One of the biggest challenges of any communication/promotion effort is to justify the investment being made. What makes it particularly difficult is the tendency to evaluate individual steps in the process rather than the process as a whole. A root cause of this behavior is that typically different departments (or people) in an Organization are responsible for different phases of the process and tend to be dogmatically focused on justifying just their step. Of course, the further that step is from the final investment/purchase decision, the fuzzier the rationalization becomes. And yet, we all know that without the creation of attention and interest winning the final investment/purchase decision is impossible.
Think Machine, Think Process
Imagine you are responsible for a brewery production line. One of your floor managers wants to purchase and install a widget for the filling station to make it 10% more efficient. The floor manager justifies the widget purchase by calculating the incremental profit generated from a 10% increase in production line output. What is wrong with his/her logic?
Nothing, assuming the filling station was the rate-limiting step in the overall production line. But, if the filling station was operating at less than 100% capacity prior to installing the performance enhancing widget, the incremental finished product output used to justify the investment will never materialize. Your company will not have 10% more filled beer bottles to sell. The financial justification is flawed because the assessment failed to look at the entire process.
This is true as well, when you disassemble the lead management process and try to calculate a return-on-investment for each step as though the steps are not interdependent. The pursuit of a return-on-marketing investment independent of a return-on-sales investment is bogus.
TULs, MQLs, & SQLs
One of the more insightful models I have read about classifies leads into three categories, based on where they are in the lead management funnel. I like the model because it encourages you to look at lead management as a process and think about each step as a machine with defined inputs and outputs.
TULs (Touched Unqualified Leads) – These are your potential prospects. The defined target audience you feel has the potential to become investors/customers.
MQLs (Marketing Qualified Leads) – These are prospects that have done something that demonstrates their interest in investing in or buying what you offer. It could be that they downloaded a report from your website, gave you their business card at a trade show, registered to receive your newsletter, etc. Net, they have demonstrated some interest, but you don’t know if they are ready to invest/buy yet.
SQLs (Sales Qualified Leads) – These are prospects that have done something indicating their readiness to engage in a serious conversation about investing in or buying what you offer. It could range from a request to speak with somebody directly, a request for additional information, all the way to sending you a request for proposal. You would also include prior customers with potential to reinvest or repurchase in this group.
How The Machine Works
At the top of your funnel are TULs. The determination of how many you need to make your machine work is based on your desired throughput. In our brewery example, if you want your production line to generate 100,000 bottles, you would back calculate the amount of water, malt, hops and yeast required as well as bottles, caps, etc. You would also take into consideration things like line speed, breakage, and other factors that come into play in the conversion of raw materials to drinkable beer. Similarly, you can back calculate how many TULs you need in your process based on the number of customers you are forecasting for the year. The goal with TULs is to convert as many of them as possible and efficiently as you can into MQLs and SQLs. You need to have a clear definition of MQLs (i.e. the actions you are comfortable as indicators of interest) and a marketing effort that can separate the wheat from the chaff.
In the middle of your funnel are MQLs. As your lead management efforts move through the stages, you can determine a conversion rate. You do so by answering the question – How many TULs do I need to identify an MQL? This will be a function of the effectiveness of your TUL program. The more efficient and effective, the fewer TULs required at any point in time. The goal with MQLs is to convert as many as efficiently as possible to SQLs. You need to have a clear definition of SQLs and a focused marketing effort to sort through your MQLs to find them. You can determine how many MQLs you need in your process by dividing your average MQL to SQL conversion rate into your desired SQL target.
At the end of your funnel are SQLs. These are people who appear to have a need you can fulfill. The key is to get the opportunity to do so. In most Organizations, this is the role of the sales function. Typically, this is a high-touch and as a consequence high-cost phase. This is the phase where you will need to help the qualified lead complete the due diligence required to make an invest/buy decision. The output is conversion of SQLs into customers. Your historical success rate gives you a sense for how many SQLs you will be required to manage in order to achieve your goal.
Example of How The Parts Are Interdependent
Your community decides a reasonable goal is to facilitate the creation of 1,000 jobs this year.
- Assume that historically, the average number of jobs created by companies making a new investment in your community has been 25.
- You need 40 companies to decide to invest in your community to deliver the target number of new jobs.
- Let’s assume our conversion rate of SQLs into investment is 10% (your community is selected 1 out of 10 times it has the opportunity to compete).
- This historical performance means you minimally need 400 SQLs to deliver the 40 deals needed to hit your target number of new jobs [40/0.1 = 400].
- Assume your MQL to SQL conversion rate is 20% (1 out of 5 companies that have expressed an interest in your community as a location choice will enter due diligence). Back calculating, that means you need 2,000 MQLs to generate the 400 SQLs [400/0.2 = 2,000].
- Assume your TUL to MQL conversion rate is 5% (1 out of every 20 unqualified leads will demonstrate an interest in your community as a location option). The number of TULs required to ultimately deliver your target MQLs is 40,000 [2,000/0.05 = 40,000].
In the above example, your funnel looks like:
Each part plays a critical role in delivering your goal. No part can do the job alone. Trying to calculate the value of investing more in your marketing program without understanding if your Sales team can convert the incremental SQLs into deals at the historical rate and at no additional cost is a recipe for disaster.
The ROI calculation needs to be based on the total investment made to fill your pipeline with TULs and subsequently move them through the marketing/sales process to deliver the 1,000 new jobs goal. The decision to invest more behind any specific part of the process needs to be made with an understanding of the impact on the entire process performance (both outcomes and cost).
When you manage your lead development effort as an end-to-end process, then determining return on investment is much easier. So are decisions on where to improve the process efficiency, effectiveness or capacity. Hiring more project managers to work projects (SQL conversion) without assurance of an increase in project flow makes very little business sense because you’d be adding excess capacity. Conversely, investing more in increasing the MQL to SQL conversion rate and then investing in additional project manager capacity to handle the increase in RFP flow may make perfect sense. In either case it requires a full process impact evaluation.
Many of you reading this post will have a “No Duh!” reaction. But, I’d ask you to objectively assess if your lead development system is being managed this way. Do you have the data necessary to determine if your goals can be met? Do you have smart investment strategies in place to improve the overall performance of the process rather than just a specific activity? Do you have a good understanding of how many incremental TULs, MQLs and/or SQLs are required to justify the investment you want to make in promotion?
My guess is that the majority of you will conclude that there is room for improvement.
Love to hear your thoughts.