The SDR Funnel Math – Fix the key Metrics before you increase the size of your SDR Team

sdr funnel math

As we work with clients, we hear the same questions over and over again: Should we hire more Sales Development Reps (SDRs), or sales reps? Or both?

And our response has been invariably the same—it depends.

  • If your conversion metrics are all good, then by all means hire more.
  • If not, fix your conversion metrics first before you hire more. Otherwise, you are throwing good money after bad.

Let’s say your sales goal is $10 million and your average deal size is $100,000. This means your reps need to close 100 deals. So far, looks pretty straightforward.

Here is where the “it depends” part begins.

·   If your average closing ratio is 10%, then you will need 1,000 opportunities in your pipeline

·   If your average closing ratio is 20%, then you will need 500 opportunities in your pipeline.

Just this one metric alone clearly demonstrates that improving the quality of the pipeline reduces the burden on both your sales and SDR teams. SDRs don’t have to book as many meetings, and sales reps don’t have to struggle to work with so many prospects at the same time.

It also makes it easier to see why you will not need to hire more SDRs or sales reps with the second scenario, while you are more likely to believe you “need” more of both with the first one.

The SDR Funnel Math

But, I’m sure you know it’s more complicated than that.

Working with the conventional three-tier funnel model (Top, Middle, and Bottom), Marketing is supposed to keep filling the Top of Funnel (TOFU) with qualified prospects so that enough go to the Middle of the Funnel where your SDRs call to qualify and book appointments for the Sales team, which works on the Bottom of the Funnel to push prospects through the funnel to a close.

For this article, we will focus on understanding what is happening in the Middle of the Funnel.

Let’s say on average, each of your SDRs can book around 5 meetings a month, of which sales accepts about 70%, and of those Sales accepted meetings, about 66% make the meeting (one-third are no-shows or cancellations because the prospects didn’t see any real value in making the meeting).

Also, let’s say the average deal size of these leads were they to convert is about $75,000

So, the pipeline value that your average SDR is building for the sales team is =  5 meetings x 70% acceptance rate x 66% show rate x $75,000 or  $173,250/month per SDR. Not much, and may be the reason why you were thinking of hiring more SDRs.

However, before adding to your payroll cost, think of what can be improved.

What if I showed you that you can increase the average pipeline to $484,500/month per SDR—a 180% increase in pipeline built?  Would you first look into that to see if that were possible, or still go ahead and waste time and money hiring more SDRs?

I am going to assume you said you wanted to first look into how you can increase the average pipeline built by 180%.

Key Metrics

Looking at our formula above, there are four key metrics we can improve:

1. Average meetings set by a SDR per month

2. Average Sales acceptance rate (a measure of quality of the meeting)

3. Average meeting show rate by prospect (also an indication of the quality of the meeting set)

4. Average deal size (again, a measure of the quality of the meeting)

Improving any one of these metrics will improve the average pipeline size built by each SDR. Improving all four metrics will dramatically improve the average pipeline built by each SDR.

The Before and After In Action

Look at the chart below:

sdr funnel math

We see that we are making small improvements in the range of 20% (for appointments set per month/SDR) to about 36% (number of appointments accepted by Sales).

And yet, the cumulative impact is 180% increase in sales pipeline built

Not just Pipeline Metrics—Sales Metrics also Improve

In fact, you can argue that if you improve the quality of the pipeline (highly qualified and more motivated prospects in the pipeline), then the average closing ratio of your sales reps should also improve. After all, they are meeting with the right people who are also highly engaged.

If we assume we improved the average closing ratio by 25% (from 20% to 25%), then actual booked sales will improve by a whopping 250%–just from the above quality tweaks.

Training and Support–The Secret Sauce to SDR Funnel Math

Improving the SDR metrics and understanding SDR Funnel Math is the key to improving sales metrics. And the secret sauce to that is training and optimizing your existing SDR team.

Before you hire more people, fix these metrics. As an old mentor of mine used to say, “First, Nail it. Then, Scale it.”

