The Cumulative Impact of High and Low Quality Leads

The B2B industry is infamously known for its time-consuming sales cycle. While B2B sales are challenged by more decision-makers than B2C, they are also impacted by varying-quality leads that make the process even more unpredictable. 

A sales person is only as good as his or her leads. When sales reps receive poor leads, the total time and effort they waste in qualifying, engaging, and selling to low-interest prospects is significantly more expensive than the time and money spent in pursuing better quality leads.

High Quality Leads vs. Low Quality Leads

Marketing and sales departments are now more intertwined than ever in the sales process. Marketers, pressured to meet individual quotas, often turn over low-cost, low-quality leads to the  sales organization. However, these leads don’t convert well and instead make the company suffer hidden costs that can damage interdepartmental trust.1

High quality leads (HQLs) are sourced from buyers who have shown more interest in finding out more, mostly by consuming quality content provided by the seller, have expressed interest in following-up, come from within the right market space and types of accounts, and have the right buying roles. Low quality leads (LQLs) are often scraped online, mass collected, are primarily collected as a result of email opens or clicks–there is no real reason to believe they have purchase intent. 

Experienced sales people are able to ask the right questions in order to identify a potential customer’s true interest in the solutions provided: Are opt-ins based on content downloads, or were they sourced from promotions that incentivize responses? Is there detailed research activity for each account? Does the data illustrate high probability for conversion?

The False Economy of Low Quality Leads

The current sales process exposes the false economy of low quality leads, or the notion that more low-cost leads lead to higher conversion rates at a fraction of the cost. Ultimately, if these leads are mostly made of false-positive LQLs, it can cost more to blindly pursue a number of leads in hopes of engaging the small percentage of companies who are genuinely interested in a product.

Below is a breakdown of lead conversion rates for low, strong, and top quality leads throughout the marketing and sales processes using data from SiriusDecisions.2

Lead quality has a progressive effect on each conversion rate throughout the sales funnel. The total closed deals per 1000 leads for average is only two, maybe three if lucky. Assuming the average lead quality is mostly composed of low-cost LQLs, the number of closed deals for every 1000 leads per year for HQLs is five times greater than deals closed form LQLs.

What the data shows is that while low-cost leads may present upfront savings, it can cost up to five times more to convert than HQLs in the same time frame; even if low-cost leads cost a third of what a quality marketing offers, representatives will still spend almost twice as much to convert them in the long run. Starting with HQLs can result in lower cost per conversion and increased number of closed deals, both factors that contribute significantly more to a company’s revenue.

Hidden Costs of LQLs

The hidden costs associated with LQLs come from wasting time, resources, and human capital. On average, bad lead prospect data costs sales departments 550 hours and $32,000 per representative.3 Assuming the average cost of $60,000 per year for a sales representative, not including additional payroll-related expenses, this means individuals are spending over 50% of their time and payroll working with low-interest customers—for SMEs, this number can often be higher at 85%. According to SiriusDecisions, each bad lead can also cost as much as $100 per record.2  For instance, the cost of 5,000 bad leads is about $500,000. These numbers can add up very quickly.

The Solution to Meeting Sales Projections

The big B2B question: How can companies consistently meet sales projections?

The solution to this problem statement is not hiring more people, even though this continues to be the traditional response. At its core, sales projections are caused by insufficient high quality lead generation. Salesforce reports that 57% of sales reps expect to miss their yearly quotas, with the actual average quota attainment rate falling slightly lower at 54%.4, 5 Employee dissatisfaction stems from potential low opportunities for commission ultimately caused by inability to close deals. These are all likely factors contributing to the 27% annual turnover rate among US salespeople—twice the rate in the overall labor force.6

Given the data, there are two potential solutions. The first is hiring only stelar sales reps experienced in differentiating between low quality and high quality leads. The problem with this approach is that stelar sales reps are at a premium–there aren’t enough of them to fill a sales organization, even if a company could afford paying top prices for all its sales reps.

The second solution lies within the data: focus efforts on lead quality and the cumulative nature of HQLs to potentially increase the number of annual leads by tenfold. In other words, build your sales organization based on the average sales competency level, but feed all your sales reps with HQLs. The difference is dramatic, as we shall see below.

Cumulative Nature of HQLs

As demonstrated, HQLs have an undeniable effect on conversion rates that trickle down to revenue, profit, and valuation.

