This is my favorite question to ask prospective clients and it always becomes the focal point for developing accelerated growth strategies. It’s the sales and marketing equivalent to your doctor asking, “where does it hurt”?
Friction points are stages of the sales process where deals get stalled. More accurately, they are points along the customer journey where businesses fail to adequately motivate their prospective buyers to continue that journey.
In this article, I focus on the conversion metrics used to identify these friction points. And, how to use them to manage the continuous improvement of your sales and marketing engine to maximize your sales funnel.
If you’d like to more fully understand the relationship between the inside view of the sales process and thinking more from the “outside-in” (like your prospective buyers), I highly recommend this article from David Skok’s excellent blog, For Entrepreneurs. It provides great marketing insights for attracting, educating and motivating buyers to progress along their journey.
We’re going to use the inside view of the sales process to understand how conversion metrics serve as vital signs for monitoring the health of your funnel. The labels I use for each stage of the funnel are standard terminology for describing the status of leads and opportunities as they are tracked by your CRM. Having consistent definitions for each stage, and the criteria for exiting one stage and entering the next is incredibly important. For example, everyone must be on the same page for what constitutes a Marketing Qualified Lead (MQL) and when it’s ready to be handed off to sales and become a Sales Qualified Lead (SQL).
Failure to reach consensus and alignment leads to sales dissatisfaction with the quality of leads. And, it deprives marketing of the guidance it needs to accurately target its demand generation campaigns. This is just one potential source of friction in your sales funnel.
Once you define your funnel stages and the criteria for each stage, you need to follow David Skok’s advice and “get inside the heads of your target buyers”. Find ways to motivate them to take the next action along their customer journey. Your sales process should mirror this customer journey as they are two sides of the same coin.
Let’s look at each stage of a typical sales funnel and the marketing and sales goals for each one. Tracking the efficient flow of leads and opportunities should be primary metrics for gauging the health of your funnel. The conversion rates from one stage to the next are indicators of friction in your funnel. To establish a baseline, your conversion rates can be compared to industry benchmarks, or to your own historical data. In this article, I reference a 2014 study by Aberdeen Group of 199 sales and marketing professionals, The Roadmap to Revenue and its Tollgates, for conversion rate benchmarks. Having a baseline for comparison allows you to gauge your own sales funnel performance and where to focus your efforts for maximizing it.
Website Visitors
Before we can have any leads at the top of the funnel, you need a sufficient volume of visitors coming to your website. Without visitors, you will never get the sales and marketing party started. Your website traffic should grow each and every month so you can convert more and more leads to your opportunity pipeline. Look at your website traffic over the last 6 months. Is it growing month over month? If so, you are in a position to convert a healthy percentage of those visitors into top-of-funnel leads at stage 1 of the sales funnel. What is your current website conversion rate?
Website Leads
Top of funnel leads are first conversions of anonymous visitors to unqualified leads. They may offer little more than a contact name and an email address. You may elect to ask for their company name or require a business email address to improve quality. However, you won’t know if they meet the criteria of a Marketing Qualified Lead (MQL), until you qualify them with lead nurturing campaigns. Nurture campaigns filter out bad leads from good leads that have the right contacts from the right companies. And, they have expressed an interest in your solution. Your website should be converting visitors to top of funnel leads at a rate of 3% or more to match industry benchmarks. What is the monthly lead conversion rate of your website?
Marketing Qualified Leads (MQLs)
Stage 2 of the sales funnel is the MQL. At this stage, you have qualified a lead as a potential source of business for the sales team to act upon. This is where marketing really earns its pay. Graduating a lead to an MQL requires the creation of effective content to educate and motivate potential buyers to raise their hands and ask for help in solving their problems and achieving their goals. It’s critically important for marketing to nurture buyers towards this “buyer zone”. And, to have effective filters that ensure each MQL meets the target profile and represents a good fit for your solution. MQLs are one of the most important metrics for measuring marketing performance. Industry benchmarks say you should be converting about 25% of your leads to MQLs each month. What is your conversion rate for top of funnel leads to MQLs?
Sales Qualified Leads (SQLs)
This stage represents the hand-off from marketing to sales. It’s often the most problematic conversion for many companies. It requires a good definition and discipline for how their sales and marketing teams work together as a unit. An SQL means that sales has acted on an MQL qualified by marketing and accepted the lead as one worthy of sales pursuit. A common set of criteria for converting an MQL to an SQL is the application of so-called “BANT” criteria. BANT is an acronym that stands for Budget, Authority, Need, and Timeframe. Some organizations add an “S” to BANT as a 5th criteria. The “S” stands for the size or scope of a potential deal. You should be converting at least one-third of your MQLs to SQLs. What is your MQL to SQL conversion rate?
Sales Opportunity
The opportunity stage of the sales funnel is often considered the most important stage and typically the most visible. This stage allows the value of the sales pipeline to be calculated in terms of its factored revenue potential and used by sales to build a monthly forecast. The quality and quantity of opportunities available for the sales team to pursue is a direct result of the productivity of earlier funnel stages. That’s why it’s so important to maximize the performance of each stage. You should be converting about one-third of your SQLs into sales opportunities. How does your conversion rate compare to this industry average?
Closed Deals
This is the finish line. The value, volume, and velocity of closed deals determines the growth trajectory of your business. You should be closing one-third of your sales opportunities, or more, depending on your historical close rate. If your sales funnel has enough leads and opportunities at each stage. And, your conversion rates are
n your funnel that needs to be addressed. What is your deal close rate?
Measure Your Sales Funnel Conversion Rates
If you don’t know your conversion rates, you can do a little bit of homework and find out. Just gather data for the previous reporting month. Include your monthly website visitors, web leads, MQLs (leads handed off to sales), SQLs (leads accepted by sales), Opportunities in sales pursuit and the number of Deals won. If your sales cycle is greater than 30 days, take averages over a 3, 6 or 12-month period.
Now download the Conversion Metrics Calculator (see image above) and plug them in. You will see your conversion rates for each funnel stage and how they compare to the industry benchmarks established by Aberdeen Group. How do your conversion metrics stack up? Are you aligned with the performance of companies who are Best-in-Class, Average or Laggards? Do you see points of friction where one or more conversion metrics can be improved? If so, you are now armed with the knowledge to know where to focus your efforts to maximize your sales funnel and accelerate the growth of your business.
DOWNLOAD THE CONVERSION METRICS CALCULATOR