A guest post by Jenny Vance of LeadJen.
Companies that judge the success of their lead generation program based on fast results are missing out on significant revenue that can be generated by taking a “hockey stick” approach to sales.
Marketers tend to judge the success of an outbound lead generation program based on a trial period equal to the average sales cycle. For example, if the sales cycle is nine months, marketers will review the outbound sales program after nine months to decide if it’s worth continuing.
Judging a program’s success based on this timeline doesn’t work, however, because it assumes that all leads are the same quality and have the same level of urgency. In other words, the only leads that will close during this trial period are leads who are ready to make a decision on the first day of the program. (Those leads already have the right contacts, identified pain points, and allocated budgets.)
Consider the Hockey Stick
In the analogy of a hockey stick, these leads would be the bottom of the stick, where it hits the puck. They make up a small portion of your leads and do what they are expected to do. In my experience, these so-called “A leads” make up no more than 10 percent of a company’s leads.
That doesn’t mean that the other 90 percent of a company’s leads are junk, but it means that they’re not ready to make an immediate decision. As good salespeople can tell you, they cannot control the urgency of the buyer and whether there is an active, budgeted initiative in place prior to the first cold call attempt.
The real payoff of a lead generation program kicks in after the average sales cycle. Consider that the other 90 percent of leads can be ranked as…
- B leads. These are the right people in the right company, with identified pain but no budget or timeline. These leads typically make up 35 percent of a company’s database and can be expected to close in double the average sales cycle.
- C leads. Though the right people in the right company, they are still educating themselves on the pain points and do not have a budget or a timeframe. These leads typically make up 45 percent of a company’s database and can be expected to close in triple the average sales cycle.
- D leads. These contacts should be weeded out of the database because they are not likely to make a decision, regardless of the timeline. These leads tend to make up about 10 percent of a company’s database.
When the B and C leads begin to close, companies experience the hockey stick effect: significant sales over a longer period of time, as demonstrated by the handle of the hockey stick.
What You’re Under Pressure to Show Fast Results
Marketers can demonstrate the potential hockey stick ROI by combining educated assumptions about the average closing timeframe with the average close rate for A, B, and C leads. For example, at the end of the typical sales cycle, if 15 percent of A leads have closed, a safe assumption may be that 10 percent of B leads and 5 percent of C leads will close within their extended sales cycle. That helps marketers to set expectations about results.
This approach also gives the organization a line of sight to downstream revenue. As A leads are closing, B leads are into the next budget year, and C leads are being nurtured for the downstream closing potential.
MindStream Analytics, a consulting firm focused on helping clients improve business understanding and decision-making, experienced this hockey stick effect. The company augmented its inside sales staff with outsourced lead generation to grow sales and build awareness of the young company. MindStream Analytics has a relatively long and complicated sales cycle, and the company needed a cost-effective way to broaden its sales reach with new prospects and in new markets. The key to success was building brand recognition and reaching prospects when they had a specific need.
In 16 months, the company’s effort has generated appointments resulting in more than $400,000 in projects from new clients. More importantly, the effort has filled the MindStream sales pipeline with new prospects with projects valued at $1.6 million or four times the value of the A leads.
The company’s nurturing program is working. One client win came nine months after the initial contact.
“It’s all about timing,” said Mark Gregoire, executive vice president of sales and marketing at MindStream Analytics. He adds that it’s crucial to look at lead generation as a long-term effort because messaging improves over time as awareness builds. The company’s effort has moved from general messages to those focused on specific needs and verticals.
The goal is to contact a wider range of prospects over a longer time period and build awareness that benefits one’s company.
Jenny Vance is president of LeadJen, a B2B lead generation company that uses unparalleled data and insight to drive prospect interactions that convert to sales. She can be reached at jenny@leadjen.com or on Twitter.