The reality is the top of the sales funnel is a veritable “death zone” for leads.  On average, only about 17% of leads make it out of the top of the funnel to become genuine sales opportunities.  I started using the “death zone” label after realizing the majority of the time and effort spent by many of the inside sales teams I was talking with is wasted on leads that never become opportunities (see The Bridge Group for great comparables on funnel analytics).

It turns out if you start out climbing a big mountain (a.k.a. the Next Quarter) too high up, you can’t make it all the way to the summit.  You get sick, have to leave, and never get to the goal.   That’s why mountain climbers call it the Death Zone.

Apply that paradigm to the sales funnel and what do you get ?   Same thing – - a selling Death Zone.   Since only 17% of leads convert from being qualified leads – - meaning they met some minimum qualifying criteria when they were collected – - that means  83% ! – - eighty three percent ! – become casualties of the selling Death Zone.    It’s alarming to think most sales managers take 83% of their sales budget and conduct calling campaigns that result in $0.00 of sales !

Try applying some sales funnel “situational awareness”. A lot of sales managers are focused on improving the 17% yield a little bit, maybe to 18% for example, and view that as a HUGE  win.

Change your viewpoint here and what happens ?  Suddenly things don’t seem quite so productive.  You start to see that  a great deal of sales time and effort is being wasted. Same funnel, same metrics, but an alarmingly different viewpoint.  If the majority of sales resources are being used-up  calling, waiting, and chasing prospects that perish in the Death Zone, it makes it hard to scale any sales operation cost effectively, especially if your lead generation is growing quickly.

Also watch out for compounding the Death Zone affect  by rewarding small incremental increases in opportunity creation with disproportionately large incentives.  Instead, why not address the big problem and refocus resources being wasted in the Death Zone by setting some aggressive objectives for putting them work in the Opportunity area of the funnel. That’s where time spent selling has a much better chance of creating a closed deal.

Over the next couple of posts we’ll look at ways of avoiding the Death Zone by changing the game and putting those wasted resources to work for much more productive yield, so stay tuned…..

Every great sales rep intuitively senses the pivot point moment when they’ve built enough trust in a prospect that they know the deal will close.  You know who these reps are – - they are the top performers on your team.

DO YOU QUALIFY LEADS BY TRUST LEVEL OR TIMELINE ?

How about your sales team – - do you make this successful practice by making it a systematic part of a structured sales management process ? Or is your sales team running on timeline-based prospecting .   Here’s a checklist to help answer this question:

1. Leads are measured by how they progress within a pre-defined schedule.
2. Salesforce is programmed for follow-ups based on time intervals
3. Leads are sent to nurturing after a certain time period has elapsed
4. Conversion rates in the funnel are low (See an article on the funnel

If you answered “yes” to any of these questions, you’re using traditional timeline-based prospecting.

MEASURE PROGRESS BY TRUST LEVEL NOT FUNNEL VELOCITY

Timeline prospect management can create a hit-or-miss syndrome in the funnel. The middle of the funnel can become a “death zone” for leads - – they either qualify-in during an arbitrarily defined period or get recycled into a nurturing cycle or dropped altogether. If the timeline doesn’t leave enough time for trust creation, it results in a missed opportunity:

In Trust-based prospecting, progress is measured in movement up the trust scale, not by time. On the other hand,  a lot of sales and marketing managers I know use 60 to 90 days at the limit for outbound cycles or automated active nurturing in the sales automation system.  When time is up, the lead is “recycled” to nurturing or ignored – - in other words, it enters a sales funnel “death zone” – - opportunity missed because of impatience caused by the urge to automate the sales process.

Instead, it’s better to  structure the prospecting process as a series of Trust building steps. Like the chart above on the left,  human nature is not linear and neither  is establishing trust.   So ignore the arbitrary time measurement and find a way to measure trust changes.

HOW TO MEASURE TRUST IN THE PROSPECTING PROCESS

So how do we measure trust ?  There are whole books written on this topic.   I did a poll of sales managers and found a some prevailing themes.   First,  here’s a simple trust quotient formula I like:

TRUST = CREDIBILITY + COMPETENCE

Credibility and competence are characteristics a sales rep can demonstrate during the sales cycle to move a prospect up the trust curve.   Consensus from my informal poll of exceptional sales managers indicates there are two good ways to measure trust level with a sales prospect:

1. Rate, depth, and honesty of the information that’s being exchanged
2. The quality, content and openness of the dialog

I’ll cover trust-ranking and trust-classification of  information tools  in a future post.  A good place to start looking at trust prospecting is to evaluate your current sales dialog. Here are a few examples that illustrate the point:

Expand on this list using your own sales prospecting questions that you know work well in your process. Use this chart as a framework and anticipate and write down the High Trust and Low Trust answers you’ve heard or would expect to hear.  In addition to the content and vocabulary,  the tone, and honestly level of the answers will also be key measures of trust.