Would love to hear your thoughts on this. Let’s schedule a call to see if we can help you analyze your current SDR operations and see if there are any gaps that need to be addressed. Visit our homepage to learn more about us.

Quadrant 3: Customer Retention and Upselling to Drive Sales

customer retention

Quadrant 3 is all about encouraging existing customers to buy new products; generally upgrades, add-ons, and bundles. In general, the goal is to increase the number of products your customers use by about 15-20% per year. It may seem like a big ask, but keep in mind that, apart from Quadrant 2, these buyers have the lowest perceived risk — they’ve bought from you before and are going to be a lot more willing to buy from you again, studies show. Meanwhile, the chances of selling to a new prospect are between 5 and 20%; selling to an existing customer skyrockets to as much as 60-70%. 

It’s crucial to invest in 3rd Quadrant prospects as it’s been proven to yield massive ROI. Bain & Company found that even a 5% increase in customer retention can lead to a 25-95% ROI. That’s a five-fold return. In the following sections, we’ll be looking at the strategies industry leaders are using to drive Quadrant 3 sales. 

customer retention

Customer Support Strategy

The reduced risk factor for Quadrant 3 prospects is dependent on their elevated trust in your company. Make sure your customer support strategy continually renews their trust in you and keeps you fresh in their minds. 

This can be facilitated by having a scalable support infrastructure like chat and self-help portals that can offer painless and quick support to customers as they learn and use your products. You should also maintain good communication with customers in order to stay relevant and keep them educated on your products and updates as they come out. 

Keeping close contact with customers also yields valuable insights into their buying behavior, which can help when it comes to pitching new products to them down the line. Knowing your customers well (including their needs and pain points) translates into knowing what to suggest to them to make their processes more efficient. 

Customer Retention Strategies 

Quadrant 3 sales rely on offers like bundles, packages, and deals that incentivize customers to buy more products from you. Make sure you figure out which products are best paired together and create promotions that offer added value to the original products your customers want to buy. 

Automation can play an important role here, too. Use it to promote targeted marketing campaigns to customers based on what they’re already buying. For instance, if a customer is already buying product X, use marketing campaign A, and if they’re already using products X and Y, use campaign B. 

Sales reps should also be invested in these strategies. Train them on which products are to be recommended together and on how to pitch an additional product without coming off as too sales-y; customers want to know that you’re on their side and trying to add value to their purchase rather than simply selling to them. Management can build a compensation plan around account penetration to encourage Sales reps to fine-tune their upselling capabilities. 

Upselling Strategy

Everything discussed previously has essentially been strategies that support upselling, which is the main goal in Quadrant 3. Upselling is when you recommend additional products that will complement those the customer is originally buying. HubSpot has outlined some key strategies that support upselling and will ultimately drive Quadrant 3 sales. 

First, determine which product combos get the best results, both in sales and in customer satisfaction. You want to find combinations that make sense to customers when pitched (and can be backed up by proof, like with case studies or infographics) and that will ultimately add value to the customer’s original purchase. Tracking KPIs and asking for customer feedback can give some direction to these efforts and highlight which pairings you should be pushing. Oftentimes, segmenting customers by personas can help fine-tune which recommendations to provide and to whom.

Make sure your upselling strategy is based on integrity; you’re only hurting yourself if it’s done with anything less. Though upselling is generally very profitable, if customers sense they’re being taken advantage of or don’t find added value with the extra purchases you recommend, they’ll lose faith in your business and might churn. The products you upsell must be chosen with customer experience in mind, with the main goal of making them better, easier, or more efficient. 

To support upselling, make sure to consistently introduce new products that can complement one another. Releasing a new product every 2-3 years is recommended in order to keep complementary items current and relevant. 

Recapping

Quadrant 3 is a great place to invest selling resources and if your customer retention and upselling strategies are well-thought-out, it can bring in considerable ROI. Driving sales in this Quadrant is all about investing in an excellent and helpful customer support strategy that will build trust between your customers and your brand. Some key customer retention strategies can also help boost your upselling capacities to reach your maximum Quadrant 3 selling potential. 

