Optimizing Lead Generation
Content
Call Center/Telesales Effectiveness Insights – 2005 State of the Marketplace Review
Optimizing Lead Generation What’s The Payback?
Jim Dickie
Partner, CSO Insights Boulder, Colorado
Barry Trailer
Partner CSO Insights Corte Madera, California
Optimizing Lead Generation: What’s the Payback?
Copyright © 2006 CSO Insights All Rights Reserved.
Terms & Conditions
Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be produced or distributed in any form or by any means, or stored in a database or retrieval systems, without the prior written permission of the publisher except in the cases of brief quotations embodied in critical articles and reviews. For additional information, contact CSO Insights, 4524 Northfield Court, Boulder, CO 80301, Phone: (303) 530-6930, e-mail: [email protected]. The reader understands that the information and data used in preparation of this report were as accurate as possible at the time of preparation by the publisher. The publisher assumes no responsibility to update the information or publication. The publisher assumes that the readers will use the information contained in this publication for the purpose of informing themselves on the matters which form the subject of this publication. It is sold with the understanding that neither the authors nor those individuals interviewed are engaged in rendering legal, accounting, or other professional service. If legal or other expert advice is required, the services of a competent professional person should be sought. The publisher assumes no responsibility for any use to which the purchaser puts this information. All views expressed in this report are those of the individuals interviewed and do not necessarily reflect those of the companies or organizations they may be affiliated with CSO Insights, Insight Technology Group, or Sales Mastery. All trademarks are trademarks of their respective companies.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
1
Optimizing Lead Generation: What’s the Payback?
EXECUTIVE SUMMARY In our 2006 Sales Performance Optimization study we noted that even though sales quotas on average increased significantly during the past year, the percentage of sales people making quota not only held steady, it actually increased slightly from the 58.2% figure reported in 2005 to 59.1% this year. The question we were left with was what caused this improvement in performance? As was noted in the full report, in comparing sell cycle conversion metrics (percentage of leads resulting in a first call, first calls resulting in a presentation, presentations resulting in a sale, etc.) sales effectiveness levels actually eroded during the past year. So it became clear that while more salespeople made higher quotas, they did so by putting in more hours versus achieving increases in their productivity. CSOs and CMOs are realizing that they need to find ways to help sales reps achieve higher targets through sales effectiveness gains, and they are backing this goal up with investments. We noted significant increases in spending for adding new sales reps, implementing/expanding sales training programs, expanding/enhancing marketing programs, implementing/enhancing CRM systems, etc. The question being raised by many executives is what strategy represents the best use of these funds? This white paper will explore the value of investing in optimizing lead generation programs, which in the 2006 study was cited as the top initiative CSOs had planned for this year. We compare a series of key sales performance metrics of companies who are excelling at this aspect of sales and marketing against the rest of the firms surveyed. As you will see, the numbers are compelling. Looking at companies who excel at demand generation program management, we see the following: ! Percentage of reps making quota is 9.3% higher ! Conversion rates of leads to first calls show an improvement of 16.5% ! Win rates rise by 7.0% ! Ramp-up times for new sales people decrease by over 10% For each of these areas, we will delve into the reasons CSOs cite as to why these performance improvements are occurring and also monetize the impact this can have on your company’s sales performance. Any questions or comments on the findings presented should be directed to Jim Dickie, (303) 530 6930, [email protected] or Barry Trailer, (415) 924 3500, [email protected]. DEMAND OPTIMIZATION INTRODUCTION As part of our 12th annual sales effectiveness study, we surveyed 1,275 companies worldwide regarding the challenges they were facing today that were impacting their performance, and more importantly, what strategies and tactics they were putting into place to address those issues.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
2
Optimizing Lead Generation: What’s the Payback?
In Figure 1, we see a summary of the responses to the question we asked at the very end of the survey process: “During the coming year what, if any, sales effectiveness initiatives will your company be undertaking to improve sales performance? (Select up to three priorities).” At the top of the list we find optimizing lead generation programs, which was mentioned by over 44% of the firms taking part in the study.
