What are Lead Generation Funnels?

In the last three lessons, we talked about lead generation for high-end B2C products and high-end B2B products.

We also understood that low-end B2C products that are simple don't require lead generation.

The effort that is invested in lead generation is not worth it because the profits that we make from each sale is not going to be enough to justify the efforts in lead generation and sales. Also many times, the end customers do not want to share their contact information and talk to a salesperson when they are buying something simple. They just want to make the payment, purchase it, and use it.

If they have to give the contact information and wait for a salesperson to get back, they might not like it. Imagine the last time you ordered something from Amazon. You just ordered it. We don't want to talk to someone in such cases even if someone is available to talk to. It takes time and time is limited. Time is money.

So lead generation is only required when the price of the product is high and the product is complex. Like a house or a car.

However, as a business, if you are generating a lot of leads then you will not be able to call all the leads and serve them.

If you generate 1,000 leads a day and you have 10 salespeople who can call only 10 leads a day then what will you do with the rest of the 900 leads?

If your sales team tries to pick leads randomly and call them, there is a high chance that a lot of these leads will not be interested. It would be an inefficient use of the time of the sales team. And you as a business cannot hire 100 salespeople because that would be too costly.

As a thought experiment, consider that you can hire 100 salespeople and each person calls 10 leads a day. And you are generating 1000 leads a day. What do you think would be the conversion?

Let's say out of every 100 calls to the leads, 1 person converts into a customer. At this conversion ratio, you are going to generate 1 sale per salesperson for every 10 days on average. That means each salesman can convert 3 leads into customers a month.

Recap of the numbers:

Leads generated per day: 1,000
Total salesmen: 100
Calls per day per salesman: 10
Calls per month per salesman: 300
Conversion ratio: 1/100 (1%)
Conversions per month: 30
Conversions per month per salesman: 3

Now the biggest problem you will face is that 3 sales are not good enough for you to make enough profits and pay the salary of the salesperson.

The salary or the commission you pay the sales guy is going to be more than what you make as profits.

So what we need to do here is increase the conversion ratio of each salesperson.

Instead of each salesman converting 1 lead into a customer out of 100 leads, we need to get each salesperson to convert 10 leads into customers out of 100 leads. And this can happen only if you create a lead generation funnel.

There is no lead source in the world which will give you high quality leads out of the box.

Every traffic source online will send you all kinds of leads and we need to filter through them. It's like mining for diamonds. You need to process a lot of coal before you can find the diamonds. That's what a funnel does for you.

A funnel will filter out the high quality leads from a heap of leads and gives you the best quality ones.

Getting back to our example, remember we are generating 1000 leads a day and we do not have 100 salespeople. We have only 10. Each salesperson can call only 10 leads a day.

So what we need to do is find out what are the top 100 leads out of the 1000 leads so that we can assign 10 leads to every salesperson.

We find out the high quality leads in such a way that the buyer is in one of these 10 leads.

It's like predicting which area of the coal deposit will have a higher concentration of diamonds and processing just that instead of processing the entire coal deposit in that area.

That's why we need Lead Generation Funnels. The funnel is a filtration mechanism to find out the best leads that can be engaged with. With a funnel, we can get the same conversions with 1/10th of the sales team. The funnel does the rest of the work for us. That's why marketing automation is important. It cannot automate all the tasks, but it can make us more efficient.

Recap of the numbers with a funnel:

Leads generated per day: 1,000
High-quality leads identified: 10% (100 per day)
Total salesmen: 10
Calls per day per salesman: 10
Calls per month per salesman: 300
Conversion ratio: 10/100 (10%)
Conversions per month: 300
Conversions per month per salesman: 30

In the process, the funnel also builds trust with the leads and converts the cold leads into warm leads.

I hope in today's lesson you understood the importance of lead generation funnels.

In the next lesson, we will look at an example of how a lead generation funnel can be applied to B2C leads, and in the lesson after that, we will look at how the same technique can be applied to low-end B2B products as well.
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