Jake Surrey, Head of Digital (Canada) at Fountain, explains why a higher focus on LTV as a sales metric versus the sheer number of leads is the more profitable way to go.
It’s a really interesting time to be discussing customer lead generation, because things are changing quickly, especially in B2B marketing. The traditional formula for lead generation activities, where people are bounced through to a landing page on which they can download a piece of content, such as a white paper, case study or “the 10 best ways to build a winning team” in return for their contact details is becoming less and less effective in many cases. Frequently, all the sales team ends up with is a lot of very low-quality leads – because downloading a piece of branded content doesn’t necessarily indicate purchase intent.
So, what’s the difference between a good lead and a bad lead?
Here’s a B2C example: a house builder will be likely to have lead scoring criteria focused around – have you been approved for a mortgage, how quickly do you want to move, and how much money do you want to spend on a house? So an example of a good lead would be, “I’m ready to move immediately, I’ve been approved for a mortgage, and I’ve got half a million to spend.”
That’s a really high-quality lead, in comparison to somebody who’s saying, “I might be looking to move in 12 months, I haven’t been approved for a mortgage, I’ve got £150,000 to spend, I live in Azerbaijan, and I haven’t got a visa to travel.” That would be considered a low-quality lead.
That’s both ends of the spectrum, but in a lot of cases, what you have is a whole volume of what you’d call MQLs (marketing qualified leads) – one key number to look at is how many of those leads are translating through to sales qualified opportunities (SQOs).
Marketing and sales teams have to learn to work together
Just because someone who’s clicked on one of your ads downloads your content doesn’t mean they’re going to be a good, high-value prospect for your business. It all depends on the marketing business metrics and what the sales team’s lead scoring criteria is. This is where the disparity occurs – you have your marketers saying, “I’ve just generated some leads with a paid-for campaign on LinkedIn,” and the sales teams pitching in with “yes but they don’t necessarily fit within our scoring parameters.” Ultimately, marketing and sales teams should be working together to maximise both revenue and profit.
One way the disparity between marketers and sales teams can be short-circuited is by using job swaps. If you’ve got a marketing person who’s never been involved with the sales side, why don’t you get them to call every single person on the back of that campaign that’s generated 500 leads? Whereas if you’re on the sales team, why not go and study all the work it takes to get a campaign going live – what the process is and each of the steps you need to go through to attract that person who’s never heard of you.
I think something along those lines could be really effective, and among the more progressive SaaS (software-as-a-service) technology companies something like this is happening. I appreciate an in-depth job swap isn’t always realistic for most companies so at the very least, explaining the whole process as seen from both sides would be beneficial, because they may exist in very siloed environments. In general, sales and marketing are blending more and more, and we frequently see the best marketers having some sales experience and the best sales people having a natural instinct for – and in some cases creating their own – marketing strategies.
How to improve lead generation by concentrating on LTV
One thing you can do to improve the lead generation process is by aligning the KPIs between sales and marketing towards revenue goals. The KPIs I’m talking about here are things like sales revenue, cost per lead, customer lifetime value, customer acquisition cost, etc. Of them all I think LTV is the metric businesses should be concentrating on, rather than sheer lead volume. LTV is how much money you make off a customer over the full duration of their lifecycle – that’s what you need to maximise.
Opportunities to do that include repeat sales, up-selling, and subscriptions. Your lead scoring criteria should be defined by the people who give your business the most value over their lifetime as a customer.
LTV should therefore be used to inform a marketing strategy that gives your sales team high-quality leads. If you can identify which current customers have the highest LTV, then you can also figure out where they came from. This should also make you think about your channel planning, your content strategy, and your media planning – what sort of campaigns and associated content you should run and put out.
But a question that normally gets asked somewhere along the line when dealing with LTV is how can businesses set customer acquisition budgets based on those LTVs? Because not every effective marketing channel is measurable – that’s challenging. Although everything in digital is pretty much measurable – which is extremely helpful – the highest quality leads will often come from a word-of-mouth referral which is extremely fiddly to quantify.
LTV should define how much you can profitably pay for a customer – your customer acquisition cost (CAC). And therefore, another metric to explore is the multiplier between CAC and LTV required to ensure profitability targets are met. For example, a CAC maximum of 10 per cent of customer LTV might be required to pay for all the other business costs. The benefit of using metrics like these is that it should optimise your bottom line profit – anything else is a vanity metric.
How do you monitor your leads?
Gaining alignment between sales and marketing on what a good lead looks like, and then agreeing on what criteria qualify them as being good are the first steps.
Then using a CRM system to automatically score lead data according to those criteria is crucial. Something like Salesforce or Eloqua if you’re a big enterprise, or if you’re a smaller business something like HubSpot, which has improved its offering significantly over the last five years. There are plenty of others for smaller businesses like PipeDrive, Zoho or Keap which all have pros and cons.
As an example, I recently worked on a strategy for a high-growth technology startup in Canada. Although COVID-19 changed a lot of the initial planning, the foundational premises have remained the same.
The product worked on subscription, so we used the average monthly subscription and average duration of a subscription to work out the average LTV. Working in a margin helped define what the maximum CAC would be – how much could they spend on acquisition while maintaining profitability targets.
This then led to the construction of a detailed content and media plan that fitted within these parameters. Certain channels and audiences were discounted as these were considered too expensive and non-marketing-led recommendations were made around sales strategies.
Why “now” is the right time for this approach
I think the measurability, stagnancy, and increasing ineffectiveness of the older tactics – for example focusing on lead quantity over quality – are becoming increasingly redundant. The ever-increasing competition in the digital landscape necessitates a move to this approach which will give a boost to bottom line impact.