Saturday, May 30, 2009

5. Lead Analytics: If you can’t measure it, “it” doesn’t exist!

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I live by data. The people who work for me often get frustrated because I refuse to accept anecdotes. Alongside leadership, good use of data, for me, is the most critical component to running a successful business. I was once in a meeting with Paul Otellini, the CEO of Intel, who was quizzing one of his lieutenants about the pros and cons of outsourcing a large part of the organization to “low-cost geographies”. A quote he used to demonstrate that the argument being used was weak stuck with me; “I trust in God but everyone else needs to bring me data”. My point is that world class companies, large and small, live by data and so should you.

The thing I love about online advertising and the lead sector in particular is that there is more data than in any other industry in which I have worked, just about everything is measurable. And day after day I see that the companies that use the data most carefully, whether they be sellers, buyers or intermediaries, are the ones that time after time beat their competitors.

This article is intended to give both an overview of the types of use that lead buyers should make of data as well as some insight to the companies and tools that exist to help buyers collect and analyze data.

The Four Key Metrics

There are 4 metrics that I believe that every lead buyer should know cold although few do. These are:

1. Speed to Contact – of leads contacted how long from when the lead is received does it take to contact that person.

2. Contact Rate – the percentage of leads that you buy that end up being contactable.

3. Qualification Rate – the percentage of your leads that turn out to be candidates for your product once you have contacted them.

4. Conversion Rate – the percentage of your leads that generate revenue for your company.

Most lead buyers don’t know these 4 simple metrics and are thus driving an expensive sports car (as we saw in my previous post - leads are expensive) with a blindfold on. Think of it like this:

• If you don’t know these metrics for each of your campaigns how do you know which lead sources you should be buying more from?

• How do you know how much you can afford to pay for leads? Surely you don’t accept the same price from each vendor?

• If you don’t know these metrics for each of your sales team members then how do you know who’s doing a good job? And more importantly what are you going to tell the sales people who aren’t closing deals; “increase your speed to contact and try harder to convert qualified leads” is better advice than “work harder”.

I could go on but my point is that these metrics are so fundamental to every aspect of your business that if you do nothing else you should at least get a grip of these statistics. If you want to make life easy on yourself then invest in a lead management system, solutions like Leads360 have these metrics available on the first screen that you log onto. Even if you receive leads by email, make the effort to track and analyze your data in a spreadsheet and stop burning money on leads that you are not in control of.

What benchmarks should I strive for?

I hear this question a lot from lead buyers and I ask it myself of my own sales team. Once I know the 4 key metrics, what levels are good and which are bad? What is the average attainment of these four metrics among lead buyers?

This is complicated massively by the fact that people who don’t track the 4 key metrics probably achieve a much poorer level but no one will ever know. Among those companies that are able to track these metrics there are discrepancies between them in terms of the average lead quality and the robustness of their sales process. Both of these factors create a wide range of rates that are achieved between companies (also known as a high standard deviation). The 4 metrics also diverge quite a lot between industries and at different stages in economic cycles e.g. lead conversion rates in the mortgage industry are currently quite low. However, solving for all of these factors a broad brushstroke benchmark for each of these metrics is as follows:

  • Speed to Contact: 1 hour or less is good but the range tends to be huge
  • Contact Rate: 70% is average
  • Qualification Rate: 35% is average
  • Conversion Rate: 1.5% is average

Again, these a broad averages among those companies that I know of that measure these metrics because they have a system in place for doing so. I bet you could slash the %s for those companies that have no idea what their metrics are.

Lead Scoring

Increasingly, the sophisticated lead buyers are using predictive models to score their leads when they arrive. The way that this is done is usually a third party takes a very large data set of lead data and the outcome of those leads i.e. if the lead converted or was qualified and then uses advanced statistical techniques to determine what are the most predictive attributes of whether the leads will close or not often times augmenting the raw lead data with other consumer data they are able to find on that lead as well. It sounds complicated but from the lead buyer’s perspective it is quite simple. The lead is sent from the lead generator to the scoring company who runs it against their model and a score is added to the lead when it arrives with the lead buyer. The score is usually generated within a couple of seconds so it has no meaningful impact on the speed with which the buyer receives the lead.

There are several reasons why lead buyers want to use scoring:

• If you have a lead management system then you can distribute high-scoring leads to your best sales reps.

• Increasingly buyers are rejecting leads with low scores. This is particularly prevalent among the largest education lead buyers.

• It gives you an early warning signal if one of your lead providers dips in quality. Without a scoring system you have to wait until your key metrics work through in order to detect quality dips. The time lag is often 2 or 3 months, which can be a lot of wasted marketing money!

Lead scoring varies in price. Almost all providers of lead scores charge by the lead but the price can range from about 15 cents per lead to as much as $1.00 per lead. In an industry that is relatively new the pricing model has yet to fully work itself out. The sector is also far too new to have any particular companies emerge as having the most reliable scores. However, the following companies have scoring products and have been successful at attracting customers.

The bottom line: Profitability

The one metric that I am yet to cover is the most important and very often overlooked. It is the financial metric fundamental to all successful businesses in the long run and marks the confluence of performance and financial indicators; profit. Most simply put, you may be achieving incredible conversion rates on your leads but if you have to pay a large fortune for each lead you may still not be in business for long.

It is a simple concept that time and again I see is completely overlooked by lead buyers. I am often astonished by people’s willingness to spend several times more for leads that they “think” convert well without doing any analysis to see if the leads actually cost less overall than the money that they generate. Expensive leads are not always, if not hardly ever, a good investment.

So how do you go about analyzing the profitability of your leads? There are two related indicators that you should calculate; profit and ROI.

Profit

Profit is a raw measure of how much money leads make you. The formula is simple enough. It is calculated as: Amount of Revenue Generated by leads - Amount Spent on those Leads.

ROI

Return on Investment gives you a percentage score of profitability that is more easily comparable regardless of the amount of money involved. It is the best way to compare the effectiveness of one lead provider’s leads with another’s. It is calculated as follows: (Amount of Revenue Generated by Leads - Amount Spent on those Leads)/ Amount Spent on those Leads. If the ROI is positive then the leads are profitable, if it is zero then it is break even, and if it is minus then the leads are losing you money.

The following spreadsheet allows you to do your own profitability analysis:




What if I need help getting started?

None of what I have described above is particularly difficult but I am well aware that the thought of pulling together a lot of disorganized and disparate data is often just too daunting for many business owners. Especially when it is tempting to think of analytics as a luxury and not a necessity – hopefully this blog will have convinced you that it is at least necessary to be highly successful.

The good news is that there are some emerging services that can help lead buyers do the analytics. The foremost of these is Sparkroom. Sparkroom has developed a proprietary technology that will suck in your data and stitch it together. Once that’s done, a team of analysts crunches the data for you in order to develop a set of insights about how to improve your lead buying. They then take on the negotiation with your lead providers to reduce the price of your leads and increase the volume of leads you buy that you will be successful with. They don’t come cheap as they charge a percentage of your total media spend. However, the companies that I know of that have used these guys are very complimentary.

If you are looking for a less expensive option for organizing your data, analyzing it and being given insights about how to improve things then you should consider one of the better lead management systems. The topic for my next post as luck would have it!

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