What is the right funnel for profitable growth?

It used to be that when you were watching your favorite TV shows, each episode would be broadcast once a week. You had to tune in at the time it was shown. Now using cloud platforms and other advanced technologies, you can watch what you want, when you want. That “old-school” live TV has been replaced by streaming (Netflix, Amazon, Disney+, Hulu, HBO Max). You can enjoy a vast library of content that is personalized for you any time you want it.

In like manner, technology and data have improved how marketers can generate a qualified pipeline of sales-ready leads. The old-school technique was to blindly reach out to as many prospective customers as you could (“opening the phone book”), and hope that a fraction of them would show interest. At each step of the qualification journey, more and more would decline to continue forward.  So, when graphed, the numbers would look like a “V” shape: many prospects “churn out” near the bottom after a large investment.  A very leaky, inefficient, people-intensive, and costly funnel.

But now with advancements in technology and data, Marketers can more intelligently reach prospects who show a higher likelihood to be interested in their offers. Things are now also hyper-personalized, making the content very relevant for the stage in the journey.  That funnel now looks more like a “T”: more and more Applied Intelligence (AI) and automation at the beginning of the journey through to the end, which makes the process much more cost-efficient.

In this essay, we’ll discuss how technology and data can be applied to modern lead generation to create the “T” shaped funnel. We’ll also address the impacts and the benefits to not only demand generation and sales, but to the firm’s overall profitable financial growth.

Using AI, Account Based Marketing and Data to increase effectiveness and cost efficiency

By leveraging AI against customer and 3rd party data, leading marketers now profile and predictively model their target audience with a higher likelihood of being interested in their offer. 

They also apply new marketing technology to optimize inbound search as well as Account-Based Marketing (ABM), or digital conversational advertising, for outbound campaign activities.

One example of combining these two is online trials. An AI-based ABM campaign can identify and target prospective customers who will benefit from participating in an online trial of your offering. And once participants enroll, you can interpret product usage information (telemetry) to tailor the user’s experience, so they receive the highest value. (“We see you have been enjoying feature ‘X’, click here to learn how to also use feature ‘Y.’”) Participants who see value are more likely to purchase or renew your offer (convert.)

The next step of the online trial depends on your segmentation and routes to market. You may connect the trial participant with a direct sales rep, a channel sales partner, or even complete the transaction directly using eCommerce. In all cases, all the relevant information gathered is passed on to Sales.

Marketing automations brings value to marketers, in fact, a report by VB Insights found the following data to be impactful for companies using marketing automation.

Conversion rates go up

In the old-school V-shaped funnel world, it was common to see just .2%-.3% conversions from your initial Marketing-Generated Leads (MGLs) all the way to your closed deals. (See Figure 1) This included the rough waters of the classic “Marketing Qualified Lead (MQL) to Sales Qualified Lead (SQL)” conversions when Marketing would hand off leads to the Sales organization. But now, using the data and technology T-shaped funnel, conversion rates may be as high as 6x.

Marketing automation brings value to marketers. In fact, according to a report by VB Insight, 80% of marketing automation users saw their leads increase and 77% saw their number of conversions increase. Furthermore, companies using marketing automation see 53% higher conversion rates from initial response-to-MQL (marketing qualified lead) and a revenue growth rate that is 3.1% higher than non-users.

Industry Conversions

To go deeper into the how and provide additional color, let’s ensure we understand the old days. Marketers would spend money on trade shows and outbound email campaigns to generate leads based more on geographic territory design than any more specific targeting. Additionally, sales reps that didn’t trust MGLs would resort to “calling the phone book”- a high-touch, high-cost, time-consuming sales motion with low sales conversion rates.

Now, we can leverage 3rd party data to identify buying patterns using segmentation and target prospects with tailored communications, offers, and content on the channel of their choice. Plus, by investing in digital buy flows (i.e., online trials), we can nurture prospects and then pass to sales after they have self-qualified and this drives higher conversions at a much lower cost.

As seen in Figure 1, this is due to a cumulative effect. First, focusing on prospects with a higher likelihood of buying will increase your conversion rates of MGL’s to MQL’s.  Second, those that participate in online trials self-qualify even further into the Product Qualified Lead (PQL) category, often with the assistance of a marketing development or inside sale team.

From there, lead scoring and automated lead routing technology ensures higher SQL conversion rates by gauging intent and readiness for sales engagement. These qualified leads can be efficiently routed to the most optimal sales channel team with verified contact information, and actionable next best action recommendations.  The direct and partner sales teams can focus their energy on their best sales opportunities, while most self-service customers can be handled with a more cost-effective digital approach.

Finally, a feedback loop enabled by integrating marketing and sales platforms aids in the creation of a continual improvement process.  The quality and quantity of leads will inherently go up as teams work together and adapt to determine what is working and what is not.

Lower CAC and higher conversions improve CAC/ACV – which improves EV/Sales

One benefit of higher conversion rates and improved efficiency is you can now increase the overall volume and throughput of leads using the same data and technology-enhanced “platform.” By investing in this platform, you have a more scalable pipeline creation foundation than the traditional method of incrementally having to hire more people. You can now streamline and optimize your marketing investments to drive scale and profitability at the same time. 

How, though, will this impact Sales? Well, the more leads you put through the platform, the more are nurtured, and when they are ready, they are of much higher quality (e.g., likely to close) that are passed on to the Sales organization. In turn, Sales will become more effective, spending less time working un-qualified leads, more time helping customers solve their problems and closing deals.

When combined, these connected Marketing and Sales functions are directly correlated to a lowering of the overall demand generation costs, as measured using the Customer Acquisition Costs (CAC) metric that is common to subscription businesses. And a healthy CAC ratio is one of the most important measurements related to profitable growth – which is the ultimate goal of a growing subscription business.  See Figure 2.

The potential opportunity

The potential to increase growth and optimize costs is quite substantial. From Figure 3, there are several value drivers. Increased sales and retention, campaign efficiency, customers reached, and overall sales and marketing cost savings are just a few.

During economic downturns where cash preservation is essential, lower CAC enables companies to do more with less available budget.  And overall lower acquisition cost directly translates to higher valuations for the firm – thus demonstrating a clear return on the sales and marketing “spend.”

Wrapping it all up 

Much like online entertainment viewing, the role of Marketers has been dramatically improved with the intelligent use of technology and data. It’s a far more efficient way to operate.  Just as “old school TV” has been dramatically improved with data and technology, so has the way demand creation is now building profitable sales funnels.  

ABM campaigns enhanced with AI allow Marketers to target and engage with their prospective customers with compelling, relevant outbound campaigns. Campaigns that encourage online trials enable much more cost-effective self-qualification to generate quality MGLs. When all combined, these building blocks will deliver seamless personalized buying journeys, which accelerate progression through the marketing and sales pipeline.  

With such a data and technology-driven “platform”, a T-shaped funnel will increase conversions, as well as optimize your marketing and sales spend. This will also drive an optimization of your CAC, which is critical for profitable growth.