During uncertain economic conditions, business leaders are often forced to shift budgets amongst growth centers in the business. But how do you know where to invest? Specifically, are dollars best spent on sales or marketing?
One of our recent clients faced a similar question. And when taking a deep look at marketing results, we were a bit surprised that the data actually helped to diagnose a sales problem. While we were pleased with the lead generation effort, the sales resulting from those leads were disappointingly low.
So was it a quality of leads issue or a sales/opportunity conversion issue?
Here’s how we approached the analysis:
Evaluating a data set spanning six months, and an opportunity to convert 22,000 audience members (Suspects) to Marketing Qualified Leads (MQLs), we asserted the Suspect-to-MQL conversion threshold was at least one piece of digital activity. Examples of digital activity included website visits, email clicks, and content downloads.
During the evaluation timeframe, we generated almost 6,000 leads, for a Suspect-to-MQL conversion rate of 27.3%. Further analysis showed that the cost to acquire each lead was less than $10. Not bad, right?
In isolation, the Cost Per Lead (CPL) and conversion rates were good. However, when we looked at the total revenue created from these leads, not very many were being converted into sales opportunities. (Only $22,000—ouch!)
We’re focused on evaluating MQL influence on opportunities throughout every stage of the sales pipeline, so here’s a couple important definitions for your consideration: :
- Marketing sourced opportunities: MQLs that precede the opportunity create date. So first there’s the MQL, followed by sales pursuit, and then the opportunity is created.
- Marketing influenced opportunities: this occurs when there’s an existing deal, followed by marketing engagement. Many times we see a bigger influence on close rates when combined with marketing engagement.
- Sales sourced opportunities: this means that the opportunity was created entirely by sales, with no marketing influence. There may have been marketing pursuits, but no marketing qualified response.
During the evaluation timeframe, 218 total opportunities had been created by our client’s sales team, and only 19 had been won as sales.
For a company that had a lower average deal size (less than $2,000 per) and a low conversion rate from MQL to Sales Qualified Lead (SQL or opportunity), and an even lower win rate, we began to measure other factors such as win rate as related to the time of MQL creation, at some points the client was only closing 2% of those deals. Not good.
We looked at deals that they had started with marketing (“Marketing Sourced”): those deals were closing at 25%, which was more in line with what we would expect to see, so the problem wasn’t there.
They had a 10% close rate when the marketing response occurred while they were already in pursuit of the deal (“Marketing Influenced”), which could be better, but isn’t horrible.
We also measure days to close—do they close faster when the prospect is engaged with marketing?
We hope so, but it was not the case in this instance, which can be attributed to sales rep adoption of CRM and the propensity to log opportunities only when they’re close to closing; and if they’re not logging them early, they aren’t being rolled into campaigns.
But here was the real concern:
At this snapshot in time, they had 21,770 records in their database, which again were converting from suspect to MQL at a rate of almost 27.3%. This is a great conversation rate (often times it’s much lower—in fact, we’ve had clients that were exceeding their demand generation goals with only a 2% conversion rate).
But then when we looked at how many of the MQLs were being converted to SQLs (opportunities), they’re only doing so at a rate of 3.7%.
So they generated 218 opportunities just from marketing initiatives and they only won 19 of them—at $1,250 per average close, their cost for SQLs at these conversion rates was $357, and their cost for a win was $4,000.
These numbers became the foundation for a presentation to demonstrate that the company had a sales issue; it was clear that the MQL conversion rates and the SQL conversion rates were the main problems—and big problems at that, with an average deal size of $1,250.
Many times we talk with clients about what our levers are, and we suggest three that can be pulled that should have some influence:
- They must do a better job of MQL follow-up to drive more sales conversations.
- Close rates were far too low in this case, and it was a huge issue for the company. Because their average deal size was so low, they couldn’t spend a lot to hire a good sales team and that resulted in high rep turnover.
- They must look for opportunities to increase their audience organically.
We focused next on evaluating the sales pursuit process deeply—and identified the sales metrics that would be needed in order for them to turn this situation around.
This was a tough message to deliver, because for every dollar they were spending on demand generation, they would get nothing back—and, further complicating the issue, for every dollar they spend adding records to their database, they would get nothing back.
Unless they made changes to their MQL pursuit process, and the SQL-to-close rates, they would never get anything out oftheir demand generation investment.
When discussing our report, the client revealed that, because of their turnover rates, they were losing opportunities by not having a good, solid pursuit of those opportunities, were going after deals that are way too small, and the result was that theyweren’t pursuing opportunities in a smart, thorough, and proactive way. And instead of going after the larger deals, they were going after small mom-and-pop shops. They realized that this was not the market that was going to grow their business. Much higher volume was required with a higher average deal size.
First of all, the company immediately started pursuing larger opportunities and instituted a couple of new initiatives from a marketing perspective, including a webinar program with carefully chosen partners. This new approach resulted in a large increase in audience size, which provided access to bigger opportunities and allowed them to be more proactive.
From a sales perspective, we implemented a second-track marketing campaign that contained calls-to-action focusing on proof-point-oriented content such as case studies and a solution demonstration (middle and bottom of the funnel). In short, we did whatever we could to automate as much of the sales process as possible through content marketing.
Initial results of these changes included a higher opportunity creation rate (increasing the number of opportunities by a factor of 2x) and closing a total of 84 (way up from 19!).