Key Sales Effectiveness Initiatives Priorities
Optimize lead generation programs Revise our sales process More closely align sales and marketing Revise our sales team structure Analyze our customer's buying process Improve access to relevant information Revise our channel strategy Evaluate/implement CRM software tools Enhance sales team communications Revise our compensation program 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 1st Priority 2nd Priority 3rd Priority
Figure 1 What do companies mean when they say they want to optimize lead generation programs? We recently presented to a group of 45 sales and marketing executives at a three-day summit sponsored by the American Marketing Association and Rollins College, in Orlando. In posing that question to attendees, the input we received was that lead generation optimization is not one single thing but several: ! First is improving the ability for a company to identify prospects who have a need - and an interest in - a vendor’s products or services. ! Once the audience has been identified, then a vendor needs to ensure they have developed targeted messages for that audience. (In fact, developing individual messages for sub-segments of the market is the real goal). ! With the messages in hand, a company needs to then deliver those messages via a variety of methods; direct marketing, digital marketing, telemarketing, etc., depending on how that prospect wants to be communicated with. ! If the prospect is ready to act, the lead needs to be quickly routed to the right sales resource to engage them, along with information about the prospect so the rep can start a meaningful dialogue with them during that initial contact.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
3
Optimizing Lead Generation: What’s the Payback?
! If the prospect is interested, but not ready to act, the lead needs to be placed into a formal ”lead nurturing” program, to cultivate their interest until the timing is right for them to truly consider the vendor’s offerings. ! And finally, throughout the lifecycle of an opportunity; from suspect, to prospect, to customer, to ongoing client, the disposition of all leads needs to be tracked so that intelligent decisions can be made regarding what messages and marketing programs are the most effective (so they can be expanded) and which are not (so they can be modified or canceled). Looking at this list, we see the task can be complex. To successfully optimize their lead generation programs, companies will need to blend together business process redesign, target marketing methodology innovations, demand generation and CRM technology, and improved program performance analytics. This is no small undertaking, and before starting an initiative of this scope, sales and marketing executives may well wonder if the investment of time, resources, and money is worth it. As you will see, the answer is yes. PERFORMANCE DIFFERENCES: LGO VS NON-LGO FIRMS To begin to explore this question, we segmented the responses of the study participants into two separate classes: those firms who excelled at lead generation optimization (LGO) compared to those firms who were average or poor. It should be noted that LGO leaders are a select group, representing less than 9% of the firms we surveyed. But, while small in number, their performance levels speak loudly. Consider first the comparison of the percentage of the sales force that make quota at the LGO firms compared to the rest of the study population, seen here in Figure 2.
Comparison of Percentage of Sales Reps Meeting Plan
70% 60% 50% 40% 30% 20% 10% 0%
66.1% 56.8%
Lead Generation Optimization Group
All Others
Figure 2 – More Quota Achievers
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
4
Optimizing Lead Generation: What’s the Payback?
This initial analysis got our attention. There is not a CSO we have interviewed over the past decade who would not be excited at the prospect of having a jump in sales performance achievements like this. But the promise of sales effectiveness has been dangled in front of us for too many years to claim victory at the first glimmer of good news, so we decided to dive more deeply into the data. The next area we focused upon was determining what the impact of giving salespeople better leads really translated into. Specifically, we were interested in seeing if their sell cycle conversion rates were any better. The comparison in performance in Figure 3 gives further insights into what can be contributing to the quota achievement of the LGO group. Here we see that 48.7% of the LGO firms report converting greater than 50% of their leads into first calls, compared to 32.2% for the other firms.