You can find more resources like this on the SOMAmetrics website under resources. Or click here to schedule a call if you would like to speak with one of our associates.

Quadrant 2: Customer Retention Strategy for Increased ROI

customer retention

Hubspot has shown that customer acquisition costs have skyrocketed by as much as 60% in recent years, making the customers that you do have that much more profitable to your business. As McKinsey notes, if you’ve already spent a sizable amount of time and money to acquire a new customer and they churn early in the process, you’ve lost out on the full potential revenue of that customer. Their study goes on to show that what’s separating top-performing companies from their competitors today is how efficient their customer retention strategies are. 

Customer retention is hugely important in today’s business world. Falling under the 2nd and 3rd Quadrants of the Four Quadrants of High Growth model, customer retention is all about encouraging existing customers to buy more一 either of what they’re already buying (Quadrant 2), or related products (Quadrant 3). Optimizing your customer retention strategy can lead to considerable perks.

Many companies tend to take their paying customers for granted, placing most of their marketing budget in Quadrant 1 and favoring customer acquisition over retention. Invesp found that 44% of companies have a greater focus on customer acquisition whereas only 18% focus on retention. It’s only when unsatisfied customers churn (and their revenue is halted) that these companies realize how crucial it is to invest in Quadrants 3 and 4. More importantly, they see how important it is to see all the Quadrants as important sources of revenue rather than just the first. In a study by Invesp, 70% of informants reported that it is cheaper to retain than acquire a customer, and indeed, existing customers are both 50% more likely to try new products and 30% more likely to spend more on them than new customers. Customer retention can be a game-changer if you invest in it. Bain & Company found that even a 5% increase in customer retention can lead to a 25-95% ROI. That’s a five-fold return. 

Fortunately, there are a series of proven strategies that today’s industry leaders are using to boost customer retention and drive Quadrant 3, all of which will be discussed in the following sections. 

customer retention

 Customer Support Strategy

Your target audience in Quadrant 2 already uses your products and is familiar with your brand. In order to promote the likelihood of them ordering more from you down the line, make sure you have excellent customer support. You want to develop their trust in the idea that your company is helpful and easy to work with. That way, they’ll be incentivized to become more involved in your offerings and might even become open to buying other products (i.e., joining Quadrant 3) down the line. If customers are unsatisfied with your company after purchasing from you, they’ll be highly unlikely to order any more from you. Conversely, customers that feel well-connected to you through good customer support will be all the more likely to engage with promotional offers or discounts to buy more. 

Remember that, from your customers’ perspective, everyone who works in your company is there to support them一 that includes Marketing, Sales, and everyone else, for that matter.

Also, remember that the best support strategy is to continuously educate your customers on how to use your product better to realize the returns they are looking for.

Customer Journey & the Buying Process

Current customers who have already vetted and approved your company are among the most valuable contacts for marketing campaigns. Make sure to keep your brand at the top of their minds even after they’ve made their initial purchase with you. The best way to do this is through email marketing一 by offering them promotions, discounts, or even premium services as a perk for buying more. Try to send at least one promotional email a month to keep connected with your customers and make sure these campaigns incentivize them to buy more. Update customers on new features that increase ease of use and efficiency and let them know about related products they may be interested in. 

The buying process in this Quadrant should be as simplified and easy for the customer as possible. On your end, too, it should be very low-touch and standardized; automate as much as you can and shoot for the majority of your purchases in Quadrant 2 to be completed without the direct involvement of a Sales rep. The operations should resemble a self-serve portal where customers can easily order more of what they want and have those orders fulfilled immediately. Automate pricing, contracts, and order fulfillment to ensure the buyer’s journey stays as seamless as possible. 

KPIs & Strategy Sharing 

As with any business strategy, the best way to improve your effectiveness is by measuring and analyzing the right Key Performance Indicators (KPIs). McKinsey found that customer retention success is best measured through customer-oriented metrics, such as website traffic, customer engagement time, response time, and conversion rate. However, other figures matter quite substantially here. The customer experience is important and metrics in customer frustration (perhaps with bugs on the website or with the products), a slow load time, or a poor onboarding experience can all highlight crucial areas that may need improvement. 

