We’re back with part two of marketing expert Gregory Kennedy’s take on B2B lead generation strategies. If you haven’t read it, check out part one here. This post will delve into why low conversion rates are good for high growth companies.
Pick the lead generation scenario you would you most like to achieve at your company:
1. 100 leads / month – converting at 5%
2. 500 leads / month – converting at 2%
3. 5,000 leads / month – converting at 1%
I would pick scenario number three. Why?
5,000 leads a month, converting at 1%, results in 50 sales.
And if you’re getting 5,000 inquires in a month, you’re doing something right. The other two scenarios, which have higher conversion rates, yield significantly lower sales volume. With only 100 inquiries a month, even a 5% conversion rate results in only 5 sales. This demonstrates why it’s important to constantly stay focused on the end goal in your business. With so much data available, it’s easy to worry about numbers that ultimately aren’t important.
This is why we focus on just three core metrics at TapSense: the number of leads, the number of sales, and average deal size.
Focus on increasing the lead volume
For a new brand, company, or product, awareness will be low. A massive increase in lead volume will help generate awareness. But, it will also result in low conversion rates. This is good. You want to reach as many prospective customers as possible.
You also want to capture their information and nurture them, through various marketing channels, to become future customers. By focusing on increasing conversion rates too early, you run the risk of not increasing awareness. You also won’t collect enough data to accurately measure exactly how many leads it takes to generate a sale.
The challenge most marketers face when they first start lead generation efforts is negative feedback from the sales team, which will complain that lead quality is low and not converting. If you just started, almost all leads will be low quality. This shouldn’t be a surprise. With little or no brand awareness in the B2B market, the first three to six months of leads generated will primarily be tire kickers – people who want learn about your product. But this doesn’t mean you should focus on increasing conversion, it just means you need more leads. Nurture those leads and in time, some of them will convert.
How many leads should a growth team generate in a month?
We found that the best way to determine the number of leads needed is to start with a sales target and work backwards. For example, aim to get to 10 sales from inbound leads and measure exactly how many leads it took. While rudimentary, this helps focus the team on the outcome. In the early days, everyone will have an opinion and no one will have good data. Get as much data as possible by measuring total leads against total sales, sourced directly from inbound leads. Once you succeed at generating sales from leads, you can start to model out what your monthly lead generation goals should be.
Here is the formula we use to determine monthly lead generation targets:
Metric 1: Number of Leads Required to Make a Sale
This first formula is used to figure out how many leads it takes to achieve a sale. Divide the total number of sales by the number of leads sourced from lead generation to determine the number of leads required to make a sale.
Number of leads required to make a sale = (Total Leads / Sales from Inbound)
Metric 2: Average Deal Size
The next formula is used to determine your average deal size. Take the total amount of revenue from the sales from inbound leads and divide it by the total number of sales. This gives you the average deal size from inbound leads.
Average Deal Size = (Revenue from Sales / Number of Sales From Leads)
Metric 3: Monthly Lead Goal Formula
Determining a monthly lead goal requires the first two metrics: the average deal size and number of leads to make a sale. Take those two numbers and work with sales to develop a revenue target for marketing. Divide the revenue target by the average deal size to get the number of sales required to hit the goal. Then use the number of leads to make a sale formula to determine the total number of monthly leads required to hit your goal.
Here is an example with actual numbers: Our hypothetical company generated 10 sales from 852 leads, totaling $123K for our benchmark test the first month.
Next month they are setting a goal of $500K. Here is the math required to calculate how many leads the growth team need to generate.
1. Number of Leads Required to Make a Sale: (852 / 10) = 85.2
2. Average Deal Size: ($123,400 / 10) = $12,340
3. Number of Sales Required to Meet $500K Revenue Target: ($500,000 / $12,340) = 40.5
4. Monthly Lead Goal: (40.5 deals x 85.2) = 3,450
In this example, the growth team needs to generate 3,450 leads to meet the revenue number, which is 40 total sales. The alternative would be to increase your conversion rate to get the 40 required sales. But this would mean achieving a 400% increase in conversion rate, or having your sales team close deals at four times the current rate, which is almost impossible. A 400% increase in lead volume can be easily achieved by opening up your marketing funnel to generate more leads.