The next two years, and possibly more, are likely to be tough on the economy. It may be that a pattern we see with alarming frequency in sales and marketing funnels is that of making numerous small-unnoticed errors, which can sink a number of businesses. If addressed, however, it may prove to be the making of many.
To explain: If you are a sales and marketing leader of a B2B business that has an addressable market of more than 2000 companies, we feel it more likely than not that you have a compounding error in your sales funnel. The lost sales resulting from this will be costing you significantly. We base that assumption on our research work with B2B organisations and on our day-to-day client work.
In this article, we show how small errors and gaps that go unrecognised and under-reported can combine to create dramatic negative impacts on revenues and sales costs. We illustrate the financial impact of these errors, discuss the numerous reasons why they happen, and set out some practical steps to tackle the problem.
Across each stage of a sales and marketing funnel there are hundreds, possibly thousands, of variables and decision points that require navigating to make a successful sale.
The funnel starts with the generating of a lead. Here, one has to choose the channel, or channels, that’ll be used to search for, and contact, that lead. It could be via email, tradeshow, conference or social; it could be via outbound phone contact, advertising or search; via organic processes, paid outreach, and more. Then you have to develop the messaging, content, and sequencing approach.
Each step needs to be done well, because small errors can make a big difference. This means having no errors in a target list and ensuring the opening line of an email compels people to read on. It also means getting the benefit statement just right so that it resonates, and following up frequently and quickly to responses. Every little step and every element of the process contains the potential for small errors allowing suboptimal decisions to creep in. Each time that happens, you lose more prospects from the funnel, and the cost of sale rises.
Think about it like a marble-based labyrinth game. You have a wooden board with a maze and lots of holes in it, and you tilt and move the board to steer the marble through the maze. With every wrong tilt, the ball falls through a hole and you start again. Running a sales process is exactly like that: hundreds of balls are in play, and every tilt and shift of direction that you get wrong sees the ball disappear down a hole. In short, every small error or suboptimal process present in the funnel reduces your chances of a good outcome.
Think of another real-world application of this analogy: the difference of conversion on a well-optimised website site versus just a brochure site. Even relatively small numbers make a huge difference—if you generate 30 leads instead of 20 from your site with the same level of traffic, that is a 50% increase in leads. This happens on websites, in emails and in data selection. It happens in social selling, sales calls and objections. Present at every stage of the sales process, it generates an expensive cumulative effect.
In short, every little mistake we make or every gap we have in our skill set costs us lost opportunities.
Below is a client scenario. We have for demonstration purposes reduced the difference in performance for each stage to only 10% to demonstrate the example that even small compounding errors have huge effects. This example is based on a manufacturing client selling to European retailers.
|Data Set of Prospects||1000 companies with 10% error rate in contact details – actual universe 900||1000 companies|
|Email Campaign for New Product Line||3% positive response rate|
= 27 responses
|3.3% response rate|
= 33 responses
|Telephone and Email Follow Up to set up appointment||55.5% conversion rate to sales appointment|
|61% conversion rate to sales appointment|
|Sales Generated by Sales Person||60% turn to business =|
|66% turn to business =|
|Revenue Generated (at £10,000 per sale)||£90,000||£130,000||10% improvement at each stage results in a 45% improvement in revenue with no additional costs.|
|Cost per Sale|
The total monthly cost of the sales and marketing team including promotional budgets is £35,000. The cost per sale is calculated by dividing the total monthly cost by the number of sales made.
|£3,889||£2,692||There is a 44% difference in sales costs.|
It also costs £2,000 per unit to make the product. Therefore the profitability is the sales cost plus production cost less revenue.
|£37,000||£69,000||The difference in profitability with just a 10% difference in effectiveness in each of 4 steps amounts to over 87% more profit.|
The above example is very simple given that it only has four steps. Most sales and marketing funnels and processes have more than four steps to them.
The impact of minor improvements is tremendous, increasing profitability by more than 87% for the same amount of effort.
From our experience, with a little effort, almost every stage of most B2B companies’ sales funnels can be improved by 10%.
In fact when we look at sales funnels we nearly always find that in at least one of the steps, the performance gain is much greater than 10%, and that is when it becomes interesting. Take the above example: if the email campaign produced a 50% difference in the email response rate but all of the other numbers stayed the same, it would make a 338% difference in profits generated, rising from £37,000 to £125,000. Over a year those small improvements generate £1m more in profit.
The problem for all of us is that we often don’t see what’s in front of us. That is why, in sales, we call compounding errors “the silent killer”—they’re seldom noticed.
So why does it happen?
We are all busy, we delegate the tasks to people in the team and we assume, or perhaps like to think, that each of the jobs is getting done as well as it can.
Additionally, every team will have gaps in its skill sets. This often results in someone trying their best to fulfil a role despite not having any specialist training or skills for it, and thereby making it up as they go along.
Whilst this ensures that at least something is happening, it doesn’t have to be this way. These days, with more channels to market and more ways to reach customers via new technology and information, our clients and our competitors are now numerous and of a high quality. Yet such rapid changes mean that selling has become more, and not less, complicated. As a result, each sales function has, by necessity, become more sophisticated. The upshot is that individuals require more skills and knowledge in order to use it to their best advantage.
So the likelihood is you have a large number of roles and tasks that are being fulfilled at less than optimal performance and that will be costing you lost sales and profits.
So what do you do about it?
Begin with an audit. If you have a number of campaigns that feed your lead funnel, just pick one to start with. Go against your temptation to pick the worst performing campaign; rather, pick your best performing campaign and start to analyse that. A 10% gain at each step on your best campaign will be much more productive than the equivalent on your worst performing campaign.
Then break down every step and attribute of the campaign into separate parts and evaluate each one, all the way through to contract. Every step is important. Remember the labyrinth: a ball dropped at the start of the maze or lost at the end of the maze has the same effect in increasing your cost of sale and your loss of revenue.
Ask questions of the people and agencies undertaking the tasks and doing the roles.
- Why do we do it like that?
- What have you done to improve the outcome you are getting?
- What can you do to improve the result by a minimum of 10%?
You will soon figure out who gets it, who is on top of what they are doing, and who hasn’t a clue or can’t be bothered.
You will also create very quickly a long list of gaps and possible improvements.
- Fix the easiest and most obvious gaps quickly, and work out which gaps you should focus on first that will give you the best, and fastest, returns.
- Look to swap people around. Hire new ones for big functions that you need improving. Outsource entirely or bring in specialists to fix those gaps and make those improvements.
- Where you can’t find a resource or a solution, innovate around the problem—find a way to do away with that function task completely and make the sales funnel more efficient.
I have not yet come across a perfect sales funnel in any B2B company (in a competitive and relatively large market). If you have managed to build such a remarkable machine, please get in touch, I would love to marvel at it.
For the rest of us, it is likely that small compounding errors are silently killing potential profits and growth. So think like a Mercedes F1 engineer: optimise every part of your sales engine to create a world championship-winning sales machine.