By Jim Lenskold, President, The Lenskold Group
This is the fourth article in the four-part series on Maximizing Lead Generation Marketing ROI. The other articles in this series include: Part 1: Lead Quality Counts Part 2:Insight, Alignment & Action Part 3: Measuring Effectiveness
In addition to measurements for specific tactics, which we covered in Part 3 of this 4-part series, marketing executives must be attentive to overall performance management. This involves monitoring and measuring key metrics to understand the collective impact of all marketing and sales efforts, to ensure business goals can be met, and to support business decisions.
The objective of our dashboard metrics is not reporting as much as capturing insight that can be used to improve performance. You want to select and define a set of metrics that 1) collectively reflects what is driving financial performance, 2) shows early indicators of future performance and 3) identifies specific areas of weakness where improvements can be beneficial. In this article, I’ll define 17 metrics specifically for lead generation marketing, which you can consider as you develop your performance management dashboard.
Framework for Key Metrics
Lead generation marketing plays the critical role of surfacing and engaging potential buyers to provide new and better prospects for the sales organization. For lead generation, key metrics must provide insight into lead quantity, lead quality, lead outcomes, and cost management. In addition to managing total leads to ensure business goals are met, the most critical metrics are those that assess marketing effectiveness in contributing to the primary profit drivers for the business, which include, 1) sales conversion rate, 2) incremental profit per customer, and 3) the cost per sale (see diagram below).
Lead Generation metrics can be organized into the following categories:
Funnel progression metrics – covering conversion rates from initial contact through closed sale
Customer value metrics – covering the financial value that results from the leads generated
Cost management metrics – covering the expense side
Goal attainment metrics – ensuring quantity and quality come together to meet business objectives
Funnel Progression Metrics
We can break funnel progression metrics into the following four sub-categories that provide insight into conversion quality:
For each of these, we have a number of key metrics to consider.
This first set of metrics is used to assess marketing effectiveness in terms of generating the right number and the right type of leads.
Marketing Qualified Lead Rate combines several stages in the funnel to incorporate a quality component into the marketing effectiveness assessment. This metric looks at the number of marketing qualified leads (MQLs) that are generated from all marketing contacts. This ratio improves as your marketing initiatives become more effective at generating more qualified leads, or more efficient at screening out low potential contacts.
Marketing Qualified Lead Rate = # of MQLs / # of total marketing contacts
Example - Direct marketing campaign promoting Webinar to 10,000 contacts reached 800 Webinar participants and generated 200 marketing qualified leads
Marketing Qualified Lead Rate = 200 / 10,000 = 2%
As an alternative, you can split the marketing qualified lead conversion metric into two metrics. This will provide more detail but the metrics must be used with caution, since improvements to the single metric may not align to improved business results. You will see that the two examples below match up to the example above.
Engagement Rate, in some cases referred to as a response rate, indicates how well Marketing generates some form of action from its targeted contacts. It is focused more on lead quantity than lead quality. Some marketing programs will generate fewer, high quality leads while others will attract a high response among lower quality of leads. This metric can be used to diagnose problem areas or compare how different marketing programs can be used in the marketing mix but is a low priority metric in terms of managing lead quality and goal attainment.
Engagement Rate = # of contacts taking action / # of marketing contacts
Example - Direct marketing campaign promoting Webinar 10,000 contacts reached 800 Webinar participants
Engagement Rate = 800 / 10,000 = 8%
Lead Qualification Rate is used with the engagement rate metric to determine how many of the “engaged” contacts qualify for Marketing to hand off to Sales. This screening step is not always included as a marketing responsibility, however, as we have noted in the first three articles of this series, it is a step that significantly impacts marketing profitability.
Lead Qualification Rate = # of marketing qualified leads (MQLs) / # of leads generated
Example - Webinar participants qualified via marketing screening process 800 Webinar participants 200 marketing qualified leads
Lead Qualification Rate = 200 / 800 = 25%
Sales acceptance of marketing-generated leads is the next critical step in the process. If Sales is rejecting or even ignoring marketing leads, the marketing budget is not likely to be generating good ROI. The definitions for marketing qualified lead screening should align to the requirements for sales qualified leads (although not as strict).
Sales Acceptance Rate is one of the best indicators of lead quality, and could easily be labeled as the “Lead Quality” metric. It is the ratio of sales qualified leads to marketing qualified leads. It serves as an excellent indicator of how well Marketing is qualifying and screening leads to maintain high quality levels. A good target to aim for is 70% - 80% MQL to SQL (see our archived article from Denny Head for insight into his experience with this at Avaya).