Percentage of Firms with Lead to First Discussion Conversion Rate >50%
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
48.7%
32.2%
Lead Generation Optimization Group
All Others
Figure 3 – More Leads Turning into Real Opportunities This to us is a notable achievement. Over the past three years we have seen performance in this area erode, with salespeople in general becoming less effective in convincing prospects of the need to have more detailed discussions, either face-to-face or over the phone, in order for the rep to be able to conduct a comprehensive needs analysis. A significant jump in performance here at the outset increases the ROI of a company’s marketing investments, and also gives salespeople more prospects to work with. As we noted in the full report, on average, salespeople are currently spending nearly 19% of
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
5
Optimizing Lead Generation: What’s the Payback?
their time prospecting. If we can improve the conversion rate of leads to first calls, this effort should decrease. Putting on our pessimist hats once again though, we realized that getting more first calls does not guarantee sales success, so we followed through analyzing two other sell cycle related metrics: conversion of first calls to presentations and presentations to proposals. Here again we noted the higher rates of success for the LGO group. Then in our minds came the moment of truth; how would the final opportunity outcome ratings compare? In Figure 4 we see two comparisons; the percentage of forecasted deals that were ultimately won and how many ended in a “no decision.”
Outcome of Forecasted Deals Comparison
60% 55.6% 50% 48.6%
40% Lead Generation Optimization Group All Others 20.9% 14.7% 10%
30%
20%
0% Win Rate No Decision
Figure 4 – More Wins and Fewer No Decisions Here we find the critical insight from the analysis. When companies provide their salespeople with more, higher quality leads, they can noticeably increase the odds of them ultimately closing a deal (seen above in a 55.6% win rate for the LGO group compared to 48.6% for the other study participants – a delta of 7%). They achieve higher win rates by minimizing the number of “no decisions.” This is a key issue that has been causing CSOs to have more sleepless nights over the past three years, as they have seen a steady increase in the “no decision” number. Above we see that LGO companies are more effective at dealing with that challenge (seen here as a 14.7% figure for LGO firms compared to 20.9% -- a 6.2% delta).
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
6
Optimizing Lead Generation: What’s the Payback?
Another item of interest to us is that reps appear to achieve these improvements in performance with less effort. The numbers of calls required to close a deal are lower. The impact of this can be seen in the fact that 61.7% of the LGO firms reported a sell cycle of 3 months or less compared to 42.5% for the other firms. MONETIZING SALES PERFORMANCE IMPROVEMENT Conceptually, in looking at the above differences in performance levels, there is an intuitive understanding that if we are able to have salespeople close a higher percentage of the opportunities they pursue, especially if this resulted from having fewer no decisions as opposed to being dependent on winning more competitive battles, then this should have a positive impact on sales performance. But what would that translate into in hard dollars? Let’s explore this question with the following scenario. Assume that you have a sales force of 100 reps, each with a $1M quota, pursuing deals that average $50K each. For the sake of discussion, we will round off the above numbers to a 55% win rate and 15% no decision rate for the LGO group, and a 50% win rate and a 20% no decision rate for the non-LGO organizations. In comparing the following revenue performance levels, we notice the following difference: ! Using the $50K deal size and a 50% win rate, a sales rep for a non-LGO organization would need to have 40 opportunities in their pipeline during the year to make quota (40 opportunities X 50% close rate = 20 deals X $50K each = $1M quota attainment). ! Now assume a firm invests in optimizing their lead flow, and achieves parity with their LGO peers, and now has a 55% close rate. We now would expect them to close 5% more of the 40 opportunities they pursue, or 2 more deals per rep (40 opportunities X 5%). ! If that level of performance is achieved by each of the 100 reps, then the sales force as a whole closes 200 extra deals during the quota year. ! The net result of 200 additional deals closing at an average of $50K each would be - gross revenue gains of $10,000,000, resulting from having the sales force exert the same amount of effort, but pursuing deals with a higher likelihood of closing. Additional Contributors to Improved Performance Based on analysis of the data, these are not the only financial benefits we would expect to occur. In looking at the differences in performance between these two groups we found that the LGO organizations are more effective at cross-selling and up-selling, introducing new products, and selling value to avoid discounting. Each of these has a direct impact on top line and/or bottom line revenue. Another performance difference that will be of interest to firms planning to do any significant hiring this year is seen when looking at the ramp-up time to get a new sales person fully productive.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
7
Optimizing Lead Generation: What’s the Payback?
