Building Sales and Improving Productivity with Lead Scoring

Updated: April 30, 2009

Introduction

 

Lead scoring - ranking sales leads by relative value - is highly individualized, even for CRM. A successful system therefore takes effort to develop. It's an endeavor, though, that can pay big dividends on your bottom line.

"Lead scoring is very powerful," said George Hu, executive vice-president of marketing and products at Salesforce.com Inc . "It is being used by many of our customers, definitely by more of our advanced customers."

Steve Gershik, vice president of marketing innovation at Eloqua Corp . , a Toronto-based vendor of lead-management software, cited an Eloqua report that demonstrated how lead scoring can significantly increase sales results . After studying 10 companies' lead-scoring systems, Eloqua found that total revenue for users rose by 30 percent, while the number of leads sent to sales decreased by 22 percent. "The other surprise was the revenue per deal went up a little over 17 percent," said Gershik. "You would suspect number of deals would be higher, but the actual revenue per deal was up."

Gershik said the reason for these results was simple. "We realized the sales guys were spending more time with quality leads and taking more time to sell the value." As a result, they were getting more out of each sale.

 

Analysis

 

Too Many Leads

One counterintuitive problem about generating leads is creating too many of them. This can overwhelm the sales force with mostly low-quality leads.

With sales leads, the 80-20 rule (80 percent of the business comes from 20 percent of leads) applies with a vengeance. In fact, it's more like a 95-5 rule. That makes categorizing those leads a critical priority to maximizing your sales force's productivity .

The other complicating fact about leads is that not all of them are in the same stage of readiness to purchase. Though the hottest prospects want purchase immediately, most of the leads aren't to that stage yet. Some of them will never get there. But many of these types of leads are in the early stages of the buying cycle. They're not willing to talk seriously with a sales rep yet, but they're receptive to marketing efforts that will shape their later buying behavior .

Smart companies recognize this fact by practicing lead development . They nurture these early-stage leads with a marketing-directed effort involving information and name recognition until leads are "ripe" before turning them over to sales.

 

Reading the Buying Signals

Like so much of CRM, the essence of lead scoring isn't in the software. The software lets you organize, categorize and weigh information about your leads, but ultimately it's only as good as your ability to pick up on the strength of the leads.

People signal their level of interest in your company's products by their behavior. Someone who visits your Web site is a lead. Someone who spends 20 minutes visiting half a dozen pages, downloads a white paper and ends by checking out your price list is a much better prospect. Clearly, it pays to distinguish between these two types.

 

Lead-Management Software

According to Hu, there are two ways to get into lead scoring. You can either integrate software from companies such as Eloqua and Leads360 into your existing CRM solution, or you can develop your own lead-scoring module using features built into CRM packages or Microsoft Excel.

Obviously, rolling your own solution is cheaper. But the products you purchase are easier to implement and will typically include lesser-known features.

If you want to learn more about doing it yourself, the Salesforce.com community blog has a very simple guide using Salesforce's calculated field feature. While the example is quite limited, its basic technique can be used with much more elaborate scoring formulas. Since most CRM applications allow custom calculated fields, the technique will work with any of them.

And a knowledge of Excel will certainly help you create a lead-scoring solution."If you can use Excel, you can implement lead scoring," said Hu.

 

Developing the System

Fundamentally, the mechanics of lead scoring aren't difficult. Pick the factors you think are important and assign weights to them. Then designate numbers for each lead and add them up.

The mathematics may be simple, but developing the criteria takes some time and effort. A good lead-scoring system is well worth spending some time to develop. Some criteria will be included in a lead-generation module, and some, such as Dunn & Bradstreet Inc. reports, will come from outside sources. The most fruitful source of information on scoring leads, however, comes from within. Your marketing and especially your sales employees will have a lot of experience evaluating potential customers, so you should use that knowledge to help develop company-specific criteria.

Gershik noted that it is critically important to involve your sales force in developing your lead scoring. Not only will they know what they want to see, he said, they will more likely to use the solution .

However, no matter how firmly everyone is convinced they know what makes a good lead, a lead-scoring system needs to be monitored and modified according to results. "Lead scoring isn't just based on gut instinct or anecdotes from the sales force," said Hu. "It's based on historical data."

Comparing the results with the lead scores reveals what is actually working and what just seemed like a good idea. Since businesses change over time, this must be an ongoing policy. "It's a completely recursive process," said Gershik. "You can't just set it up and forget it like irrigation on a lawn. You have to set up a process where sales and marketing sit down every month and evaluate it. Are there too many leads? Not enough leads? Are we using the right criteria?"

 

Making Up the Score

There are two schools of thought on how to express the scores assigned to the leads. You can either use a numerical score or a very broad (hot, moderate, cold) classification. This seems like a minor point, especially since most software will let you do it either way. But how you express lead scores generates a surprising amount of discussion.

Those in favor of broad, general scores point out that the process of ranking leads is imprecise anyway. Apply all the science and marketing data you will, you're never going to get an exact result.

That may be true, allege the people who favor numerical scores, but numerical scores have important psychological advantages. Assigning a prospect a numerical score like 150 on a scale where anything above 100 is considered hot motivates the sales person to move quickly on the lead. Proponents of this approach also claim that assigning a number lets you apply weights and calculations to the score. That's significant, they argue, because a lead score is often a composite of many indicators that have varying degrees of importance.

Gershik said he prefers a numerical system. "Often, if you've got these restricted systems, you'll find marketing and sales get into arguments at the end of the quarter. Sales is getting measured in leads closing and it's in their best interest if a lead is not going to close, that it gets thrown back in bucket. Numerical scoring eliminates these arguments."

Since most CRM software and lead-management modules let you assign scores either way, you can choose your preferred method.

 

Recommendations

 

Avoiding Complexity

Lead scoring can be a very seductive process. It's tempting to throw every factor you can possibly think of into the mix. The result is an overly complex system that's hard to use and ultimately doesn't provide as much information. "Generally, the last few percentage points [of accuracy] aren't worth the complexity," said Hu.

It's better to start off simple and add or remove factors according to what does and doesn't work. Or, as Gershik put it, "Start simple and cut back the shrubbery before you try to cut down the oak tree."

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