EP43: 91% of All Marketing Dollars are a Waste.

Only 9% of all MQ's (marketing qualified leads) every result in a conversation. Worse than that, you have now stimulated your target audience to explore and investigate your competition. 91% of all marketing dollars are a waste. This is because Sales only contacts a prospect two times, rather than the 6 times requested or required.  That leaves 91% for your competitors to speak to. But the good news is, everyone else is doing the same thing. It may all work out.

Sales says the lack of reach means low-quality leads. Marketing says good targeting means good quality leads, but without feedback, they'll never know. Marketing says, "You know, those salespeople, they won't talk to our leads!" Sales says, "Your leads suck!" which is translated to "we can't reach them. The best leads are those who are busy and important. The easy ones to reach aren't the best leads, yet sales is asking for precisely that - leads that are easy to reach.

What you really want are the ones that are most likely to need, value, pay fair prices for what you have and work with you and your team to solve their problems.

Don't mistake the dog who comes up and licks your hand with the one who will defend your house. Tune in to this episode to hear a story about single malt whiskey, the mother liquor, and leakage to the distillery across the road.

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The complete transcript of this episode is below:

 

Corey Frank (00:35):

Welcome to another episode of the Market Dominance Guys with Corey Frank and the Sage of sales, Chris Beall with all things market dominant-oriented. So today, Chris, we were chatting a little bit yesterday after your appearance on Sales 3.0, with our friend Gerhard. So we can certainly talk about that, but I think a little piece of peanut butter that was stuck to the roof of our mouth that you and I kind of riffed on before this was this topic of sales and marketing alignment. You're very kind and you let me wax philosophical for a while, a few minutes. You're an excellent listener. And then you very respectfully and gracefully said, "You know, Corey, sales and marketing alignment is a myth." And I said, "Well, that's a topic for our podcast." What do you mean by that, Chris, sales and marketing is a myth? I thought sales and marketing alignment is the goal as the reality companies like serious decisions make a living off of that type of data. So let's start there.

Chris Beall (01:38):

Yeah, it's, it's kind of funny. I mean, sales and marketing alignment as an issue has an assumption. And the assumption is actually the inverse assumption. That is, if sales and marketing were aligned, and by sales and marketing alignment people mean, do they share the same goals, do they have the same metrics, do the metrics interlock? So if marketing does their thing and they do as much of their thing is they have committed to the company to do, and if sales does their thing and they do enough with marketing's leads that they generate, their marketing qualified leads, as they've committed to do, then all good things happen. But there's one good thing that doesn't happen. And that is information flow coming back from sales attempts to turn marketing qualified leads into actual sales opportunities and marketing's attempts to go out and get more marketing qualified leads. That is it's an open loop process. And the reason it's an open loop process is twofold. One is just raw and that is only about 9% at maximum of marketing qualified leads if I'm QL has ever spoken with ever have an actual human conversation.

Corey Frank (02:50):

Wait, wait, wait, I just want to make sure my mic is on properly. Did you say 9%? How'd you get to 9%? It sounds like a very specific number. You didn't say the crispy align now doesn't say around something, he says specifically 9%. So I'm sure there's a mathematical formula behind that.

Chris Beall (03:07):

There is, and there's also a set of observations. I want us to ask John Neeson, this question. I called him up. John Neeson's one of the founders of Sirius Decisions. I was a customer/client, I suppose what you'd call us. And we were having fun talking about a bunch of things with the Sirius Decision folks, Jason Heckel in particular christening the connect and sell weapon as the Iron Man suit of business, which I really liked. And I think we continue to riff on that through the years that I think Jerry Hill talks about this a lot of the Avengers, there's only one who actually just human, like the rest of us and that's that's Tony Stark. And what does he do? He puts on the Iron Man suit. And yet he is the one most likely to save your planet when it's in trouble or whatever it is Avengers do for a living.

Chris Beall (03:53):

I've been enjoying the relationship with Sirius Decisions, but I really felt like I wasn't getting a lot of fresh information during this one period. This was a long time ago. And so I called up John Neeson and I said, "Hey, John, I got a question. I've done this kind of work in my head." And I had, it had been from 1:00 in the morning until about 2:30 in the morning, lying there in bed, calculating in my little pea brain. And I have a number in mind. And I'm wondering if the number has anything to do with what you're observing. And the number I'm curious about is what is the conversation coverage of MQL? So of marketing's output in terms of lead in particular? What is the maximum conversation coverage you've ever seen as a firm among your clients? And he said 9%. And I said, "That's interesting because my theoretical maximum is 9%."

