The Five Criteria of Good Leads

Before you answer the question of how much you should spend on getting new sales leads, you must decide what a good lead really is. Because names are not leads, and some leads will not really lead to sales. What you want are leads to buyers. And that can get tricky.

“A lot of people think a list is leads, but that is not the case,” argues lead consultant Mac McIntosh. “A list is just some suspects who could turn into prospects.”

True leads should be qualified leads. Before hand-off to expensive sales reps, all leads should be qualified according to five criteria: The company should have a sufficient budget to make a buy and have a need for or interest in buying. The timing should be right for an imminent sale, and the company must be able to make a purchase of sufficient size to justify selling efforts. And your contact person should have authority to make the buy decision.

Each step in lead generation adds an increment of cost. Just getting a good starting list may cost anywhere from $1 to $15 per suspect if you buy from a good business publisher, McIntosh estimates. But the real money must be spent to fully qualify these names.

Going from suspects to a senior C-level decision maker at a large corporation can cost up to $2,500 per fully qualified lead. “Even if you have obtained the prospect from an inquiry, you have to determine if he is ripe and ready to buy,” McIntosh notes.

Part of that cost represents the difficulty of obtaining the time of very expensive executives. McIntosh says it may cost slightly less, about $1,500, to qualify a senior manager at the same company. And fully qualifying a line manager, with buying influence but not decision-making authority over large purchases, would likely run $250 to $600. “That gets you the name of, for example, a user who has a strong influence in buying accounting software. It gets you in the door, but does not get you a decision.”

Breaking down leads costs in detail accomplishes several things. First, the total cost, from list to full qualification, must fit within your gross profit per sale, multiplied by your closing rate on fully qualified leads. Second, it enables you to compare various lead sources. How many costly steps are you eliminating by buying, or obtaining for yourself, leads that already meet one of the qualifying criteria?

Third, it should help you focus your expensive sales rep’s time where it counts – on selling, not qualifying. Marketing departments, the Internet, and good telephone work are much less expensive tools for answering many questions about a suspect than on-site calls by sales reps.

McIntosh notes another advantage of focusing tightly on each qualification standard. Suppose a lead meets all the qualification criteria except for timing. You do not want to waste a sales call, which may cost $300 to $400, on this prospect. But you should advance the sale by less expensive means. McIntosh advises marketing departments to “water them, weed them and feed them until they are ripe for picking.”

Companies routinely try to trim costs out of their lead-generation programs, and they should. But be careful that you are not losing more money in sales than you save in costs. One apparent way of cutting costs is to pay outside reps commissions only, and let them do the qualification calling. But the costs of qualifying leads are still there. One way or another, you will be paying for them.

McIntosh sees companies make several other common mistakes in their lead generation efforts. “It starts with the suspect list. Some companies will just look for businesses in the Ohio Valley that do more than five million dollars a year. Then, they will tie up expensive resources trying to qualify a cold list.”

He recommends starting at the opposite end, with your existing customers. “Rank all your current customers from biggest to smallest. Rank them from most profitable to least profitable. Then rank them according to how much fun they are to work with. Pick the customers at the top of all three lists, and go out and look for others like them.”

Another mistake is ignoring right-but-not-ripe prospects. McIntosh’s clients report that 75 percent of their customers took from six months to two years to make their first buy. That is too huge a market to ignore, or to pursue too expensively. “Don’t dump them, keep talking, but let marketing do it,” he urges. “You have to match your cultivation cycle to their buying cycle.”

Handing off to your reps a list of prospects that is a mixed bag of well-qualified and less-qualified leads is another mistake. “If they hit the junk first and strike out, they may give up on some really good leads,” McIntosh says. He advises that reps be given only well-qualified leads for sales calls. If you must throw in some marginal prospects, be up-front with the sales force about them.

And managers can use their reps efficiently, not by having them call the ‘suspects,’ but by asking them for qualifying questions. What kinds of companies buy from them? Which decision makers are accessible yet powerful? Is anything going on in the industry that will shift the sales cycle? These are the people who will have to hit the road and close the sales. They should know what information would make their job easier and your efforts more profitable.

How much does getting leads through referral cost? McIntosh explains one calculation. “Close to 40 percent of my new business comes from referrals, but they are tricky,” he says. “I have tried rewarding customers for referrals, and it doesn’t work. What works is a happy customer.” So the real cost may be the extra effort expended to keep your existing customers happy.

Lois Geller is president of Mason & Geller, a direct-marketing firm. Like McIntosh, she prefers to look at lead costs from the end of the sales cycle. “First, we ask our clients what is the price point of what they sell,” Geller explains. “Then we figure out the margin of profit on a successful sale. From that, we work back to what we can afford to pay for a lead.”

That means working through several steps, from closing rates on qualified leads to costs of qualifying back to the lead itself. The key is accurately measuring each step. For example, in calculating sales revenue, Geller always estimates the eventual sales to each customer, not just the first sale. And you must also count the cost of reps’ time spent calling on leads to gain further information. “Lots of companies use telemarketing to qualify leads,” Geller notes. “That is much lower-cost than having a rep spend four hours to drive out there. The basic rule is to prospect in the lowest-cost medium and to close in the highest-cost medium.”

The direct-mail industry is working on tightening up costs wherever it can. “The more efficient we can be – not only in paying for good leads, but in converting them to customers and generating more revenue from these customers – the more successful we will be,” Geller emphasizes. Her firm is judged by these overall results, not just on executing a mail campaign. “Our report card is how many people buy.”

Quality leads are the first step to results. “In direct mail, 40 percent of success is picking the right list,” Geller says. “Forty percent is your offer. And the other 20 percent is the creative part.”

“A lot of the time, a list will give you influencers or users rather than buyers,” notes Geller’s colleague, strategy VP Mike McCormack. And the least expensive lists, directory or industry association lists that sell for as little as 50 cents per contact, often contain a massive portion of outdated names, up to 40 percent in some cases.

Often experienced direct mailers purchase several inexpensive lists of the same target market, then overlay them to look for good contacts. “Just to make sure the guy is alive and there,” McCormack jokes. Electronic lists that sell for up to $1.50 per name are much more likely to contain up-to-date information. “They can be worth more than triple the 50-cent names,” McCormack says.

Mason and Geller often qualify leads using the Internet. But McCormack prefers to use the phone when possible. “You get a receptionist or another person who can tell you what you need to know.”

McCormack says some companies still ignore their best and least expensive leads, their existing customers. Partly because sales forces are divided into new-business reps and existing-account reps, the potential for upselling may not be adequately exploited in some new-product campaigns. “Or maybe you ought to try your lapsed customers,” McCormack advises. Mason & Geller have a special ‘We want you back’ letter for former customers.