These are a few of the principals to use in Trust-based Prospecting and can form the core on which you can build your own system. Remember, resist the urge to use timelines as the as the sole pacing item in determining what to do with leads.

In Part 1 we took a look at Inside Sales Cost (ISC) and the Lead Generation Effect  – - the idea is that ISC keeps increasing as the number of leads you generate goes up as you hire more and more people to keep up with the growth – not a sustainable growth strategy.

Let’s take a closer look at ISC and the part of the funnel where Sales 2.0 organizations usually apply people resources. In this part of the funnel the goal is to convert Marketing Qualified Leads (MQL’s) into a sales Opportunity.

A GAME OF LOUSY ODDS

The conversion rate in this part of the funnel is about 17% on average – - that’s from Trish Bertuzzi, head of The Bridge Group, a leading inside sales strategy consulting firm.

Gary Ambrosino's Sales 2.0 Sales Funnel

A good yield for a business process ?   Not quite.  Not if you if you compare to the success rates of some other things you might do instead:

• Odds of getting to your destination in a car   99.99999999999999%+

• Odds of winning a well-played hand of blackjack  45%

• Odds of coming off your couch and summiting Mt. Everest  33%

• Odds an MQL will convert to an opportunity 17%

Think about this.  A good portion of ISC (Inside Sales Cost) is spent on an activity that is 17% effective – - would it be better to take the sales budget and play blackjack for the same upside ?

THE CALLING, WAITING, CHASING GAME IS EXPENSIVE AND SLOW

What makes this part of the funnel expensive is the way inside sales are applied.   Here’s a pretty typical follow-up for an inside sales team:

The economics of this calling, chasing, waiting sequence are pretty lousy. If you are a $20 million business with a $10K average selling price (ASP) using comparable funned yields (see Part 1) you need about 47,000 MQL’s.   Playing the calling, waiting chasing game, at an average of  $9 bucks an MQL , costs  almost $500,000 just to quality prospects to the point you can hand them over the account reps.   In a Sales 2.0 operation this takes about 10 people to accomplish over a 12 month period.   The drawbacks to this whole exercise are pretty clear:

1. Not Scalable – increase lead flow, you increase selling cost (see Part 1).
2. No Automation – capacity to prospect  is limited to available team time
3. Low Velocity – the prospects control the rate of qualification
4. Low Investment Return – waste 83% of your Inside Sales budget guaranteed.

CHANGE THE GAME – STOP CALLING, WAITING, CHASING

How about replacing the old-fashioned “four step” calling process using an entirely with some newer online tools that are perfect for engaging a prospect at the moment THEY are ready.  Here are three that work well depending on your need:

Chat is great for catching people on your web site and answering some questions.  Not so great for sales qualifying.   Requires  having people on standby.   www.liveperson.com

Call Me is better qualifier than chat because it leads to a longer interaction.    Ad-hoc so it’s not clear what the qualification level is.  www.google.com

Click-to-Schedule is very good as an “ultimate opt-in” business tool – - especially when it’s key pivot-point in the sales process where you know the closing chances are pretty high – -  like getting the prospect on the phone for  a demo.   When a prospect clicks this button, they are volunteering a committed, scheduled time, and they are ready to be sold to.  Allows scheduling an inside or busineess development reps  time from an  “as  available” pool and routes the appointments to the right person. www.timetrade.com

USING THESE INBOUND SALES TOOLS

For a lot of marketing and sales managers, these tools are not only new technology, but they also represent a new process – - one that can be counterintuitive if you are used to running a traditional inside sales process.

These tools, especially a “Schedule a 15 Minute Call”,  put control into the customer’s hands as to when they want to engage.  The job on the selling side of the equation is to equip your web site, outbound and inbound campaigns, and your social media presence with the content and remarkable information that brings someone to a point of trusted interaction.

In an upcoming post we’ll talk more about how to improve your prospecting yield through a trust-based interactive process.

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.

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:

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:

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.