As these KPIs are analyzed and improvements are made based on them, make sure these valuable sources of information are not limited to just part of the company. Make sure that customer insights are shared across the entire organization, and specifically mutually updated by the Sales, Product, and Marketing teams. Feedback of this type will ensure an overall and constant improvement in customer retention that is propelled by a concerted effort across multiple departments. 

Recapping 

These days, it’s becoming increasingly more costly and time-consuming to acquire new customers, making it all the more important for companies to tap into the full potential of their existing customers in Quadrants 2 and 3. Quadrant 2 is all about encouraging customers to buy more of what they already use, and the key to maximizing this customer retention can be found through the following steps:

  • Grow trust in your company through excellent customer support 
  • Simplify and incentive the buying process
  • Track KPIs and share customer insights across the company 

Considering that even a 5% increase in customer retention can lead to a 25-95% ROI, customer retention is a great place to commit resources and boost sales. You can find more resources like this on the SOMAmetrics website under resources. Or click here to schedule a call if you would like to speak with one of our associates.

Managing an Inside Sales Team During COVID-19

You have an inside sales team who is now working in a distributed manner, due to the COVID-19 pandemic. While many companies have employees who work from home, very few have a fully distributed inside sales organization.

The question is how to manage a distributed team and ensure success during the COVID-19 pandemic.  Across the country all non-essential businesses are empty as their employees have been forced to work from home. This creates several challenges for a call team.

One of these new challenges is reaching prospects—now it is more difficult to reach people by phone, especially if they don’t have VOIP systems that can be set up anywhere. Additionally, distributed inside sales teams are not used to working from home, so it can be challenging to track team productivity. Managers will need to find a way to measure their success and productivity. It’s also challenging keeping teams engaged. Most inside sales team members sit within the same area in an office. They share ideas and hear their team members on the phone. Working from home, making dials day after day, especially when very few prospects answer, can be a very isolating experience. Putting the Covid-19 pandemic aside, sales teams are struggling to achieve revenue goals—they are finding it increasingly difficult to reach people on the phone. In 2018 over 8 billion robo-calls were sent to consumers and businesses. This, coupled with email over-exposure, has made selling more difficult than ever. 

The Fundamentals

Successful inside teams utilize sales fundamentals to ensure that they achieve their revenue targets. I will outline, briefly, these fundamentals. More information can be found in my book “Teleprospecting for Executives who Sell Complex Solutions.”

Successful teams during COVID-19:

Successful teams are driven to success by proven Key Performance Indicators (KPIs) and metrics. These KPIs and metrics are built utilizing funnel math to determine the number of inbound leads (HQLs or highly qualified leads) that are required to hit revenue objectives. Once the number of marketing qualified leads (MQLs) is determined to achieve 3x the revenue objective, managers have the data required to build out other weekly and monthly metrics to achieve the following objectives:

  • Total dials/day.
  • Number of key conversations.
  • Total HQLs (high quality leads that came from the MQLs). 
  • Sales funnel, per rep, that must be built to hit 3x of revenue target. This can be tracked, each month.
  • Quarterly revenue target required to hit an annual revenue goal.

Successful teams also track leads through the sales funnel to determine the number of quality leads that are coming into the sales organization. Leads should be given statuses that makes sense to sales. I use the following statuses:

  • Untouched: Lead has never been contacted.
  • Pursuing: Lead has been called with no connection.
  • Contacted: Someone answered the phone, but the person wasn’t the right contact and/or couldn’t move the sales process along.
  • Key Conversation: The sales rep had a quality phone call with a decision maker or influencer, which leads to a HQL or another call or a demo.
  • HQL: Rep has qualified the lead and it is ready to be converted to an opportunity.
  • Disqualified: After 10 attempts, or other issues, the lead has been disqualified. It is good to have disqualified reasons, such as a wrong number, no contact, etc. 
  • Nurture: Leads that aren’t ready to purchase now will be put back into the buyer’s journey. 

