps. Assume sales converts 10 percent of those leads (a high estimate for SaaS companies), so 25 people become customers.
Now, in the traditional model, the buck stops there. The other 730 leads get burned through and as they are not sales-ready, likely result in few (if any) conversions. So, for this campaign, the total conversion ratio is 25:1,000 or 2.5 percent.
Here is what the same scenario looks like with demand generation:
250 leads get sent immediately to sales reps, resulting in 25 new customers. The other 730 leads enter various nurture campaigns based on demographic data and stage in the buying process.
Over the next 6 months, an average of 10 percent per month of the remaining leads convert to sales-ready. So, here is what that looks like month-by-month, assuming the same 10 percent close rate by sales:
Month 1: 73 leads turn “sales-ready,” 7.3 become customers.
Month 2: 65.7 leads, 6.57 customers.
Month 3: 59.1 leads, 5.91 customers.
Month 4: 53.2 leads, 5.32 customers.
Month 5: 47.9 leads, 4.79 customers.
Month 6: 43.1 leads, 4.31 customers.
That means, at the end of 6 months, the original campaign would have yielded 52 new customers, or 5.2 conversion.
As you will see in the next point, that is not just 52 new customers and their initial purchase anymore. Demand generation marketers are measuring customer lifetime value (CLV) to truly evaluate the ROI of their marketing campaigns.
Customer Lifetime Value is the New Measure of Marketing ROI
For ages, the measure of success for a marketing campaign was loosely tied to the number of new customers that you could attribute (again, somewhat anecdotally) to a marketing campaign.
You tallied up the average customer spend and that became the measure of value for what your marketing team delivered.
Today’s demand generation marketers are making a bigger case for the impact of their nurturing efforts. The concept of customer lifetime value (CLV) has become the true measure of marketing success.
CLV encapsulates a few different, previously unaccounted revenue streams businesses will often see from existing customers (especially when there is a demand generation strategy in place).
In addition to the customer’s spend on their initial contract, CLV takes into account:
- Cross-sell revenue. Were you able to sell this customer into other legs of your business?
- Upsell revenue. Did the customer buy more of your solution or upgrade after the initial sale?
- Referrals. Did the customer directly introduce any new leads to your business with whom you had not otherwise been working?
Keep working with the same data from the above example to help illustrate the point.
Suppose average customer spend at the time of the contract signing was $500.
Again, looking at the traditional model (which yielded 25 new customers), that would mean the campaign generated $12,500 for the company.
However, if you look at CLV, you may find that after the initial $500, your average customer would spend an additional $150 in their first year, and another $300 on top of that in their second as your customer.
When you bring that all together, each customer’s actual value is $950.
Multiply that by the 52 customers generated through nurturing the leads and you now have $49,400 in revenue from the initial campaign.
Pretty incredible, right?
Now, If They Still Insist They Need More Leads…
Even with the higher yield and boost to revenue, some people may just feel there are not enough leads in the pipeline. If that is the case, it is time to evaluate how much money is being invested in your current marketing strategy. If each campaign yields nearly $50k in revenue, perhaps it is time to consider bumping up that spend and doubling the number of inbound leads.
In order to truly get both higher lead volume and more qualified leads, you need to optimize your demand generation strategies. To learn more about how ReachForce SmartForms can help you optimize lead generation and improve your impact on revenue, sign up for a free trial and get a demo today.