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Our product has a long sales cycle and currently has a low volume of high-value deals. We are contemplating using leads generated as a north star metric. Has anyone used leads as a north star metric? What are the pros and cons of using such an approach?

  • PV

    Philippe Vdhd

    about 4 years ago #

    Hi Nathan,

    Because you have high value deals with long sales cycle, I'm going to assume that you have a salesteam (or one of the founders) that is always involved in closing the deal. If this isn't the case then disregard the rest of my argument. :)

    First let's get one thing out of the way: Just focusing on leads will get you nowhere at all.

    Period. If we - marketers - are only being measured on the number of leads, then quite frankly it's easy to cut some corners and just get any type of lead in, regardless of the quality. This will piss off your salesteam big time AND slows down the growth rate of your company because a lot of time is spent on the wrong prospects. (both on marketing and sales side)

    Because you have a long sales cycle, taking into account the stage of the buying cycle a prospect is at, is hugely important. So right off the bat, that means you should make a distinction between MQL (Marketing Qualified Leads) and SQL (Sales Qualified Leads). Assuming a long buying cycle, the easiest way to assign the right stage to each lead is just looking at how the lead came in. If they downloaded something that indicates they're later stage in the buying cycle (e.g. a buyer's guide, a case study, etc.) or if they signed up for a free trial or requested a demo or actively using a trial, you can flag them as SQL. (Deciding on what really constitutes an SQL for you is super dependent on the typical buying cycle so it's difficult to give you a good example without more details.) For earlier stages, they will be flagged as MQL.

    You can probably already see it coming at this point, but your focus should be on the number of SQLs. Here's why:

    - These are the only leads your salesteam can do something with and hence are the only leads that (potentially) will add to your bottomline.
    - Looking at any given month, you will have a few leads that are instant SQLs, but also a number of leads that became an SQL during that month because you nurtured them with marketing content over the past months since they came in as an MQL.

    Depending on your sales team, number of leads coming in, etc. it might be a good idea to have a Sales Development Rep that also contacts leads that are typically not yet an SQL. They can serve as a first line of qualification to ensure that sales only talks to hot leads.

    As a second metric, I would also keep an eye out on the SQL-to-Customer conversions. Some sources/campaigns will lead to more customers because the conversion from SQL-to-conversion is higher. If you are tracking that, you can of course dump more resources into those campaigns to run your marketing more effectively.

    Let me know if you want me to go deeper into something and feel free to reach out for more tips (philippe.vdhd@gmail.com).

    • DS

      Dan-ya Shwartz Bar-El

      about 4 years ago #

      I use SQLs (here it's opportunities) and we have a metric for lead responsiveness I also use.
      Leads means nothing to me :)

  • AA

    Anuj Adhiya

    about 4 years ago #

    Can you talk more about the product/service?

    Also just based on the information you provided my gut feel is that leads are too far up the funnel, so not sure how you can you predict anything based on “may be interested” vs actual product/service usage.

  • SE

    Sean Ellis

    about 4 years ago #

    Your north star metric should reflect the growing impact that your solution has against the problem it is trying to solve. It is a reflection of the cumulative efforts of the whole company (great product, great customer acquisition, great conversion, great sales, great support, great product performance...). Therefore I don't think "leads" is a good north star metric. However, it is an important metric for the person or team that is tasked with growing leads. Ideally that person or team is differentiating between qualified and unqualified leads.

  • TG

    TJ Gray

    about 4 years ago #

    Hey Nathan, so my company has a client who has an almost identical situation. A very long sales funnel, not a lot of volume, but the qualified leads that did go through meant big bucks. We, the hired outside agency, had to figure out the best way to get them the most completed loans. Which you would think would immediately be our, the outside agency's, north star metric. But for us that was not necessarily true.. let me explain.

    Yes, for our clients their north start metric are completed loans, because to them that represents their revenue & growth. However, it is difficult for us to say our north star metric is the same thing, because we have little to no control over their funnel once we bring in the lead. We were hired to bring in the most qualified leads possible. More qualified leads are more likely to become completed loan applications, which makes them money. (I think having a north star metric should represent the growth, but also be something completely in your control. Curious to hear from others if this is accurate or if we should just use completed loans as our north star metric.)

    So, like you, at first we chose to go with leads, but realized that was not accurately measuring the growth we provided them. This is because more leads did not necessarily mean more completed loans. If the leads are not qualified enough then intuitively they will not be able to complete a loan. It was a waste of ad spend and effort.

    We changed around our ad creative and added a lot more qualifiers with the intention to deter just anyone from clicking on the ad. This way it will save money and hopefully (if our targeting is good) the people that do click on the ad will become completed loans.

    So what should the north star metric be for that strategy?

    Well we decided to start using the Click-to-Start rate. Basically of the people that clicked on our ads how many of them actually started the loan application process. The higher the CTS rate the better we are doing because our targeting and qualifiers on the ad are working.
    We realized by optimizing ads for their click to start rate we can then later scale it to bring in a much larger source quantity of qualified leads -> completed loans -> actual substantial growth for our client.

    In conclusion, using leads as a north star metric can work, but it really depends on the business / your role in the business' funnel.

    I hope this helps Nathan and did not just come off as a tired persons ramblings!
    P.S. I apologize for any typos or grammatical mistakes.

  • SS

    Siddhart Saha

    about 4 years ago #

    No, I don’t think that your north-start metric should be number of leads. For the simple reason, it’s not a ratio. Absolute numbers rarely contribute to growth.

    What should be your north-star metric depends on the stage your company is at. Let’s start with a typical funnel.

    Marketing Activities -> MQLs -> Prospecting -> SQLs -> Pitch -> Sales

    In words - your marketing activities will produce marketing qualified leads. A salesperson will talk to the lead to prospect it and decide whether the lead is worth pursuing, thus producing SQLs. Salespeople will pitch the SQLs, for however long it takes, to convert them to actual sales.

    You’d want to work backwards, from the bottom of the funnel, to define your north-star metric.

    1. If you’re just starting out and haven’t done a lot of sales, you should focus on optimising the SQLs to sales funnel. What is my conversion rate (including time) to convert a SQL to a Sale? At this stage, this should be the north-star metric.

    If, however, you now know that x% of my SQLs convert in y days, and this is probably the best we can do, move upward in the funnel.

    2. What is my conversion rate of MQLs to SQLs? Optimising this metric will force you to segment your marketing experiments and identify the channels and activities that perform best for you. Your experiments should now be driven by the goal of optimising this north-star metric.

    3. Once you’ve identified the marketing activities and channels that produce the best MQLs, it’s time to focus on number of MQLs produced per marketing activity. Let’s say you have identified that search PPC, e-book publishing, and webinars produce the best MQLs for you, double down on these activities both in quantity and quality and optimise the number of MQLs from each activity.

    This method will ensure you are building a solid foundation and not incurring waste. Hope this sparks some questions. Happy to engage further!