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.
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?
The 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?
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).