This has been a topic of keen interest to an increasing number of CSOs. As they have increased their hiring over the past couple years, many companies have been dismayed at how long it is taking to get new reps performing as well as tenured reps. In the full report we noted that over 62% of the firms surveyed stated that their ramp-up times were in excess of 7 months, even though the majority of the organizations reported that they are hiring targeted salespeople who were both experienced in selling and had previous knowledge of their industry. Analyzing the data for firms in both the LGO and non-LGO segments, we found a marked difference in the numbers. Just over 65% of the non-LGO group reported that they had a ramp-up time of seven months or more, compared to just under 49% reported by the LGO organizations. Optimizing ramp-up time can have a significant impact on the financial performance of a sales organization. A software firm shared with us their analysis of what a 10% decrease in ramp-up time can generate. After documenting the month-by-month revenue attainment each new rep had actually generated during the first 18 months they were on board, they found that the real ramp-up period for a new hire was ~15 months as represented in Figure 5 as the red line.
Impact of Decreased Ramp-up Time
100% 90% 80%
$108,500 Improvement in first year performance
Percentage of Quota
70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Months
Historical Ramp-up Accelerated Ramp-up
Figure 5 – Shorter Time to Full Productivity for New Reps They then plotted the expected revenue achievements they could expect if they were able to achieve a 10% improvement in quota ramp-up performance, seen above as the green line. Based on their annual quota assignments of $2M, the net impact of this was $108,500 per rep during their first year on quota.
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No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
8
Optimizing Lead Generation: What’s the Payback?
Optimizing Lead Generation Management Clearly, the above review of the financial impact of optimizing your demand generation efforts appears compelling, but how does a company make this transition? In benchmarking an Austin, TX based technology firm we received the following insights: ! Document your current process so that you have cross-enterprise agreement on what the definitions of raw leads, suspects, prospects, and active opportunities are; document how you handle each class of client, and who is responsible for those activities. ! Agree on what metrics you will use to measure effectiveness and also how that data will be collected and analyzed. ! Invest in data scrubbing/cleansing so that the data you use for targeting your programs is current and accurate. ! Implement demand generation optimization technology that integrates marketing automation and program management, allowing you to manage all aspects of your various campaigns; direct/digital mail, events, web site visits, broadcast/print/web advertising, etc. ! Integrate the demand generation system into your existing CRM framework so that you can easily pass qualified leads on to sales and track the disposition of those opportunities. ! Leverage analytics to determine the effectiveness of each and every program and, based on results, double down on the winning programs and modify or cancel the losers. Conclusion Clearly, there are many alternatives to consider if an organization wants to increase their sales performance. Training, additional hiring, implementing CRM systems, etc., are all showing that they can contribute to increased effectiveness in helping salespeople work deals “in” the sales funnel, and therefore contribute to top line and bottom line financial improvement. Our analysis of the various options suggests that the fastest way to impact performance lies in focusing on optimizing your effectiveness “above” the funnel. Since so many firms are looking at lead optimization as being one of the key sales effectiveness initiatives they are tackling this year, we feel that dealing with this challenge will soon not be an option. As soon as any vendor in a marketplace successfully solves this problem for their sales force, they will raise the bar for all the players to match, or face becoming uncompetitive. Research clients who want to discuss this in more detail, or would like examples of how firms are effectively optimizing their lead generation efforts, should give us a call to discuss specifics.
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No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
9
Optimizing Lead Generation: What’s the Payback?
About CSO Insights CSO Insights is a research firm that specializes in benchmarking how companies are leveraging people, process, technology, and knowledge to optimize the way they market and sell to customers. Over the past twelve years, CSO Insights’ sales effectiveness survey of over 7,500 sales effectiveness initiatives has become the benchmark for tracking the evolution of how the role of sales is changing, the challenges that are impacting sales performance, and most importantly, what companies are doing to address these issues. For more information on this research go to www.csoinsights.com. Jim Dickie (303) 530 6930 [email protected] Barry Trailer (415) 924 3500 [email protected].
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
10
Optimizing Lead Generation What’s The Payback?
