Tuesday, May 20, 2008

CMO Club May '08: Improving quality of leads through ROI analysis

Dave Scott at Entellium, an on demand CRM solution for SMBs, launched the opening session "It's All About the ROI, Baby" at The CMO Club's "You're Not Alone Summit" with a case study about improving his company's ROI through improving the quality of leads.

To determine marketing effectiveness, Entellium looked at many different measurements. The most popular is ROI, but there are any many other measurements. Initially they began measuring "cost per won deal" which marketing didn't like because they claimed the high cost was not their fault but rather the sales team's inability to close deals. Then they switched to "cost per lead" which marketing loved but it didn't do anything for increasing qualified leads. Marketing couldn't care less about quality as long as their cost per lead went down which it did by 65%.

Entellium ultimately chose an ROI model, which was so difficult for their company to determine because there were so many things to measure. Although tough, the ROI was calculated as a combination of all sales and marketing costs versus the defined value as Total Contract Value (TCV). Entellium wanted to understand what their payback was.

2007 was not a good year. Entellium was paying $48 per lead. And it took longer than a year just to pay back marketing expenses. When they looked at paying back all expenses, it got really bad. They had a nearly a 3-year ROI for a 1-year contract! Uggh.

Scott wanted clarity on what it cost to acquire customers and how it compared to their competitors such as Salesforece.com. If their ROI is the same then great, if better than Entellium, then they've got an issue.

Entellium looked at two of comparable businesses which had 2 month and 6 month ROIs. This was for direct marketing costs only (not total costs like branding and PR).

Pete Krainik, CEO of The CMO Club, piped up and was impressed that Scott was able to collect this information. David said he first looked at the 10K annual report and then looked at marketing costs which in some case were actually broken out for them. In one case, one comparable company was backed by the same VC as Entellium. So they just asked the VC.

After the results, Entellium made changes specifically with how they went about acquiring qualified leads.

The company went back to measuring lead sources. Email leads that had a 65% disqualification rate. Google had a 45% disqualification rate.

First Entellium invested in SEO and then a lead referral program. They recruited 100 influencers which doubled their close rate compared to Entellium's typical leads.

The company's email program was converting at only 3.5% while all other programs were converting at 3x times that. So Dave Scott took the email program and gave it to the cold calling group who was very aggressive about constantly following up to get a potential buyer.

In the end, Entellium improved its overall ROI for total costs from under 3-years to just under a year.

Check out this video of Dave Scott in which we discussed getting buy in for business transformation for qualified leads.

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