Not only do top HQLs increase the number of closed deals, but they also often shorten the overall sales cycle. The data below has been modified to reflect this change in each respective buying cycle, assuming that strong and top quality leads take the upper and lower range bounds for the average B2B buying cycle, respectively.2

These numbers illustrate the full, cumulative effect of HQLs in the sales pipeline. Given the higher conversion rates and shorter buying cycle, top HQLs can lead to a representative closing 10 times more deals in a single year. Another way of putting it is that low quality leads can cost as much as ten times more than high quality leads.

Next Steps

Contact us to discuss how we can help you begin generating High Quality Leads to significantly improve your sales productivity and profitably hit your sales targets each quarter. Read more bout the impact of High Quality Leads on sales and profits here.

Impact of High Quality Leads on Sales and Profits

increase high quality leads to grow sales and profits

High Quality Leads close faster, at a higher rate, and at a larger average deal size than do leads of lower quality. That much is obvious.

What is not obvious is the dramatic change in sales  and profit growth that can result from relatively small improvements in each of these metrics. What makes High Quality Leads even more powerful is that they positively affect all three metrics at the same time, resulting in a “multiplier effect,” as we shall see below.

High Quality Leads are highly motivated buyers who have identified a compelling need to change and understand that the cost of not changing significantly exceeds the cost of changing. That is why they want to change (they close at a higher rate), and why they want to change now (they close faster), and why they are willing to pay more for the solution (the average deal size is higher).

The Problem with B2B Marketing

It takes significant research and analysis to deeply understand the challenges that any group of B2B buyers face and show them the compelling reason why they must make a change, as well as  the high ROI in making the change now. Unfortunately, most B2B marketing teams are not well equipped to perform this research and analysis, or produce compelling content that engages their target. It is far easier to opt for producing as many leads as possible—as measured by emails open and click rates—and deliver these to Sales. Quantity is usually easier to produce than quality. Ironically, quantity also tends to cost more than quality.

There is an assumption that more “marketing” results in more sales, without any real analysis to support this premise. It  is possible to grow sales by spending a lot on marketing efforts, hiring more sales reps, and giving deep discounts. However, in many instances, the growth in cost due to these increases is greater than the growth in sales, often eating all possible profits from the incremental increase in sales.

What we want is to grow both revenues and profits at the same time. And that is possible only with High Quality Leads. The real metrics for Marketing should be by how much closing ratios, sales cycles, and average deal sizes were positively impacted by the marketing spend. 

The Financial Impact of High Quality Leads

Let’s quickly compare the financial impact of High Quality Leads (HQLs) against Low Quality Leads (LQLs). We will assume that HQLs will impact all three metrics—closing ratios, sales cycles, and average deal sizes—equally by the same percentage point. In reality, it is possible they may impact one metric more than the other.

Also, in reality, High Quality Leads positively impact your worst sales people far more than your best performers, who are already focused on HQLs. It is your average and mediocre sales performers that need to move to HQLs, and focusing them on these will significantly improve your overall sales and profits. After all, most companies have far more average performers than star performers—changing this will change the average numbers for your company.

Assumptions used

For this exercise, we will look at three scenarios—a 10%, 15%, and 20% improvement on closing ratios, sales cycles, and average deal sizes—to see how they impact sales and profit growths.

The rest of the assumptions are kept constant across all three scenarios: Sales commission – 10%; Sales payroll – $2million/year;  Marketing payroll – $250,000 per year; Tools and systems – $150,000 per year; and Outsource Marketing – $180,000 per year.

We held all spending constant except for adding a $180,000 a year budget for outsourced marketing that would enable us to improve the quality of leads by 10%, 15%, or 20%. The results are dramatic as summarized below:

Next Steps

The above analysis is not theoretical. Our clients have reported 60-67% increase in engagement levels at the business development level and 30-40% increase in conversions from SQL to Sales Funnel. Please contact us to learn more on how we can help you fill your sales pipeline with High Quality Leads.

High-Quality Lead Generation (Pillar 1): Segmentation

Market segmentation, at its core, focuses a company’s sales and marketing efforts. Simply put, it is a decision to pursue a specific market. Once a company identifies a target market segment, the company will channel all of  its marketing and selling efforts into that specific market.

The purpose of market segmentation is to enable a seller to produce an unmatchable offer within that segment, making it the vendor of choice—and to do so profitably.

B2B market segmentation typically consists of three elements: Role, industry, and geography—in that specific order.

Making an unmatchable offer for these outliers becomes increasingly expensive until it becomes a losing proposition.

RoleIn a B2B context, products are sold to solve the problem of a specific business manager (also called a business driver). This person may or may not also be the decision maker in their respective company. Role is the single most important criterion for segmentation, as all features and capabilities of a product/service are targeted towards making that Role’s headaches go away.