Jim Dickie
Partner, CSO Insights Boulder, Colorado
Barry Trailer
Partner CSO Insights Corte Madera, California
Optimizing Lead Generation: What’s the Payback?
Copyright © 2006 CSO Insights All Rights Reserved.
Terms & Conditions
Printed in the United States of America. Except as permitted under the United States Copyright Act of 1976, no part of this publication may be produced or distributed in any form or by any means, or stored in a database or retrieval systems, without the prior written permission of the publisher except in the cases of brief quotations embodied in critical articles and reviews. For additional information, contact CSO Insights, 4524 Northfield Court, Boulder, CO 80301, Phone: (303) 530-6930, e-mail: [email protected]. The reader understands that the information and data used in preparation of this report were as accurate as possible at the time of preparation by the publisher. The publisher assumes no responsibility to update the information or publication. The publisher assumes that the readers will use the information contained in this publication for the purpose of informing themselves on the matters which form the subject of this publication. It is sold with the understanding that neither the authors nor those individuals interviewed are engaged in rendering legal, accounting, or other professional service. If legal or other expert advice is required, the services of a competent professional person should be sought. The publisher assumes no responsibility for any use to which the purchaser puts this information. All views expressed in this report are those of the individuals interviewed and do not necessarily reflect those of the companies or organizations they may be affiliated with CSO Insights, Insight Technology Group, or Sales Mastery. All trademarks are trademarks of their respective companies.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
1
Optimizing Lead Generation: What’s the Payback?
EXECUTIVE SUMMARY In our 2006 Sales Performance Optimization study we noted that even though sales quotas on average increased significantly during the past year, the percentage of sales people making quota not only held steady, it actually increased slightly from the 58.2% figure reported in 2005 to 59.1% this year. The question we were left with was what caused this improvement in performance? As was noted in the full report, in comparing sell cycle conversion metrics (percentage of leads resulting in a first call, first calls resulting in a presentation, presentations resulting in a sale, etc.) sales effectiveness levels actually eroded during the past year. So it became clear that while more salespeople made higher quotas, they did so by putting in more hours versus achieving increases in their productivity. CSOs and CMOs are realizing that they need to find ways to help sales reps achieve higher targets through sales effectiveness gains, and they are backing this goal up with investments. We noted significant increases in spending for adding new sales reps, implementing/expanding sales training programs, expanding/enhancing marketing programs, implementing/enhancing CRM systems, etc. The question being raised by many executives is what strategy represents the best use of these funds? This white paper will explore the value of investing in optimizing lead generation programs, which in the 2006 study was cited as the top initiative CSOs had planned for this year. We compare a series of key sales performance metrics of companies who are excelling at this aspect of sales and marketing against the rest of the firms surveyed. As you will see, the numbers are compelling. Looking at companies who excel at demand generation program management, we see the following: ! Percentage of reps making quota is 9.3% higher ! Conversion rates of leads to first calls show an improvement of 16.5% ! Win rates rise by 7.0% ! Ramp-up times for new sales people decrease by over 10% For each of these areas, we will delve into the reasons CSOs cite as to why these performance improvements are occurring and also monetize the impact this can have on your company’s sales performance. Any questions or comments on the findings presented should be directed to Jim Dickie, (303) 530 6930, [email protected] or Barry Trailer, (415) 924 3500, [email protected]. DEMAND OPTIMIZATION INTRODUCTION As part of our 12th annual sales effectiveness study, we surveyed 1,275 companies worldwide regarding the challenges they were facing today that were impacting their performance, and more importantly, what strategies and tactics they were putting into place to address those issues.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
2
Optimizing Lead Generation: What’s the Payback?
In Figure 1, we see a summary of the responses to the question we asked at the very end of the survey process: “During the coming year what, if any, sales effectiveness initiatives will your company be undertaking to improve sales performance? (Select up to three priorities).” At the top of the list we find optimizing lead generation programs, which was mentioned by over 44% of the firms taking part in the study.