Chris Beall (04:43):

And he said, "Well, how do you calculate your way to 9%?" I said, "Oh, it's easy." The policy for most sales groups that are doing anything with inbound leads is they're going to call them to try to get a conversation. And they're going to call them six times. The fact is they call them two times and each one of those calls has a one in 22 chance of generating a conversation. So 2 in 22 is 1 in 11, right? And 1 in 11 is well, 9%. It's actually a slightly different number, but close enough, if you start throwing all them decimal points out there, people get [inaudible 00:05:24]. 9% it is. And I asked him, "Is this for real? You don't ever see anybody with 36% or 21% or whatever." He says, "No, no." And I asked him, "Does that mean what I think it means?"

Chris Beall (05:37):

And he said, "What do you mean?" I said, "Well, does that mean that 91% of all marketing budgets are pure waste?" And there was a long pause and he said, "I would prefer not to answer that question." So, that was where the conversation ended. And I agreed with him answering that question wouldn't be good for anybody. But I thought about it, and I came up with this analogy and I had just been with the family to Scotland. And we'd been over to the Isle of Skye and you know, Corey, I do not despise a good single malt whiskey that comes my way.

Corey Frank (06:12):

At least three fingers, four fingers. Yes.

Chris Beall (06:15):

I don't turn up my nose at it. In fact, I tend to put my nose fairly close to it as part of the process of enjoying it. And we'd been over to the Isle of Skye and visited the Talisker Distillery. And, a nice family event, both of my boys were old enough to visit the Talisker Distillery at that point, just barely. Had they been in the U.S. this wouldn't have worked out so great, but we were in Scotland. So it was just fine. So we drove down one of those little, one lane roads, the kind where you have to pull off to let somebody go by and they have the big poles that are showing you in the distance, the distance being about two or 300 yards away where the next pull-off is. We went down to the Bay, came back, went to the Talisker Distillery and watched them making the Talisker.

Chris Beall (06:59):

And they make it in two buildings. So in one building, they have, what is really beer, I suppose they call it the mother liquor. And, mind you, I'm no expert on this stuff. I know how to drink it, but I don't know how to make it, right? So they have this little machine that's grinding up the the grain in question and they're malting it and they're doing whatever they do. And then they're taking that product in pipe, the pipe goes up and across the ceiling and through a hole and it goes into another building. I asked why. And they said, "Well, the mother liquor doesn't explode, but the still sometimes do." Well, that's good. So you keep that in another building, so you minimize your losses, right?

Chris Beall (07:38):

And I thought about it and this 9% thing. And I thought, okay, so here's the mother liquor. It goes up, it's pumped up across this pipe. And it goes over there to the stills. And it's turned into this really, really valuable product by the pound. A good single malt whiskey is pretty valuable product for something that is mostly water. Well, actually at that point, it's not mostly water. The 57 degree North is actually mostly alcohol, but regardless it goes up and goes across. And I was thinking about it and thinking, so if I had looked up there and instead of seeing that pristine pipe without a single drip coming off, then going over there, and instead of 91% of the mother liquor was pouring out on the floor, do you think, I'd say we have an alignment problem. Of course I wouldn't. I'd say we have a leakage problem for us. [crosstalk 00:08:21]

Chris Beall (08:21):

And do we know how good the mother liquor is, if only 9% of it's getting over there. What if the leakage is not at random? Or even what if it is at random? So, how do we know how good the product is unless we can actually use the product. And so here we have a wonderful product for all we know, which is marketing's contribution in terms of MQLs and sales does turn their nose up at it by and large. And they do it because people are hard to reach.

Chris Beall (09:51):

They actually do it for the same reason. It's as though, when the mother liquor got over there, you wouldn't even put it in the still because it's liquid. And you don't want to put a liquid in there. But that's the nature of it. It's the nature of interesting people who are worth talking with that they're hard to reach. In fact, the more interesting and valuable they are, the harder they are to reach because [crosstalk 00:10:10] people are busy. It's so simple that the mother liquor is liquid, important people are busy, and this is not accepted by the individual sales rep who says the following, "I tried to call them. They didn't answer. They must not like us. They must be disqualified." So you think of the idea of disqualifying an inbound because they didn't answer the phone is very popular and applied to 91% of all inbounds at random. But it's worse than random.