An example of a Role of a business driver might be “Head of HR,” “Head of Sales,” or “Head of Compliance.”

IndustryWhile Role is the most important segmentation factor, adding industry to segmentation will make it significantly more targeted, allowing for better optimization of limited resources.

For example, while the heads of HR of the Hospitality industry have many things in common with the heads of HR of the Financial industry, the degree to which the two are regulated is different. Products for highly regulated industries need more controls built in.

Some industries are also more concentrated than others. Concentrated industries tend to be more uniform in size and type, while more fragmented industries have significant variations in size . The concentrated nature of the former makes it significantly easier to mass-market to the whole of that industry. In fragmented industries, businesses may need to seek out more niches to market their products and services to, thus highlighting the importance of market segmentation.

LocationSegmentation by the geographic location of a company is important because the farther away the customer is from the provider, the higher the cost. The most obvious cost is that of travel, but there are additional costs of  distance. These include differences in time zones, language, and local customs and laws.

Itis often important to meet face to face with customers in order to build rapport. This process is expensive when the customer and sales rep are far apart. Either the provider has to incur traveling expenses, or it has to open and maintain an office near the customer.

The issue of geography is typically not a problem in geographically concentrated industries. However, in fragmented industries, a provider will either have to pick a geographic location or find an optimal way to sell products and services on a national or international scale.

In the end, the purpose of segmentation is to make it profitable to build an unmatchable offer for a specific segment.

Read about the second pillar of high quality lead generation – “positioning” – here.

High-Quality Lead Generation (Pillar 2): Positioning

Positioning is the second pillar of High Quality Lead generation because it succinctly clarifies:

  • Exactly what a seller does
  • Why the seller is different from others
  • Why that difference should matter to the buyer

The goal is to communicate an unmatchable offer, and the positioning statement should do so in a way that is both clear and credible. The more specific the target segment is, the easier it will be to make an offer that is both compelling and credible for that segment.

As discussed in a previous section, there are three basic types of buyers, and these different types of buyers respond to three very different kinds of positioning statements.

B2C companies are generally much better at positioning than B2B companies because they understand and take full advantage of the different types of buyers.  B2B companies tend to ignore these differences and use general statements that have something for everyone, but not enough for anyone.

Visionary BuyerProduct Positioning

Visionary Buyers are interested in accomplishing something that has never been accomplished before, and as a result, ONLY interested in a product that will enable them to be among the first to do something.

Therefore, all positioning is focused on demonstrating how this product is far better and faster than any other product out there. Anything less is not compelling.

Pragmatist BuyerMarket Positioning

Pragmatists want to see data and evidence. Therefore, they want to see some market forming around any new product so that there can be sufficient data on the efficacy of that product.  What is important here is to show the growth and credibility of the market and that the seller is a leading force within that market. Anything less is not compelling.

Conservative BuyerCompany Positioning

Conservatives care about relationships, and relationships take a long time to develop. It is the company, not the product or even the market, that conservatives buy from. Conservatives will loyally accept an inferior value from a company they know and trust, rather than a superior value from one they don’t.

As the goal of all marketing is to drive a product to a leadership position within a defensible space, positioning has to first identify the intended buyer group, and then give that buyer group every reason to believe this is an unmatchable offer.

Positioning is a complex subject, and we cannot do it justice in this paper. However, there are many excellent books and articles written on this subject that we encourage B2B executives to study,as they will make a significant difference in the quality of leads their companies can expect to generate.

In order for positioning to be effective, sellers must continually think about what buyers want by developing quality content. Read about the third pillar of high quality lead generation (“content”) here.

High-Quality Lead Generation (Pillar 3): Content

Positioning is the claim a business makes, but in order for it to work, it has to be believable. Developing quality content is the most effective way to be seen as the authoritative resource on a specific subject in a specific space.

It is worth repeating that buyers don’t want products or services—they want solutions to their problems. Many sellers, on the other hand, make money by selling products and services and continue to think that is what buyers want.

Content is the link between what buyers want and what sellers want. Through content, sellers demonstrate both a deep understanding of the buyer’s challenges and their ability to solve those challenges. That is how sellers provide the confidence that buyers need to engage in a favorable purchase decision.

