I appreciate Bob’s recent blog, Transforming your marketing from a cost centre to a revenue centre, and its look at how the transition is forcing marketing and sales to better align around a number of shared processes.
Bob pointed out the importance of aligning around ideal prospect definition, the problems you solve, and the prospect buying decision process. I’d like to add to this conversation the importance of agreeing on how lead value is measured, both in terms of quality and impact on revenue in the B2B complex sale.
The Wrong Measures
Part of what has reinforced marketing being seen as a cost center is that it has been incented to generate and deliver sales leads in high volumes at the lowest possible cost-per-lead. Little to no regard has been placed on evaluating leads around revenue-based criteria such as potential deal value, likelihood of closing, and other deeper-in-the-funnel metrics.
Using cost-per-lead as a primary measurement of marketing’s lead generation success delivers a host of problematic outcomes that cascade through marketing and sales organizations. Sales is flooded with large numbers of low-value leads that do not meet required criteria. When reps find genuine opportunity missing in these so-called “leads,” they see future leads in the same light and ignore them with greater frequency. In the meantime, valuable rep time, marketing campaigns, and budgets are wasted while the real deals go to competitors.
This discussion is so important that I just recently introduced a three-part blog series, The Cost-Per-Lead Fallacy in Measuring B2B Lead Generation Investments. The series describes how the cost-per-lead metric needs to be replaced by more accurate and more relevant key performance indicators to support marketing’s transition from being a cost center to being a revenue partner with sales.
The Shift to Outcome-Based KPIs
In addition to reviewing the historical context for the prominence of the cost-per-lead metric, the series looks at factors impacting lead generation costs in the complex sale. A number of elements—the nature of the complex sale, shared lead definition, funnel stage, and lead qualification and nurturing processes—significantly impact what a lead costs, and this cost is business-case justified when evaluation criteria are shifted to outcome-based metrics deeper in the funnel.
The shift to outcome-based KPIs will correct the problems associated with high quantity/low value leads by identifying leads that are fully vetted, offer high potential close value, and are more likely to convert deeper in the funnel—the characteristics that actually influence revenue.
Time to let go of Cost-Per-Lead
The lead evaluation metrics we seek can only be obtained deeper in the sales funnel where we have to go to link the influence of earlier lead generation and lead qualification activity to sales outcomes. Preferable KPIs include the Marketing Qualified Lead-to-Sales Qualified Lead ratio, Cost-Per-Opportunity, and, ultimately, metrics such as MQL-to-Sale ratio, Cost-Per-Sale, and ROI - overall, by initiative, and by opportunity.
This shift in marketing’s role from cost center to revenue center is one of the most significant shifts in recent memory. A critical part of marketing and sales aligning around processes that support this shift is letting go of the cost-per-lead metric and fully embracing deeper-in-the-funnel KPIs that more accurately reflect the value and impact of leads on revenue generation.
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