Chris Beall (10:46):

It's actually selectively applied to those that are the best. So the best leads are the ones least spoken to because they're the most important people, and they're the most busy people. So the way I came up with that 9% was, as I said, that the policy is always calling six times. The policy is in the hands of the reps and the reps call them twice, if they call them twice. If they're not busy taking a call somewhere else in order to make some sort of a ridiculous activity number. Guess what, by the way? When you do call somebody and you do get ahold of them, they tend to also still be busy. So there is a problem though, and the problem is not any efficiency problem or any of those kinds of problems. The problem is that it makes an open loop process. So your entire marketing budget's purpose is to generate MQLs that might be of value. And to convert them, you have to talk to them. You can't not talk to them. And B2B, nobody does business with you without talking to somebody. So without talking to them, they go away. They leave.

Corey Frank (11:49):

So the purpose of marketing is to do what again?

Chris Beall (11:52):

Is to generate leads, which are contacts with people who are potentially worth talking with.

Corey Frank (11:58):

So when I thought you said. For who, for you? Or for your competitors, because you had an interesting riff the other day when we talked about this, that the majority of the marketing expense. 91% not only are pure waste, but that 91% of the marketing budget for your team is likely contributing to the success of your competitor. I think you were riffing about.

Chris Beall (12:26):

Oh yeah,

Corey Frank (12:26):

Because it was very compelling.

Chris Beall (12:27):

Well, think about it. You've stimulated somebody at this moment to take action. You're out of your mind if you think the only action they took was to come to your website. That doesn't happen. Anybody who is interested in addition to being interested in whatever brilliant piece of content you put out there, your white paper, your this, your that the other thing, right? If they're interested, if they're worthwhile in the question of whether somebody can help them solve a problem. Now, you might have zero competitors and no other way to help solve the problem. None whatsoever. That's possible. That's probably not a very interesting business. I mean, even we have competitors here at ConnectAndSell for what they're worth. So, what happens when you stimulate action? When somebody starts to take action, they're more inclined to continue to take action. Until they take action, they're pretty inclined to do nothing.

Chris Beall (13:19):

I just was asked by some piece of software to take action that involved getting my phone and seeing some digits that were on it so I could do a two factor authentication. But I didn't do that because I was here about to start talking with you. Now, the chances of me taking that action have gone to zero, right? Had I done that, that action would have been followed by other actions because once you start taking action there's action momentum. You do one thing after another. So here you've stimulated somebody to take the action of checking out you and your competitors. [crosstalk 00:13:53] And now you chose to not speak with them other than working for your competitor at that point.

Corey Frank (14:00):

So to further your analogy of going to Scotland, it's as if that leakage that you saw overhead was somehow being directed to the Macallan factory that the frog or the, the NSC or wherever else that extra mother liquor is going to some other competitor. They're generated it, they put the facility in place. They have the people who are putting in the raw materials, but it's just going right downstream to fill in somebody else's coffers.

Chris Beall (14:34):

Yeah. And not only that, it's going downstream, probably in a pipe that somebody put together and there's a tour bus out there waiting me to the other distillery to buy their stuff. Yeah, it's really pretty appalling. And the only good news is everybody's doing it. And so, you know, you get lucky, right? You get lucky because if my 9% is fighting everybody else's 9%, then maybe we're all going to do okay. So maybe I'll, [crosstalk 00:14:59] maybe all I'm doing is wasting 91% of all the dollars. Now, if you're a venture finance company, then that means that you're giving up that additional part of your company to the venture finance folks. So you're actually, you're giving away the company. The multiple of revenue you would've gotten as valuation that you're giving up by having that 9% be 9%, instead of say 60%. 60% is actually achievable.

Chris Beall (15:25):

Very straightforward. So let's say you had 60%. What does that times nine that's, roughly speaking, [inaudible 00:15:33] so here I got the 60%, right? It's not quite seven. And so I got, I would have seven times more revenue, assuming everything's linear. Assuming that there's no special thing about the 91% you're not talking to. Turns out there is, they are better than the 9% you're talking to. But say there weren't a special thing. Say they worked better. So they're just the same. So now the just the same times six you could have had, but you chose not to have that, right? So that means the valuation impact of your marketing budget, which is often 20, 25, 30% of your company's entire budget to what you were hoping for, which is maybe, I don't know if you're a SAS company, there'd be four or five, six, seven times revenue, right?