Teams should ensure that everyone has built a quarterly GOSPA or other mini-business plan that enables them to track their own success. Each manager should meet with each team member weekly to track how reps are doing against their plan. Weekly team meetings should be held to review issues, highlight successes and to train the team. These can be done through any web meeting service.

Managers should hold a daily morning check-in to see how team members are doing during this pandemic. I recommend that these be group meetings. Managers can take a temperature check of team morale, address issues with systems, and determine what each team member has planned for the day (number of demos, scheduled calls, contracts to write-up, etc.). These daily check-ins allow the team to meet as a team and provide ideas on how to work from home and stay engaged, each day. My team members came up with a few suggestions, including using a timer to ensure that reps are taking breaks, eating breakfast and lunch and are exercising; doing deep breathing techniques to stay alert; and stretching regularly to ensure that reps are leaving their chairs, regularly and throughout the day. 

Additionally, in a successful team, marketing should be working hard to write content that will attract buyers. Now more than ever, search is the way buyers get their information. Your company should be writing content that makes your company a thought leader in your space, so that HQLs flow into sales. 

It is the manager’s responsibility to keep the team engaged and to solve problems as quickly as possible. During this unique period, managers may find that they are in back-to-back web meetings. They need to ensure that some of these meetings are with individual reps and with the inside sales team. 

This is not an easy time for anyone.  Keeping the team engaged, and providing the tools that they need, will help your inside sales team to meet their objectives and stay in good spirits during the COVID-19 pandemic.

Read more about sales metrics and KPIs.

Sales Productivity In the Digital Era

The increasingly blurred line between B2B and B2C has inevitably changed the nature of sales, with customers demanding a more personalized selling process. Salesforce’s “State of the Connected Customer” report recently found that 58% of consumers and 77% of B2B buyers believe technology has changed their expectation of how companies should interact with them.

As sales mandates and productivity quotas rapidly change, sales teams often fall short of these rising expectations and are unable to meet their job quotas.1 The easy solution for companies is to replace sales reps. The more effective solution, given the high career turnover rate and cost of hiring a sales employee, is to take measures that increase the productivity of existing sales teams.

Impact of High Turnover Rate On Sales Productivity

The turnover rate for sales representatives has remained much higher than that of other roles.

According to Bridge Group Research, there is a minimum 20% annual turnover for sales talent and an average annual rate of 34.7% per year in the United States; this is almost three times as high as the average turnover rate for all roles, which LinkedIn reports as 13%.2 Further research also suggests that one out of ten B2B companies experience sales turnover rates of above 55%.3

This contrast in turnover between sales and other roles can be attributed to the difference in perspective between the representative and company with job performance, as well as an increasing competitive landscape for talent. SiriusDecisions also lists deficient compensation and lack of connection with leadership as top reasons why high-performing representatives leave their organizations.3

General Costs of Hiring a Sales Representative

This high sales turnover rate means that firms are continuously spending money to hire and replace those representatives who leave. On average, US firms spend around $15 billion a year training salespeople and $800 billion on incentives, only for attrition and other factors to reduce the return on those investments.4

The key to improving employee retention is first understanding the cost of employee turnover.

There are a few general estimations of the upfront costs behind hiring a new sales employee. A report by DePaul University states that it takes an average of $97,690 to replace a salesperson, while SiriusDecisions reports that the average turnover cost of a B2B sales representative can range above $200,000.5, 6

However, the true cost of hiring an employee in 2020 is much more complex with additional hidden costs. Employers must consider the full cost breakdown of recruiting, onboarding, and training employees until they both reach full productivity levels and cover intermediate loss in overall company efficiency.

Hidden Costs in Sales Turnover

Hidden turnover costs come from the time and productivity lost in two places: recruiting, and training and onboarding new representatives.