Sales Acceptance Rate = # of Sales Qualified Leads (SQLs) / # of MQLs
Example - Marketing qualified leads from Webinar passed to Sales generated 200 MQLs passed to Sales and 120 leads accepted as SQLs
Sales Acceptance Rate = 120 / 200 = 60%
Opportunity Rate tracks lead quality at a more precise level than the Sales Acceptance or Marketing Qualified Lead Rate metrics. Opportunities are typically defined by the Sales organization as leads that have clearly defined needs, purchasing authority, an expectation to purchase within a reasonable time period, and budget. This metric is assessing Marketing’s ability to generate leads that are generally ready to buy. It is based on the percent of leads generated converting to an opportunity.
Opportunity Rate = # of Opportunities / # of MQLs
Example - Marketing qualified leads passed to Sales and qualified as opportunities. For example, 200 MQLs passed to Sales generated 80 leads converting to Opportunities
Opportunity Rate = 80 / 200 = 40%
You can substitute number of leads generated in place of the number of MQLs passed to Sales if that works better for your organization.
Sales Pipeline Metrics
Too often, Marketing does not have system access to track their leads through the sales pipeline. As we have established in the first three articles of this series, Marketing must have insight into and contribute to influencing prospects at all stages of the purchase funnel. Marketing can have a significant role in creating “sales readiness,” especially in those firms making the argument to invest in branding to create stronger differentiation, and the best measures to understand the impact of those efforts are in the conversion rates within the sales funnel. The other significant benefit in tracking sales conversion rates is to understand sales effectiveness and where additional marketing support can improve the net sales rate (remember from Part 1 that improving conversion rates late in the purchase funnel has high ROI potential).
Opportunity to Close Rate summarizes the overall sales pipeline performance from the point of identifying a viable buyer to winning the sale. This can be further split into conversion rates for each major stage in the pipeline (such as opportunity to meeting, meeting to proposal, proposal to close) to provide more detail, but these two points work fairly well in representing the area that Sales manages. This detail is extremely valuable in diagnosing weak areas in the sales cycle.
Opportunity to Close Rate = # of Closed Sales / # of Opportunities
Lead to Close Rate (or Lead to Purchase Rate) captures the net outcome of the leads generated. This assesses how many leads passed to sales (MQLs) convert into sales.
Lead to Close Rate = # of Closed Sales / # of MQLs
Sales Capacity (or # of Leads per Rep) is also a good indicator of sales performance. This is the number of active leads managed divided by the number of sales people managing those leads. There is a point where the number of active leads begins to hurt sales effectiveness and this metric should show when that point is reached.
Sales Capacity = # of Active Leads / # Sales Reps
Monitoring the pace of leads moving through the sales cycle provides additional insight that is often missed. There are two high priority metrics in this category.
Lead Contact Velocity is the average number of days between leads being handed off to Sales and Sales making initial contact (or contact attempts). It is an excellent indicator of sales capacity and can help in understanding why lead quality might mistakenly be viewed as declining. We had a client who could not determine why fewer and fewer leads were converting to opportunities, only to discover that the average days for the first contact had changed from 3 days to 14 days.
Lead Contact Velocity = Average # of Days from lead passed to lead contact
Lead to Close Velocity, also referred to as the sales cycle time, is the average number of days between a lead being handed off to Sales, and the closed sale date. As the sales cycle duration increases, it increases the cost to the sales organization, increases the number of active leads that need to be managed, and typically means a lower sales conversion rate. This metric lets the marketing organization know if additional effort needs to be put against sales readiness, or if additional tactics are necessary within the sales pipeline.
Lead to Close Velocity = Average # of Days from lead passed to closed sale
This concludes our 4-part series on Lead Generation ROI. There is clearly a significant opportunity to improve the ROI of lead generation marketing with better measurement and management processes. Whether it is better alignment with sales, better metrics, or leveraging new insights to guide marketing strategies and tactical decisions, every step forward will result in improved marketing performance and profitability.
Jim Lenskold is President of Lenskold Group and author of Marketing ROI, The Path to Campaign, Customer and Corporate Profitability (McGraw Hill, 2003). Founded in 1997, the Lenskold Group (www.lenskold.com) provides consulting services to deliver a comprehensive approach to marketing ROI management, marketing measurement and analytics, and profitability planning tools. Jim’s career began in the mid-1980’s at AT&T where he managed a $20 million marketing budget for retention marketing and new strategy development. He also successfully launched and grew a technology firm before starting the Lenskold Group. The Lenskold Group serves Fortune 1000 and emerging companies in the US, Canada and Europe. Jim can be reached at firstname.lastname@example.org