Chris Beall (16:19):

So now you're giving that up. So say it's six times and you're giving it up at six times revenue, right? So you're giving up $36 for every dollar you fail to talk to, so to speak. You spend a dollar on marketing, you fail to talk to them, and you give up 36 bucks evaluation and you do it in the name of increasing valuation by spending money on marketing. So the response is to keep spending on marketing and keep spending on sales at the top of the funnel where you're overspending also probably by a factor of six, because you're not talking to enough people. And then when that doesn't work, you go and you talk to the experts and say, "How can I get sales and marketing on the same page?" It doesn't matter...

Corey Frank (16:58):

Or worse. Let's keep hiring sales reps because we have an abundance of marketing leads, or so they think. But they're really only being attempted once or twice.

Chris Beall (17:09):

Yes. Yeah. And remember always it's the conversation flow rate, the flow rate of relevant conversations that drives the value of a business and drives its move into a marketplace that it wants to dominate. It is never anything else other than the flow rate of relevant conversations. And what do you have to do with them? You have to make them quality conversations. How do you do that? You focus on psychology, not on product. How do you do that? You build trust. We've we've been through all of that kind of stuff, right? Build trust in the first seven seconds, don't blow it over the rest of the relationship. There's a bunch of things you can do, but until you speak with them, can't do any of those things. So you're either going to waste money, spin your wheels. Literally it's like spinning your wheels, smell the smoke, join the squealing and then put up with grief because your marketing people are going to say the following, "You know those salespeople, I think, we'll talk to our leads." And the sales people are going to say, "Well, the leads suck." By suck, the salespeople mean I can't get ahold of them, right? And, by great, the marketing people mean they're about as relevant as we can make them, given the information that we have.

Chris Beall (18:15):

So they're talking about two completely different things. The misalignment actually isn't the definition of something completely different. Sales says lack of reach. I can't get ahold of them is low quality. Marketing says good targeting. As far as we can tell, it was high quality. Without the feedback flew from coming from conversations, marketing, we'll never know if they're telling the truth. And without talking to those prospects, those leads, sales will never know if they were any good.

Corey Frank (18:46):

So how do you fix it?

Chris Beall (18:50):

Talk to them, [crosstalk 00:18:50] talk to them. I mean, it's pretty simple: talk to him. And you're not going to talk to all of them. But talk to the ones that will talk with you.

Chris Beall (18:57):

So sure enough, you, you want to send them emails and do all that good stuff and you're going to harvest whatever you're going to harvest. By the way, your competitor's doing exactly that. You want to win where your competitor is not winning. You want to take what they got, fight them over there, right? Take the freebies. The free part of the market for you to dominate are all those folks your competitors are not talking to. So the ones that answer the phone generally, the first time they're called, maybe everybody gets those. The ones where it takes two calls, maybe a 50% of everybody gets those. Now we're down to the ones that takes three or four. Now we're down to the busy people. The more navigated phone calls it takes to get ahold of somebody, the more valuable they are as a takeaway from your competitor, because your competitor is not going to go down there.

Chris Beall (19:44):

My climbing partner, Jim Hagar, I used to used to go hiking and climbing a lot in your neck of the woods, except up North. Up in grand Canyon. So we'd go down in there and wander around, go down one of those trails, like the hermit trail. And I go over and see whether we could climb something ridiculous like this thing called the Monument. Don't ever go climb the Monument, by the way. It's rotten at the base and scariest all get out, but we'd go around looking for opportunities to stand on the summit of things, pointlessly and look around and say how beautiful it was. And then make ourselves shake in our little climbing shoes as we were felled off some crappy anchor that we managed to put together up there. And we noticed something really obvious, but it's the same phenomenon. As you're coming back up out of Grand Canyon, you run into a line and we called it the flip-flop line.

Chris Beall (20:34):

And the flip-flop line is the farthest the tourists will go down into Grand Canyon. And it's comically close to the rim. Now, thank God for the tourists. It's close to the rim because that is a dangerous place down there, especially when it's hot. You are on the rim, you're at whatever that is, 6,000 feet, 7,000 feet. Everything's great. You start down, it gets hotter and hotter and hotter and a lot of tourists tend to show up. And some times a year that are pretty hot and they're galled into it and I would go down. But fortunately, most of them turn around by what we call the flip-flop line. All the beautiful places, all the cool places are way past the flip-flop line. So we had those to ourselves. We had market dominance when it came to the most beautiful parts of Grand Canyon and as consumers of that beauty and of the fear that came with it, we wanted that dominance.