It is important here to define what we mean by content. For it to have any value to Buyers, the content has to have the following qualities:

  • Relevant – The focus of the content must be on buyers, not sellers. It has everything to do with the buyers’ world, problems, and challenges, as well as the world-view and culture of the buyer. As we have shown above, what is relevant for a visionary buyer is not so for a pragmatist, let alone the conservative buyer. And vice versa.
  • Useful – The content should help buyers solve their problems — at least partially, regardless of whether or not the sellers gets anything out of it. Buyers have many options, so the seller’s first hurdle is to prove to be a more valuable partner than its competitors. The best way to accomplish this is to prove it up front, before the selling even starts. Proof is again different for each type of buyer—for a visionary, it is a demo; for a pragmatist, it is a pilot; for a conservative, it is a reference from an already known entity.
  • Fresh – Buyers can conduct their own research and find what they are looking for. Therefore, simply copying or repeating what others say, though that may sound safe and expeditious, will backfire. For sellers to make their positioning statements believable, they must provide original content that is hard to find elsewhere. Ironically, while conservatives are the least likely to want new information, they are also the most skeptical and will only accept something from an already well-established seller.
  • Depth, not breadth – The mistake many sellers make is trying to “cover all their bases” and generate shallow content for a wide audience. In reality, they need to do the exact opposite. . Buyers want someone who knows everything there is to know about the problem they have. It is the depth of knowledge they care about. This is why segmentation is the first pillar. It would be financially unsustainable to have both breadth and depth. Since buyers want to work with top-tier vendors, sellers must demonstrate depth and must choose where they will show that depth. Depth is especially important to Pragmatists who demand quite a bit of evidence. Conservatives want to know that there is a lot of evidence, but they typically do not “pour” over a lot of content.

As one can imagine, content development is resource intensive. It requires creativity and subject matter expertise, as well as skilled researchers, writers, and designers, to consistently produce high quality content.  One way to measure the quality of a lead is to gauge the lead’s level of engagement and interest. The content that the lead views (in terms of page visits and downloads, for instance) can inform sellers of the lead’s degree of readiness to be further engaged by Sales.

Finally, the use of metrics in comparing results to desired outcomes is the fourth step in generating high quality leads. Read more about measuring results here.

High-Quality Lead Generation (Pillar 4): Metrics

sales metrics for high quality lead genereation

Success is a result of clearly knowing what is required, preparing a plan for achieving it, executing the plan, measuring results, comparing results to desired outcomes, and then making necessary adjustments towards the desired outcomes. Do more of what’s working, eliminate what’s not, and keep improving until you find a better way. Data provides reliable metrics and insights on where to spend more resources and where to spend less. Measuring results is critical to consistently producing High Quality Leads. The important questions to answer are:

  • Which metrics do we want to track?
  • What do we do with the findings?

Amazon tracks over 700 different metrics. However, for most B2Bs, the key categories to track for lead generation are email campaigns, inbound (web), and social media properties. Below are the minimal metrics that should be tracked in order to bolster HQL generation.

Email Metrics

MetricsWhat it tells us
Open ratesOpen rate metrics don’t reveal whether or not someone has read the email, only that they have opened it.

High open rates typically mean that the subject line is interesting and/or the sender (person and/or company) is familiar.

Such metrics vary from industry to industry, and comparisons should be made within rather than across industry.

Click through ratesOne clear indicator that an email has been read is if a link in the body has been clicked.This is also a strong indicator of the recipient  moving from curiosity (opening the email) to interest (clicking to find out more).
Bounce ratesThere are two kinds of bounces: hard (the email cannot be delivered) and soft (the server will not deliver the email because the sender is unknown).

Bounce rate metrics typically measure the quality of the email list used. High bounce rates indicate that the list is “stale” and has outdated information.

Opt out ratesOpt out rate metrics measure the degree to which there is a strong fit between the target audience and the message.

High opt out rates  indicate that the recipients regard the email(s) as spam. Most likely, the list is untargeted—  making the message irrelevant for a substantial number of recipients. Or, the list is targeted but the message is weak and uninteresting to the recipients. Either scenario is likely to irritate recipients and make them opt out to avoid receiving unsolicited and unhelpful emails.

Too many opt outs are early warning signs that the company may be charged with spam complaints, which can cause the company’s email domain to be blacklisted.

 

Inbound (web) Metrics

Inbound leads are typically of better quality than outbound leads because the prospects have already demonstrated a desire to find out more—which means they likely have a pain they want to address sooner than later. Therefore, it is very important to understand the requirements for generating inbound leads at the lowest cost possible. The metrics below are equally important for both organic and paid search activities.