Key Sales Effectiveness Initiatives Priorities
Optimize lead generation programs Revise our sales process More closely align sales and marketing Revise our sales team structure Analyze our customer's buying process Improve access to relevant information Revise our channel strategy Evaluate/implement CRM software tools Enhance sales team communications Revise our compensation program 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 1st Priority 2nd Priority 3rd Priority
Figure 1 What do companies mean when they say they want to optimize lead generation programs? We recently presented to a group of 45 sales and marketing executives at a three-day summit sponsored by the American Marketing Association and Rollins College, in Orlando. In posing that question to attendees, the input we received was that lead generation optimization is not one single thing but several: ! First is improving the ability for a company to identify prospects who have a need - and an interest in - a vendor’s products or services. ! Once the audience has been identified, then a vendor needs to ensure they have developed targeted messages for that audience. (In fact, developing individual messages for sub-segments of the market is the real goal). ! With the messages in hand, a company needs to then deliver those messages via a variety of methods; direct marketing, digital marketing, telemarketing, etc., depending on how that prospect wants to be communicated with. ! If the prospect is ready to act, the lead needs to be quickly routed to the right sales resource to engage them, along with information about the prospect so the rep can start a meaningful dialogue with them during that initial contact.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
3
Optimizing Lead Generation: What’s the Payback?
! If the prospect is interested, but not ready to act, the lead needs to be placed into a formal ”lead nurturing” program, to cultivate their interest until the timing is right for them to truly consider the vendor’s offerings. ! And finally, throughout the lifecycle of an opportunity; from suspect, to prospect, to customer, to ongoing client, the disposition of all leads needs to be tracked so that intelligent decisions can be made regarding what messages and marketing programs are the most effective (so they can be expanded) and which are not (so they can be modified or canceled). Looking at this list, we see the task can be complex. To successfully optimize their lead generation programs, companies will need to blend together business process redesign, target marketing methodology innovations, demand generation and CRM technology, and improved program performance analytics. This is no small undertaking, and before starting an initiative of this scope, sales and marketing executives may well wonder if the investment of time, resources, and money is worth it. As you will see, the answer is yes. PERFORMANCE DIFFERENCES: LGO VS NON-LGO FIRMS To begin to explore this question, we segmented the responses of the study participants into two separate classes: those firms who excelled at lead generation optimization (LGO) compared to those firms who were average or poor. It should be noted that LGO leaders are a select group, representing less than 9% of the firms we surveyed. But, while small in number, their performance levels speak loudly. Consider first the comparison of the percentage of the sales force that make quota at the LGO firms compared to the rest of the study population, seen here in Figure 2.
Comparison of Percentage of Sales Reps Meeting Plan
70% 60% 50% 40% 30% 20% 10% 0%
66.1% 56.8%
Lead Generation Optimization Group
All Others
Figure 2 – More Quota Achievers
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
4
Optimizing Lead Generation: What’s the Payback?
This initial analysis got our attention. There is not a CSO we have interviewed over the past decade who would not be excited at the prospect of having a jump in sales performance achievements like this. But the promise of sales effectiveness has been dangled in front of us for too many years to claim victory at the first glimmer of good news, so we decided to dive more deeply into the data. The next area we focused upon was determining what the impact of giving salespeople better leads really translated into. Specifically, we were interested in seeing if their sell cycle conversion rates were any better. The comparison in performance in Figure 3 gives further insights into what can be contributing to the quota achievement of the LGO group. Here we see that 48.7% of the LGO firms report converting greater than 50% of their leads into first calls, compared to 32.2% for the other firms.