Recruiting

Businesses are constantly searching the market to fill vacant positions with top sales talent. Recruitment during this period often draws time out from human resources and sales leadership and impacts their respective productivity. After considering commission for external recruitment firms, McKinsey estimates that some organizations spend roughly $15,000 in internal productivity to select a mid-level sales position.7

Companies also suffer costs from supporting a vacant position during recruitment. The average vacancy costs $500 per position per day, meaning that a vacant position itself costs at least $22,000 for the average recruitment period (44 days).7 This number often increases to anywhere between $25,000 to $50,000 when lost productivity and customer dissatisfaction are also considered.8

Training and Onboarding

Once a new salesperson is hired, they often undergo training and onboarding processes to establish expectations and mentorship until they reach full productivity..

CSO Insights research found that 71% of companies take 6 months or longer to onboard new sales reps, while a third of all companies take 9 months or more.2 This indicates that a majority of B2B sales representatives are not operating at full productivity and are unable to sell complex solutions for at least half of their first year on the job.

A majority of B2B sales representatives are not operating at full productivity and are unable to sell complex solutions for at least half of their first year on the job.

companies can spend up to 2.5 times of the average salary just to fill an open sales position

Onboarding also involves time invested by managers, outside trading companies, and co-workers to train new hires. By assuming that the cost of a loss in internal time and productivity is $500 per day, conservatively approximating a salesperson will take 6 months until full productivity, and estimating that an average rep receives $3,400 in training a year, onboarding a new employee alone can cost a business over $93,000.7

Therefore, the total cost of recruiting and onboarding a new sales rep conservatively ranges between $133,000 and $158,000 when considering the upfront and hidden costs. Given that an average annual salary is $60,000 per year for a US sales rep, companies can spend up to 2.5 times of the average salary just to fill an open sales position.

How to Increase Sales Productivity

The data above show that hiring more personnel to increase the productivity of a sales team comes at a significant cost. A more effective solution is investing in efforts to improve the existing sales team’s employee satisfaction and provide better high quality leads (HQLs).

Improve Existing Team’s Employee Satisfaction

Improving the onboarding process and providing digital sales technologies are two ways to improve employee satisfaction and decrease turnover.

According to Forbes, ineffective onboarding is a major reason why companies lose 20% of new hires within the first 45 days and 17% of new hires within the first three months.9 Employees who leave during the onboarding period results in a company suffering training costs at a loss; early employee turnover also contributes to the turnover cycle by increasing the costs of replacing sales talent for a single position.

Instead of stretching the onboarding process to last as long as twelve months, businesses can accelerate their onboarding process by organizing their roadmap into a three month formal timeline. A positive three month training process not only results in 69% of employees being more likely to stay with a company for more than three years, but also leads to reps who drive more sales.10, 11

Providing technology that supports virtual selling can also improve productivity. CSO Insights states that 88% of sales professionals cannot find critical sales material on their smartphones, while 60% of sales organizations experience longer sales cycles from lack of proper tools.1 As a result, one of the top reasons high-performing sales people leave organizations is concerns about ability to meet market needs.

Virtual selling has increased in popularity as technology, transparency, and efficiency play bigger roles in the sales process. Research shows that sales reps build 3.2 times more customer connections in front of screens than meeting with customers in person. Equipping sales people with new software and technology can improve employee satisfaction, reduce costs, and improve long-term sales success.3

A positive three month training process not only results in 69% of employees being more likely to stay with a company for more than three years, but also leads to reps who drive more sales.

88% of sales professionals cannot find critical sales material on their smartphones, while 60% of sales organizations experience longer sales cycles from lack of proper tools.

Sales reps build 3.2 times more customer connections in front of screens than meeting with customers in person.

Increasing the Number of HQLs

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.

Low-quality leads have many hidden costs: wasted time, resources, and human capital. On average, bad lead prospect data costs sales departments 550 hours and $32,000 per representative.12 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%.

Companies can focus efforts on increasing lead quality to increase the number of annual closed deals. High-quality leads not only increase conversion rates but shorten the overall sales cycle, leading a representative to increase productivity by closing 10 times more deals in a single year. For more information, read our previous article on “The Cumulative Impact of High and Low Quality Leads.