Unique VisitorsThese are the number of actual visitors coming for the first time in the period measured (today, this week, this month, etc.). Generally speaking, increasing the number of unique visitors is a result of a significant amount of relevant content that has been highly search engine optimized (SEO), probably with additional help from outbound or social media marketing.
Bounce rateThis refers to visitors that came and left from the same page because they entered without looking at other pages. This is an indication that visitors landed on the site by mistake, which suggests that  focus key words may be misleading.

It is also important to track which pages have the highest bounce rates.

Gateway pagesIt is important to take note of  the most visited entry pages on a site in order to optimize the content and ensure that visitors stay on the website. The pricing page is a typical gateway page. Companies that only provide pricing information on that page are not using the page to its greatest potential. Worse, they may not even have a “Contact sales for pricing” message. This will likely result in higher bounce rates from that page.
Avg. pages per visitWe want “sticky” sites where visitors spend some time looking at several website pages. The more pages visitors view, the more engaged they become— ensuring a high degree of both name recognition and understanding of what the seller does. This is what we call a Marketing Qualified Lead: one that shows a strong need for knowing more even though the lead’s budget and decision-making capacity are unknown.

If the number of unique visitors is high but the bounce rates are also high, then the remedy is to provide links on the gateway pages to increase the stickiness of the website.

Key wordsMany visitors enter generic key words in their searches. Sites that rely on generic key words are usually ranked too low to appear high in a web search.

For example, entering “stethoscope” returns 9.2 million results; entering Littmann stethoscope returns 475,000 results; and entering “Littmann pediatric cardiology stethoscope” returns 123,000 results. In each case, “Littmann” appears at or near the top since the company spends a great deal of money on being at the top for any search on stethoscopes. Product based key words should use both the category and the specific name of the product.

 

Prospecting Metrics

As a general rule, companies should make telephone calls to follow up on their marketing activities. Skilled phone prospectors, or Business Development Reps (BDRs), can generate High Quality Leads on a regular basis.

From a prospecting perspective, all leads begin as Untouched and either become a Sales Qualified Lead (SQL) or are exited (unqualified).

Note: The Difference between a Sales Qualified Lead (SQL) and a High Quality Lead (HQL) is that a HQL is a SQL that has been accepted by Sales. In other words, when it meets the fifth criterion, it becomes a HQL.

The metrics for phone conversations differ greatly from industry to industry and from role to role. Some people use the telephone as an instrument for doing their work and typically pick up when it rings. Others see it as a nuisance and source of interruption, so they only take calls from customers or people they know.

For example, it is far easier to reach those in sales roles than it is to reach CIOs or technical people in general. Similarly, those in local government jobs are more likely to pick up than those in state or federal government offices. Generally speaking, older people tend to pick up the phone far more often than younger decision makers.

With that said, there are some important metrics to track when monitoring the effectiveness of a prospecting program in generating High Quality Leads.

Prospecting Metrics
Key Conversation RatioThis measures the relative ease or difficulty of reaching the target. The higher the ratio, the more accessible these decision makers are. This does not include conversations with receptionists or assistants unless assistants provide useful information.
SQL RatioFrom the BDR’s perspective, getting Sales Qualified Lead (SQL) is the goal. To achieve this, the BDR asks a series of questions to gauge whether a potential lead meets a client’s specific criteria through SQL metrics.
Acceptance RatioAcceptance ratio metrics keep the prospecting team honest. Sales people look at the SQLs turned in and either accept or reject them. As a rule, the minimum acceptable acceptance ratio should be around 80%, so that no more than 20% of SQLs turned in are rejected.
Nurture ratioThis is the “Not interested now” or “Don’t have a budget now” metric. Such metrics can give a sense of the BDR’s skill and the quality of the call script, including the quality of the objection banks used to address some of the reasons given for not being interested. If the lead is in the right target and the right role, the only reason for not being interested is that the lead has already solved the problem in question.
Exit RatioThere are several reasons for exiting—all of which are determined after trying to reach someone. Metrics such as the exit ratio can help clarify these reasons:

  • Not a good fit—This means that the targeted company itself is not a good fit. It is either too small or too big or not even in the right sector. This is an indication that the list contains bad data.
  • Not the right person – The company can be the right target, but the individual contacted is not the right person for the purpose of the call. This is an indicator that the list is not well-targeted.
  • Bad data – This means that the phone number is wrong or disconnected. Therefore, the list is stale and has old information.
  • Can’t reach – There are limits to the number of times we want a BDR to call the same number before giving up and moving on. Unless the lead is on vacation, an extended period of unreachability indicates a lack of willingness to pick up the phone or return a call. In these cases, the BDR should move on.

Read about the first pillar of High Quality Lead Generation here.