In a previous article, we talked about SQL and MQL. In this article, we introduce yet another term: HQL, that is, high quality leads. To kick us off, let’s explore what makes a lead be termed as high quality. Looked at in another way, the opposite of high quality is low quality. Though you may have thousands of contacts, if they have not given any indication of wanting to be contacted, these are low-quality leads. Leads can also be deemed low quality by the sales team if they do not possess the characteristics typical of SQLs.
Low-quality leads are not a bad thing per se, as they can, with the right amount of nurturing, become high quality leads in future. However, as your marketing budget is not infinite, you have to prioritize where you put your money. A common mistake that marketers make is to put all their resources behind leads indiscriminately.
In this article, we take a look at lead ROI and the thought process behind investing in different types of leads.
How do you differentiate between MQLs and HQLs?
A high-quality lead is one that displays sales readiness. According to SOMAmetrics, HQLs should display these characteristics:
- They have the power to make decisions
- They have a problem and they think your product or service is the answer
- The cost of leaving the problem unresolved is too high
- They have a ready budget
- They are ready to meet
- Your sales department agrees they are SQLs
Although HQLs may consider you as a potential seller, this is not a guarantee that they will buy from you. You still need to put in some work to wow each lead. The only difference is that they are a lot closer to making up their mind about you.
Marketing qualified leads are ranked lower than sales qualified leads because even if they have shown interest to buy through actions such as downloading, putting items in the cart, filling out forms, clicking an ad, or asking for more information, it is not guaranteed that they will want to take your relationship further. Until they are open to hear more, you have to nurture them through marketing tactics such as content syndication.
Pros and cons of MQLs and HQLs
It cannot be stated enough that leads are not created equal. This is clear in the Pros and cons of HQLs and MQLs stated below.
How to calculate Lead Generation ROI
The biggest priority for marketing executives is to increase ROI. Companies, however, have trouble defining measurable ROI especially when it comes to digital marketing. Sales and marketing should agree on what defines measurable ROI and then identify a framework for measuring it.
KISSmetrics for instance, have this formula for ROI:
Instead of using gain or profit like you would with traditional ROI, this formula uses opportunities won.
You can also use this alternative approach for calculating ROI:
First, determine the lifetime value of your customers.
This is the average value that each customer brings you for the length of time they transact with your business. Say for instance that each customer generates $200 per month for about 5 years. CLV for each customer therefore will be ($200*60 months= $12,000)
Second, calculate the cost of customer acquisition (CoCA).
The average allocation for customer acquisition for most companies is 10% of lifetime value. Hence the cost of acquisition based on the above example would be: (10%*12,000= $1200). You can allocate a higher percentage if your company is just starting out.
Third, determine the number of customers you will need to acquire to break even.
Determine your lead generation budget. This will be 10% of your total marketing budget. Your budget should include all costs for activities such as content production and for covering all content distribution channels.
Assuming your marketing budget is $300,000 per year, 10% would give you $30,000 per year for lead generation. To find your ROI, divide the lead generation budget by the cost of customer acquisition ($30,000/$1200=25) This means that you would need to acquire 25 new customers to break even and more than 25 to get positive ROI.
An example of lead ROI in action
Brandon Stamschror, Senior Director of Operations for MECLABS Leads Group maintains that investing in quality leads increases the likelihood for higher returns. MECLABS conducted an experiment for one of their clients by testing and improving the quality of the contacts on their lists. They compared their lowest-quality leads, which had unverified names, against a list which had been verified through phone calls. Though the verified list was more expensive to buy, the cost of qualifying leads was $373 as compared to $954 for the cheaper list. This is a cost-per-lead difference of almost $600.
Figure 2: RoI of quality vs quantity leads
Some key finds from the experiment were:
- It took fewer calls for high quality leads to become sales ready
- A higher percentage of low-quality leads were no longer with the company
- Though high-quality leads cost more, they yielded more returns
Business conditions that should help you decide whether to invest in MQLs or SQLs
There are many factors that you have to consider when deciding your budgeting mix. As lead generation efforts are part of your budget, the same factors that affect how you allocate budgets will affect your decision to buy leads.
Let’s have a look below:
New product offers and launches
New products require aggressive promotion to break into the market. Buying MQLs will ensure you have a big database of customers to nurture. Activities such as White paper syndication will promote knowledge among your MQLs.
During promotions, you are most likely to offer your services or products at a reduced cost, or throw in a value-add for each purchase. As a result, you are likely to reduce the length of time it takes to nurture a lead. Going for a mix of MQLs and high quality, sales-ready leads is advisable as opportunities could come from any of them. Spending should be increased during promotions to take advantage of the mounting interest that you will generate for your product.
If a key member of your marketing team leaves, this can affect your lead generation efforts. To ensure you don’t lose opportunities, you should divert your resources to buying leads. High-quality leads are a better option in such a case because you can then hand them over to sales to follow up.
Internal budget changes
As the business environment gets more competitive, cutting overhead costs becomes necessary. Investing money in a marketing team with capabilities to chase high-quality leads can be costly during such times. A cheaper option is to buy such leads and have salespeople close them.
Deepening on the seasonality of your business, there are times when you will need to buy HQLs, or MQLs, to adjust either to lower or higher demand for your product and services.
Consumers adjust to technology changes with surprising speed, and B2C companies adjust right with them. If any of these B2C organizations are your potential customers, failing to adjust to their speed of change means the tides will pass you. By following up a wide database of prospects, you will find out which customers are rapidly adjusting to technology shifts and jump right in to fulfill their needs. For this, you need a database of MQLs.
Competitors can surprise you with a shift in strategy. If they are suddenly more aggressive in chasing your entire market, you could lose out on many prospects. Buying MQLs and HQLs ensures your competitors don’t steal the lion’s share of your market.
Economic, political and natural factors.
You cannot control these factors but you can prepare for the curveballs they bring by adjusting your strategy. If economic factors out of your control affect the size of your team or cut into your bottom lines, buying both MQLs and HQLs becomes a viable option.
What does your data tell you to buy?
In addition to the external and internal factors discussed above, your data should be a key guiding aspect in your lead generation decisions.
If tracking funnel data, you should know whether you fall short in MQLs or HQLs. Data will also make it easy to identify challenges that get in the way of quality and quantity leads. If you have a history of measuring your previous demand generation efforts, you will have a track record of which leads yield the highest ROI and invest in those leads.
From the above, we can conclude that the question of whether to buy MQLs or HQLs will depend on the following:
Will you get a positive ROI?
Investors and company heads want to see a good ROI but up to 80% of marketers have difficulty demonstrating how effective their marketing spend is. To get buy-in that is all you have to do: demonstrate the ROI.
Are there weaknesses in your in-house lead generation that you wish to fill?
For instance, have you lost a good content marketer? Such a loss could affect your lead nurturing process.
What will you achieve?
The aim of investing in lead generation is to improve your bottom line. While investing in lead generation may be the way to go, engaging the wrong company to handle this for you will, in fact, have the opposite effect on your bottom lines. More so, the kind of leads you to invest in the matter.
That said, whether you decide to buy MQLs or HQLs, go about it in the following way
- Define your strategy. Do you want many leads that are low paying, or a few but high paying? This will depend on the nature of your product. Software companies for instance, or companies that deal in large machinery tend to have fewer leads but of high value.
- Identify a lead generator that has a good track record for generating quality leads for companies in your domain.
- Make sure your vendor understands your goals. It’s important to hire a marketing company that works with measurable goals and that can demonstrate the value they are adding.
- Ensure you have a team in place for following up on the leads.
- Get your team trained.