Chris Beall (21:29):

So we were very happy that our competition, which was the tourists who'd come out of the tour buses would only go down to the flip-flop line, which by the way, it was just past a half a mile down into the Canyon. And so you've got to go about 11 miles down the Bright Angel Trail to get down to the bottom or 6.2 if I remember correctly off the top of my head. This is going back a few years here, of course. [crosstalk 00:21:52] Going down the South Kaibab Trail. That's the rule. Now of course, if you went out to one of the least frequent of trail heads, that is, you've got a great marketing department that goes where the other people don't go, flip-flop lines, right at the top. Nobody even goes down those, right? So the more valuable the resource. In that case, the beauty of the Canyon, in this case, those really good prospects, those leads that are hard to get ahold of. The more valuable they are, the less likely you are to talk to them.

Chris Beall (22:22):

And now you get a skewed marketing signal back from sales. Sales will accidentally tell marketing the following, "Go get more of the ones that are easy to reach." That's what they'll say.

Corey Frank (22:34):

That's right.

Chris Beall (22:35):

But that's not what you want. What you want are the ones that are worth the most, that are most likely to need what you have to offer, value it, as it should be valued, pay a fair price for it, and, best of all, work with you and your team to get the maximum value out of it, so they'll become a great reference. And they will work with you and for you to help you dominate the market. So it's all perverse. Where 'is it easy' as being mistaken for 'is an important', which I believe a lot of people do in almost every area of their life. But in this one, that's particularly devastating. When applied to [inaudible 00:23:13]

Corey Frank (23:14):

It is common nature, human nature to say, listen, I confuse sometimes activity with kicking butts. And if I'm a sales rep and I'm getting a lot of low margin, high volume, one bagger, easy type of leads that are closed and converted, I get a pat on the head from my sales manager. My sales manager gets a pat on the head from the director and so on up the food chain. And we somehow think probably from a false positive perspective that we're actually dominating our market, we're well on our way, we're beating our numbers. But what I hear you saying is that, listen, clearly there are different flavors of customers based off of margin or ideal customer profile, which is a misnomer as, as it is, which is a conversation we can have too, one of these days.

Corey Frank (24:04):

And so the more rich the nectar, the flavor is deeper and those tough to reach prospects are worth it. That's where the gushers are. Those are the market makers. Those are the clients that are the influencers that have the reciprocal effect to tissue and the direction of market dominance. So don't necessarily be fooled at the early stage when you can convert a lot of the quote-unquote easier. In other words, your sales conversion rates may be too high early on, and that may not necessarily be a positive.

Chris Beall (24:42):

Yeah, there's a problem with low hanging fruit. Everybody else can pick it too. [crosstalk 00:24:48] It's hard to compete based on being the best, low hanging fruit kicker in the world. Sure. You got to go get it. No reason not to, but you make market dominance happen a little farther up the tree. Now we have a situation just like you referred to where one of our very, very best customers in some ways, our very, very, very best customer I connected to. And if I look back and I have looked back over the amount of time it took to get the first conversation, to have that conversation, and to have the followup conversation of the followup, to the followup, the followup to the followup, and then finally the meeting and then it got harder. And I will never forget until I forget everything. I have it strongly in my memory, a five-hour conversation that I had with two people at that company that went through Thanksgiving dinner. Three hours on one side and two hours on the other side.

Chris Beall (25:47):

And I was talking to him the whole time and I finally finished and came down and said, "I'm glad that Turkey's just as good, cold as warm cause that's how I'm going to be eating it." But it was worthwhile. And maybe somebody else wouldn't have had that conversation. Maybe they would have been more sane than me, but the best customers tend to be the ones who asked the most questions, who are most interested in exploring most deeply. And they also tend to be the ones who are most busy.

Chris Beall (26:17):

There's actually a correlation. It's a soft correlation, but it's a legit correlation between hard to reach and important and between good customer and not so easy. And so there's a lot of let's go the easy way in sales. There's also the flip, which we've talked about, which is the dog trying to get through the chain link fence to get to the meat and sort of backing up and seeing that there's a gate. So I'm not advocating being stupid and just mulling your way through every situation. So be circumspect. Think about it. Stand back every once in a while, look at your situation. But don't mistake the dog that comes up and licks your hand for the one that's going to defend your house.