Welcome back to the Revenue Garage’s revenue leakage series! Last time we looked at the end-to-end revenue generation process and different KPIs that measure its performance.
We have shown that modest increases in each KPI lead to much more significant revenue growth. It should be a primary focus of the revenue operations team to constantly monitor this process, lead to opportunity conversion rate as well as other KPIs and work on increasing them on a daily basis.
In future posts, we will look at each of these KPIs individually and review what actions your teams can take to improve them. The tricky point to keep in mind in all future discussions is that there are *always* very easy ways to formally increase one or two of these KPIs at the expense of worsening the others. We want to avoid this at all costs — which means our revenue operations team needs to build such a process that increases all of these simultaneously. Otherwise, there will be no revenue growth — which is our ultimate goal.
How lead to opportunity conversion actually happens
Today we start with looking at the lead to opportunity conversion rate, which is the percentage of % lead in the sales pipeline from the number of leads generated, usually called the “lead qualification” step. This is a crucial step in the revenue generation process where the leads generated by marketing are being, well, qualified to decide if there is an actual sales opportunity present.
Now, what is typically needed to understand if there is an opportunity?
The “classic” definition in the solution sales process requires two things:
- Project’s “sponsor” – an individual with a high-level title, not necessarily a decision maker, who will own and drive your project/deal forward on the customer’s side.
- Project’s budget – an understanding of whether the budget is already available or at least there is a potential to allocate it.
In many companies, these simple rules are not really being followed. Still, I would strongly suggest you do so – they actually make a lot of sense and serve as a very good gatekeeper to ensure opportunity quality.
Usually, qualification happens during a discovery or qualification call with the customer – where an SDR (sales development representative) or a similar role uses a certain script to better understand the customer’s problem, whether it is relevant to the solution that we offer, and who can be the Sponsor.
5 ways to increase lead to opportunity conversion rate
So, what can we do to increase the lead to opportunity conversion rate? Of course the easiest – and wrong – way is to simply say “every lead is an opportunity”. This will instantly make your conversion 100%, but that’s obviously not what we want, since it is also important to make sure there is a good quality of the opportunities entering the sales pipeline.
But what are the right ways? Here are 5 steps that I have found a tremendous help in improving the lead to opportunity success rate.
1. Analyze all the ways an opportunity may enter the pipeline
Opportunities get created in a multitude of ways, and you need to capture and monitor all of them to make sure you control your revenue generation process. Typical paths we have seen in different companies are:
- By following a well-defined qualification process step, usually a call by an SDR to a potential customer representative. This is an ideal way, but a lot of times this is not what’s happening
- A sales person creates an opportunity after talking to someone at an event or online. If you can be quite successful with asking your SDRs to follow specific guidelines and process definitions, it becomes much more difficult with actual sales people. This means you can’t really be sure whether such an opportunity corresponds to your definitions. If a specific sales rep is closing her deals successfully, that’s not really a problem; but if they struggle – this requires further analysis. Worse yet, sales people tend to “sandbag” – they would rather delay creating an opportunity before they are quite sure it’s going to close. This will really mess up your analytics and needs to be dealt with as well.
- An opportunity may come from a partner or an affiliate
- An opportunity may be created automatically via lead scoring in your marketing nurturing system without actual qualification step
There may be others but the key point is – you need to know and measure them all, otherwise it is impossible to make improvements.
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2. Define unambiguous criteria on what constitutes an opportunity
Doing so will not necessarily increase your conversion rates but will increase the quality of the opportunities entering the pipeline. In addition, this sets up more or less objective criteria in your process and we can stop relying on our SDRs judgment.
The two recommended criteria – Sponsor and Budget – are already described above, but you can come up with your own definition – as long as it is objective (i.e., not dependent on a specific individual judgment call), clear, and easy to understand by everyone involved in the process.
3. Have a well-defined checklist for the qualification call
This does not necessarily need to be an actual script to be followed to the T – it kills the creativity, decreases motivation, and people on the receiving end quickly understand they are being “scripted” – and people hate that.
So you need to have a checklist of the points to be addressed during the conversation, but give your SDRs some freedom on how to run the actual conversation. Some of them may improve things quite a bit and you should identify and spread such best practices to the whole team!
Typical things to address in the checklist are:
- Identifying the project sponsor. Is that the person you are speaking to or somebody else at the company?
- Is there an allocated budget for the project? If not, what is the procedure to allocate it?
- What are the details of the problem the customer is facing? Does it fit what our solution offers well or not so much?
- How strong is the pain this problem is causing? Is it on the top-3 priority list for a high enough decision maker in the company?
This last point is extremely important and people often miss it. If the problem you are trying to solve is not on a top-3 priority list for somebody with power – you won’t get a deal. People will talk to you, you will run free pilots, it will drag on for months and years, but there won’t be a deal. Always look for priorities inside your potential customer’s org.
4. Coach and train your SDRs
The qualification step is critical in your overall funnel, but SDRs performing it are usually quite a junior role in the company. The checklist from the previous point helps, but is not enough.
Your line managers or more senior sales people with an inclination for mentoring need to listen in to their calls periodically and provide advice and correction on how to run them better. Plus, make sure to identify the best practices from inside the SDR team and have an established process to propagate them for the whole company.
What has proven to work well – is a periodic functional team meeting, where SDRs from different regions get together and share highlights.
Don’t forget to have a clear career path for your SDRs into more senior sales roles – this keeps the motivation up and also helps you build your company, since who can be a better sales person rather than someone who has already been talking to your potential customers and knows their pains and objections inside and out?
5. Perform loss analysis
More advanced sales organizations make sure to perform a win/loss analysis on the sales opportunities, but only the best of them do the same for the lead into the opportunity conversion stage. I encourage you to start doing it.
Teach your SDRs to make notes of the reasons why they disqualify potential leads – you may find lots of very unexpected insights into what works and what doesn’t in your marketing messaging, in your product roadmap, in your positioning versus the competition. You may very well find that the customers do have a problem you can solve, but because of the accents in your marketing materials they never even get to the opportunity stage and leave! This is potentially the biggest source for you to increase the lead to opportunity conversion rate and help grow revenue.