The biggest change in marketing over the past few years has been the shift of focus to Inbound Marketing.    Dharmesh Shah and Brian Halligan do an awesome job in their book Inbound Marketing teaching us all how to use the web SEO as a great untapped resource.   The very positive result ? Thousands of companies large and small now get a lot more leads through accelerated web traffic growth.  Good stuff.

Hold on though. This is really just HALF the equation. The other half is turning all these new leads into closed business. I did an informal poll of my CEO friends running small and medium sized businesses who consistently said “the truth is my sales team has to do a lot of outbound calling to get these inbound leads to close”.

EVERYONE Has This Funnel-What’s YOUR Advantage ?

Your best practice sales funnel probably looks like the one below. Marketing leads come in the top.  These yield numbers are pretty typical and excellent companies like Phone Works headed by Anneke Seley, author of the book Sales 2.0, can help you refine your yield model and KPI’s to optimize your particular business.  The yields on the chart are average for companies implementing the Sales 2.0 approach.

Typical Sales Funnel - Big

Increasing Sales Staff Limits Growth

For most VP of Sales or Sales Operations, the “now” focus is refinement- – “I need my marketing manager to increase lead flow and increase funnel step yields – then I’ll pound away at the leads”.   But this ignores a critical cost limitation of modern sales operations – – “pounding away” means sorting through, calling, and qualifying the leads using their Inside Sales and BDR (Business Development Rep) teams.

Let’s do some cost analysis of that process using the numbers in our example above. Let’s say you use your  Inside Sales/BDR team to reduce the 2,000  MQL’s (Marketing Qualified Leads) to 340 Opportunities. We’ll apply some metrics to the analysis that we gathered from Timetrade customers, a survey we did in partnership with CSO Insights, and data collected by SellingPower.com.  A typical MQL follow-up sequence goes something like this:

  • An average of 4 outbound calls to get a successful call completion
  • An average of 3 minutes per call
  • The average cost of an Inside Sales rep is $60,000  = $200 per day
  • The average rep spends 41% of their day selling
  • That makes the effective cost of rep $200/ 41% or $487 per day for the purposes of our calculation.

Using these metrics, it’s easy to add up the cost to convert Leads to Opportunities:

  • 2,000 MQL’s to call x 3 min per call = 6,000 calling minutes
  • 12.5 Man Days x $487/day = $6,087 (about $1 per minute on the phone)

The Lead Generation Effect

Now suppose you need to grow your revenue (what sales manager does NOT have this as a 2011 objective ?).

  • Double the Number of  Leads = Double ISC
  • Quadruple the Number of Leads = Quadruple ISC

Here’s what that begins to look like when you plug it into your business model:

The Lead Gen Effect

That’s right, cost of Inside Sales grows linearly with the # of Leads you must generate to grow the business.  Especially for earlier stage companies spending a disproportionate amount of money on sales to kick start a new product, this becomes a key limitation toward cash breakeven and profitability.

Growth Economics Are Better

Funnel conversion rates are usually a function of your market segment orientation, prospect demographics, and the nature of your product.   And for those of us that have tried, they can be expensive and difficult to improve.

Inbound Sales Rule #1 – Establish Growth Economics – change the Inside Sales game by focusing on improving the efficiency and reducing the time you spend calling, chasing, and waiting for prospects to respond.

When you do, here’s what you get, a sustainable growth model that brings down TOFC and overall Cost of Sales:

Growth Economics Graphic

In Part 2 of this article series, we will look more closely at ISC and cover some ideas on how reduce ISC and accelerate conversion of MQL’s to Opportunities.

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