B2B Marketing: Do you know how much your CEO really invests in demand generation?

For most of us, the phrase “demand generation” conjures up things like campaigns, social media, trade shows, and the corporate website.

But what about sales prospecting?  Despite all the newfangled marketing automation tools, most CEOs increase the funding for demand generation by authorizing the expansion of the sales organization.

Surprised?

You shouldn’t be. Books like SNAP Selling, SPIN Selling and Solution Selling for years have been teaching sales people to generate demand, one conversation at a time. Most companies don’t call what sales people do “demand creation” or “demand generation.”  No, we’ve given it more pedestrian names, like “sales prospecting” or “cold calling.” But, really, what’s the difference?

forsaleThe percent of the sales budget spent on demand generation

Efficient sales teams spend 10 percent of their time prospecting. They network. They get referrals. They leverage LinkedIn and InsideView. You know. All those really cool things Anneke Seley and Brent Holloway have written about in Sales 2.0.

But sales teams for many companies spend 20 to 30 percent of their time prospecting.  And even 40 or 50 percent of time spent prospecting is not unheard of. As the percent of time spent prospecting increases, the return on investment generally decreases.

Multiply any of those percentages of time by the total sales budget and, in most companies, money indirectly (and maybe inadvertently) allocated by sales for demand generation is at least as large as the entire marketing budget. And it could be five times larger. Or more.

Think about that.

It’s not like sales people like to cold call. They would prefer to talk to people who have a problem the sales person might solve. But you have to find those people. And cold calling is time consuming and often demoralizing. So why do sales people do it?

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There’s one simple reason: they have no choice. Marketing rarely generates a sufficient volume of truly qualified leads. So sales people have to pick up the slack.

The case for a larger sales force

Against this backdrop, how hard is it for sales leadership to make the case that the way to increase revenue is to hire more sales people?  Or, in challenging economic times like these, how hard is it for a CSO to suggest cutting the lead generation budget rather than the sales budget?

Given all the cool developments for marketers in the last few years, marketing departments should be on the march. Instead, there are a lot of marketing departments that have low lead-to-sale conversion rates. Of those with good conversion rates, few are really delivering a pipeline volume that makes a huge difference to the CSO.

It doesn’t have to be this way. Not anymore.

There really are better returns on investment dollars than sales cold calling, which is a financial baseline that every marker needs to understand. So for this year’s planning process, step one should be to estimate the current cost of sales prospecting and what the revenue capacity of that sales force might be if each sales person spent more time selling and less time looking for leads.

Dave Green is the Director of Best Practices, Applied Research at MECLABS (the parent company of MarketingExperiments).

Related Resources

MarketingSherpa B2B Marketing Summit ’10

Social Media and Content Marketing: Don’t expect the world to find you

B2B Marketing: Marketing automation helps with lead nurturing and management

Photo attribution: bsabarnowl

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5 Comments

  1. Joe Zuccaro says

    Very good points. C-level execs need to realize though that there are only so many business breakfasts/luncheons/cocktails, cold calls, trade shows, etc. that a salesperson can physically attend/perform in a given time frame. Link that with the increasing amount of data that is flying back and forth on the Internet, and they’ll realize there’s gold in that data that can be gathered, analyzed, and given to salespeople. Between inbound and outbound interactive marketing efforts, Sales can be given much more qualified leads over time – but it takes discipline and a new type of marketer.

    Marketing automation is a name for a broad set of tools that organizations can use to obtain information superiority, but it requires a transformation of the organization that aligns marketing with sales. Marketing needs to serve sales and generate, nurture, score, and distribute qualified leads to Sales. Branding stunts need to take a back seat as web based technologies allow the measurement and tie in to revenue. Hopefully marketing will waste less money and prove its value to the sales team.

  2. Jennifer Melwani says

    Excellent points, yet in some cases outbound telemarketing (cold calling) is still essential. Particularly in the case of a start up that is trying to establish a brand new category, inbound marketing may simply not generate enough leads. If you are selling a new product then people may not know they even need that product – thus your inbound leads (from google, social media, etc) will be low.

    For example, I did a stint at a start up selling sales forecasting software. Of course CRM is an established category, and do search for that, but no one was searching for ‘sales forecasting solutions’. The answer for us was to build an extremely targeted list of contacts that were the best fit for us (right industry, right role, budget for CRM, CRM system we integrated with) and then do appointment setting. We outsourced the list build effort to hold cost per lead and cost per deal down to a reasonable level. And, although we didn’t in that instance, outsourcing the cold calling or appointment setting is also a viable option. This also is a viable option to give your sales team more time selling and less time looking for leads.

    That said, the social media, PR, events, is still key to build the category and the brand, and eventually move efforts from telemarketing to inbound marketing. But when you need to drive revenue today you need to consider all your options.

  3. Bill Gustafson says

    Good article. I think if you undersand who your customer is and pay attention to the feedback from different campaigns you can develop an efficient sales force with the lowest possible cost. The most common error I have seen is that management often wants to drive an idea versus utilizing the customer’s natural behavior.

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