Percentage of Firms with Lead to First Discussion Conversion Rate >50%
50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
48.7%
32.2%
Lead Generation Optimization Group
All Others
Figure 3 – More Leads Turning into Real Opportunities This to us is a notable achievement. Over the past three years we have seen performance in this area erode, with salespeople in general becoming less effective in convincing prospects of the need to have more detailed discussions, either face-to-face or over the phone, in order for the rep to be able to conduct a comprehensive needs analysis. A significant jump in performance here at the outset increases the ROI of a company’s marketing investments, and also gives salespeople more prospects to work with. As we noted in the full report, on average, salespeople are currently spending nearly 19% of
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
5
Optimizing Lead Generation: What’s the Payback?
their time prospecting. If we can improve the conversion rate of leads to first calls, this effort should decrease. Putting on our pessimist hats once again though, we realized that getting more first calls does not guarantee sales success, so we followed through analyzing two other sell cycle related metrics: conversion of first calls to presentations and presentations to proposals. Here again we noted the higher rates of success for the LGO group. Then in our minds came the moment of truth; how would the final opportunity outcome ratings compare? In Figure 4 we see two comparisons; the percentage of forecasted deals that were ultimately won and how many ended in a “no decision.”
Outcome of Forecasted Deals Comparison
60% 55.6% 50% 48.6%
40% Lead Generation Optimization Group All Others 20.9% 14.7% 10%
30%
20%
0% Win Rate No Decision
Figure 4 – More Wins and Fewer No Decisions Here we find the critical insight from the analysis. When companies provide their salespeople with more, higher quality leads, they can noticeably increase the odds of them ultimately closing a deal (seen above in a 55.6% win rate for the LGO group compared to 48.6% for the other study participants – a delta of 7%). They achieve higher win rates by minimizing the number of “no decisions.” This is a key issue that has been causing CSOs to have more sleepless nights over the past three years, as they have seen a steady increase in the “no decision” number. Above we see that LGO companies are more effective at dealing with that challenge (seen here as a 14.7% figure for LGO firms compared to 20.9% -- a 6.2% delta).
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
6
Optimizing Lead Generation: What’s the Payback?
Another item of interest to us is that reps appear to achieve these improvements in performance with less effort. The numbers of calls required to close a deal are lower. The impact of this can be seen in the fact that 61.7% of the LGO firms reported a sell cycle of 3 months or less compared to 42.5% for the other firms. MONETIZING SALES PERFORMANCE IMPROVEMENT Conceptually, in looking at the above differences in performance levels, there is an intuitive understanding that if we are able to have salespeople close a higher percentage of the opportunities they pursue, especially if this resulted from having fewer no decisions as opposed to being dependent on winning more competitive battles, then this should have a positive impact on sales performance. But what would that translate into in hard dollars? Let’s explore this question with the following scenario. Assume that you have a sales force of 100 reps, each with a $1M quota, pursuing deals that average $50K each. For the sake of discussion, we will round off the above numbers to a 55% win rate and 15% no decision rate for the LGO group, and a 50% win rate and a 20% no decision rate for the non-LGO organizations. In comparing the following revenue performance levels, we notice the following difference: ! Using the $50K deal size and a 50% win rate, a sales rep for a non-LGO organization would need to have 40 opportunities in their pipeline during the year to make quota (40 opportunities X 50% close rate = 20 deals X $50K each = $1M quota attainment). ! Now assume a firm invests in optimizing their lead flow, and achieves parity with their LGO peers, and now has a 55% close rate. We now would expect them to close 5% more of the 40 opportunities they pursue, or 2 more deals per rep (40 opportunities X 5%). ! If that level of performance is achieved by each of the 100 reps, then the sales force as a whole closes 200 extra deals during the quota year. ! The net result of 200 additional deals closing at an average of $50K each would be - gross revenue gains of $10,000,000, resulting from having the sales force exert the same amount of effort, but pursuing deals with a higher likelihood of closing. Additional Contributors to Improved Performance Based on analysis of the data, these are not the only financial benefits we would expect to occur. In looking at the differences in performance between these two groups we found that the LGO organizations are more effective at cross-selling and up-selling, introducing new products, and selling value to avoid discounting. Each of these has a direct impact on top line and/or bottom line revenue. Another performance difference that will be of interest to firms planning to do any significant hiring this year is seen when looking at the ramp-up time to get a new sales person fully productive.
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
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Optimizing Lead Generation: What’s the Payback?
