One of the toughest lessons in sales, if not in business generally, is that success comes from focus, and focus really means consciously choosing NOT to pursue some things – things that look a lot like opportunities.
A Lead represents a potential enterprise customer who has shown some interest in working with you, whether by requesting a demo or quote; or by responding to your call or email.
Why Qualify Leads?
Selling to an enterprise customer invariably involves a long, resource-intensive sales cycle. If you don’t treat new Leads as an investment decision, and instead your team simply pursues every valid Lead that shows up, you will find that either:
- your spending on Sales will skyrocket; or if you take steps to limit sales resources:
- your team will only have time to address each Lead in a superficial way, reducing your likelihood of winning any.
The outcome in both cases is a high Cost of Customer Acquisition (CAC) – a key SaaS metric calculated from your total Sales & Marketing costs divided by the number of new Customers in a period. Its a measure of the average cost of winning a new customer. For a sustainable business, you will want to keep this well under the value of a 12 month subscription.
When focusing means turning away opportunities you believe are less winnable, you’d better be making good choices. Lead Qualification is an attempt to formalize that decision through a consistent process based on a set of objective, measurable criteria.
What is Qualifying?
As you develop your value proposition and market definition, it’s a good idea to build a shortlist of key ‘Qualification Criteria’. What are the quantifiable characteristics of a customer who could (or won’t) be willing or able to buy your product? What are the common reasons why customers turn you down? The criteria typically include the size of organization; location; industry; seniority of your contact person; technology environment; and any other factors specific to the value they will gain from using your product.
Here’s an example of some of the qualification criteria I used at a recent startup and the reasons I chose them. We were selling a “B2B2C“ proposition – meaning that our customers were B2C service providers.
- Must have over 1M users (with under 1M users, the investment in our solution was unlikely to pay off for them)
- Must have less than 10M users (the largest enterprises play it safe, and play the long game. They rarely take the risk of buying off-the-shelf from a new startup that could be gone or acquired by their competitor within 2 or 3 years)
- Is Aus/NZ or US-based (“fish your feet first” is the fishing axiom. These locations are where we had sales staff. anywhere else in the world meant ruinous travel costs, or a weak attempt to sell remotely against in-market, in-person competitors)
- We have Access to C-level (we knew lower-level managers sometimes perceived a personal threat from the process disruption our product could cause. To contain the risk they would often restrict access to decision-makers)
- It is not already a customer of one of our competitors (Winning a customer off a competitor may be fun, but does not come close to being the “low-hanging fruit” we were targeting)
- Plus some constraints related to the prospect’s technology environment (typically platforms or related solutions they’d already chosen)
To be effective, make sure you formulate your criteria function as a binary test case, i.e. as K.O. criteria, not as targets or aspirational ideals.
Say: “We will disqualify an opportunity if the prospect has <1M or >10M users”.
Rather than: “Our ideal customer has 1-10M users.”
Turning down opportunities is much harder than it sounds; it goes against our instinct. Everyone who’s worked in Sales agrees it’s important to do, but none of us have the self-control to carry it through every time. So if your criteria define your sweet spot, I guarantee you will convince yourself that every new opportunity is “not right in our sweet spot,.. but close – let’s go!”
To keep your qualification criteria rooted in reality, go back and revise the list each time a customer purchases from you, to reflect this new customer’s profile. And each time you lose a deal, consider whether you could have figured out from the initial contact that they wouldn’t buy. Enhance your qualification criteria with any new insights you’ve learned that will help your next qualification review.
When should I Qualify my Leads for Optimal CAC?
Armed with your qualification criteria, you are equipped to make a reasoned choice when you first engage with any sales lead. If its a fit, you go all in. If not, you need to let it go and move on – before investing serious time and resources into it.
“This lead doesn’t fit my criteria, but how do I know he won’t buy from us anyway?”
You don’t. But I guarantee if you qualify every opportunity in, your chances of closing any sales at all will plummet. It’s a common phenomenon. If, on the other hand, you find you have no need to qualify any leads out, because you can happily resource every single Lead you get, you probably have an imbalance somewhere else in your Sales Engine.
Each time an ongoing opportunity demands additional time or resources, you can treat it as a new investment decision. Go back to your list and re-qualify it to judge if it is a sound investment.
You’re happy with your sales growth, and still skeptical you need to say no to any valid Lead? I’d recommend you check your Sales Conversion Rate (Number of Orders received divided by the Qualified Leads you qualified in, over a period), and your CAC. Compare these to the Lifetime Value of your average customer, and to typical industry benchmarks demonstrated by sustainable SaaS businesses. You might find tools here that can help you to further enhance your contribution to the business.
If you want to understand where Lead Qualification fits in an overall B2B Sales framework, check out my B2B SaaS Sales in a Nutshell : a Startup-sized Framework to cut out and keep
Or you can learn more about useful tools and techniques for qualifying and managing your leads from experts like Fieldbloom.