Works Cited

  1. https://www.salesforce.com/blog/2018/05/sales-future-trends-research.html
  2. https://www.forbes.com/sites/christinecomaford/2016/06/18/how-leaders-can-engage-retain-top-sales-talent/#15470bb55cbb
  3. https://www.linkedin.com/pulse/why-turnover-so-high-b2b-sales-anthony-chaine
  4. https://blog.hubspot.com/sales/employee-turnover-rate
  5. https://www.forbes.com/sites/jeffhyman/2018/10/03/merrygoround/#3924ef44313c
  6. https://www.truesalesresults.com/2019-b2b-sales-predictions/
  7. https://www.membrain.com/blog/how-much-are-you-spending-on-lost-sales-talent
  8. https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/maximize-the-lifetime-value-of-your-sales-force
  9. https://cdn2.hubspot.net/hubfs/3319111/ConnectLeader_June2017/PDFs/CL_DePaul_Survey_2__3_.pdf?t=1505990163541
  10. https://blog.atrivity.com/how-to-shorten-new-hire-time-to-productivity-with-90day-onboarding
  11. https://www.process.st/b2b-sales-management/
  12. http://www.marketingprofs.com/opinions/2015/28122/what-is-bad-data-costing-your-company

Five Factors Affecting Revenue Growth

five factors affecting revenue

A study by Bain and Company shows an alarming trend: the cost of sales and marketing is growing faster than revenues. Half of the companies surveyed experienced their sales and marketing costs rising faster than revenues. Ironically, when companies achieved high growth, their costs of sales and marketing, as a percentage of sales, remained flat or even declined.

This study, along with others, proves a fundamental shift in the B2B world: Buyers have dramatically changed how they buy, while sellers continue to sell as they always have.How do sellers adapt to the changing demands and preferences of the modern buyer while pursuing continuous revenue growth?

Through the Five Factors that accelerate revenue growth; these factors are:

Factor 1: Chose the Right Market Focus

This first factor advocates that you select, market, and sell to the right industry segment for your unique business’ products and services. Of all of the five factors, this segmentation and focus has the greatest potential to increase or decrease your revenue growth.

Factor 2: Remove Friction from the Sales Process

The old selling process is being replaced. Today’s buyers want to work exclusively with vendors who align their selling process to the buyer’s preferences. Buyers prefer to research and reach out to companies that the like. To capture the attention of this new brand of buyers, sellers must align their sales and marketing processes with their buyer’s expectations and preferences.

Download the definitive white paper on improving B2B revenue growth

Factor 3: Tightly Align Sales & Marketing

To achieve high revenue growth, companies should perceive their marketing and sales efforts and departments as intimately linked. If your marketing and sales teams see themselves as a united force, at least 75% of your leads should be directly generated by marketing.

Factor 4: Leverage  Intelligent Sales & Marketing Data

With the overwhelming amount of data present in sales, you must be careful to only provide sales reps with intelligent data. Intelligent data is numbers and figures that enable sales reps to be relevant, engaging, and convincing in their interactions with buyers. The targeted capabilities of intelligent data enables your sales team to more effectively speak to leads and prospects, increasing the likelihood of their conversion into buyers. 

Factor 5: Manage Sales & Marketing Operations by Metrics

Most B2B companies today track some form of metric, but usually only in regards to sales departments. To generate revenue growth at a faster rate than costs, companies should invest in tracking the performance of their marketing campaigns. Factor 3 informs us that marketing is just as important, if not more important, than sales at generating leads and revenue growth.

In short, buyers are demanding more from sellers. They want a real partner that can ceaselessly add value to their own offering, enabling them to renew non-stop their own competitive advantage. In other words, they want to work with a top tier provider. This is no easy demand—which is why, for most B2B companies, the cost of marketing and selling is growing faster than revenues.

To fully learn how to best leverage these Five Factors to reduce your costs and grow your revenue, download our full whitepaper. 

FREE VALUE PROP ANALYSIS

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When your company’s messaging is not clear or compelling, it is difficult for your customers to find you and see you as a solution. Validate that your value proposition is powerful and compelling with a FREE Value Prop Analysis. 

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.