This has been a topic of keen interest to an increasing number of CSOs. As they have increased their hiring over the past couple years, many companies have been dismayed at how long it is taking to get new reps performing as well as tenured reps. In the full report we noted that over 62% of the firms surveyed stated that their ramp-up times were in excess of 7 months, even though the majority of the organizations reported that they are hiring targeted salespeople who were both experienced in selling and had previous knowledge of their industry. Analyzing the data for firms in both the LGO and non-LGO segments, we found a marked difference in the numbers. Just over 65% of the non-LGO group reported that they had a ramp-up time of seven months or more, compared to just under 49% reported by the LGO organizations. Optimizing ramp-up time can have a significant impact on the financial performance of a sales organization. A software firm shared with us their analysis of what a 10% decrease in ramp-up time can generate. After documenting the month-by-month revenue attainment each new rep had actually generated during the first 18 months they were on board, they found that the real ramp-up period for a new hire was ~15 months as represented in Figure 5 as the red line.
Impact of Decreased Ramp-up Time
100% 90% 80%
$108,500 Improvement in first year performance
Percentage of Quota
70% 60% 50% 40% 30% 20% 10% 0% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Months
Historical Ramp-up Accelerated Ramp-up
Figure 5 – Shorter Time to Full Productivity for New Reps They then plotted the expected revenue achievements they could expect if they were able to achieve a 10% improvement in quota ramp-up performance, seen above as the green line. Based on their annual quota assignments of $2M, the net impact of this was $108,500 per rep during their first year on quota.
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No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
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Optimizing Lead Generation: What’s the Payback?
Optimizing Lead Generation Management Clearly, the above review of the financial impact of optimizing your demand generation efforts appears compelling, but how does a company make this transition? In benchmarking an Austin, TX based technology firm we received the following insights: ! Document your current process so that you have cross-enterprise agreement on what the definitions of raw leads, suspects, prospects, and active opportunities are; document how you handle each class of client, and who is responsible for those activities. ! Agree on what metrics you will use to measure effectiveness and also how that data will be collected and analyzed. ! Invest in data scrubbing/cleansing so that the data you use for targeting your programs is current and accurate. ! Implement demand generation optimization technology that integrates marketing automation and program management, allowing you to manage all aspects of your various campaigns; direct/digital mail, events, web site visits, broadcast/print/web advertising, etc. ! Integrate the demand generation system into your existing CRM framework so that you can easily pass qualified leads on to sales and track the disposition of those opportunities. ! Leverage analytics to determine the effectiveness of each and every program and, based on results, double down on the winning programs and modify or cancel the losers. Conclusion Clearly, there are many alternatives to consider if an organization wants to increase their sales performance. Training, additional hiring, implementing CRM systems, etc., are all showing that they can contribute to increased effectiveness in helping salespeople work deals “in” the sales funnel, and therefore contribute to top line and bottom line financial improvement. Our analysis of the various options suggests that the fastest way to impact performance lies in focusing on optimizing your effectiveness “above” the funnel. Since so many firms are looking at lead optimization as being one of the key sales effectiveness initiatives they are tackling this year, we feel that dealing with this challenge will soon not be an option. As soon as any vendor in a marketplace successfully solves this problem for their sales force, they will raise the bar for all the players to match, or face becoming uncompetitive. Research clients who want to discuss this in more detail, or would like examples of how firms are effectively optimizing their lead generation efforts, should give us a call to discuss specifics.
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No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
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Optimizing Lead Generation: What’s the Payback?
About CSO Insights CSO Insights is a research firm that specializes in benchmarking how companies are leveraging people, process, technology, and knowledge to optimize the way they market and sell to customers. Over the past twelve years, CSO Insights’ sales effectiveness survey of over 7,500 sales effectiveness initiatives has become the benchmark for tracking the evolution of how the role of sales is changing, the challenges that are impacting sales performance, and most importantly, what companies are doing to address these issues. For more information on this research go to www.csoinsights.com. Jim Dickie (303) 530 6930 [email protected] Barry Trailer (415) 924 3500 [email protected].
© CSO Insights
No portion of this report may be reproduced or distributed in any form or by any means without the prior written permission of the authors.
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