Small Conversion Can Still Mean Big Business

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

This famous quote is attributed to John Wanamaker (1838-1922), the US businessman who is often considered the father of the department store.

Typical Sales Funnel

We use the slide on the right to explain the impact of our go to market solutions on IT and other high-tech companies, who comprise our primary target market. When seasoned sales and marketing professionals hear that our intervention can improve conversion from 0.1-0.3% to 0.8-1%, they’re excited and want to dig deeper into how we help deliver such 3-5X uplifts in market outreach, geographical presence, sales pipeline, billing rates and ticket sizes.

However, when the uninitiated see the same figures, their reactions are quite different: Some of them ask us why the heck they should waste time pursuing the 99% that’s anyway not going to buy from their companies. Others start wondering if such ‘miniscule’ conversions wouldn’t happen purely by random.

One the face of it, these are genuine concerns. After all, when a company deploys 100 people for three months on a software development project, it expects to get more-or-less 300 person months’ worth of functionality (as measured in function points). However, this argument misses the point that sales and marketing are subject to several external factors and are, therefore, not subject to a straightforward translation of input to output.

You need to comb the entire market before landing the 1% fraction of your customers since this segment is not exactly holding a placard announcing its intention to buy from you.

To see why a total random approach wouldn’t work, we’ll take the top two stages of the sales funnel illustrated above. These are called ‘Suspects’ and ‘Leads’. Suspects are companies to which you’ve reached out via email, telephone or some other channel. After hearing from you, some of those suspects “raise their hands” to show interest in what you offer and, accordingly, become your Leads. The goal of the salesperson or marketer is to reach out to as many suspects as possible and convert as many of them to leads as possible. Unfortunately, her competitors are doing exactly the same, which is what makes things a bit interesting.

To cite an example, a large European bank told us that they were contacted by around 50 IT vendors in a typical week, of which they could spare the time to meet only one. If you’re one among those fifty companies, you know that you can’t secure that much-prized appointment by taking a random approach. Only the vendor that has followed a systematic approach to crafting its message and conveying it using the right type of content would win in this situation.

B2B marketers can take consolation that low conversion rate is not unique to their industry. Some other businesses afflicted with it are

  • Drug discovery
  • ecommerce
  • Gold digging
  • Ideas to implementation
  • VC-funded startups

Just as none of these activities can be done haphazardly, neither can you follow a “spray-and-pray” approach when it comes to marketing. Go to market requires a structured methodology, which, in our case, spans four phases namely, offering, content, campaign and sales support.

At this stage, you might be wondering why you should bother with so much song and dance over advertising and marketing if all you’re going to get out for your efforts is a 1% conversion. You should take comfort from the fact that, when they’re done well, advertising and marketing deliver huge returns. That’s why, despite complaining that only 50% of advertising works, companies and brands have increased their advertising spends by leaps and bounds in the century following Wanamaker’s famous statement. Likewise, in the B2B technology space, when only one company out of the 100 suspects touched by you turns into a customer, the revenue you earn as a result pays back your marketing investment many times over.

Should vendors fear that low conversion will consign them to the fringes of the market and render them insignificant players forever? Not necessarily. If the size of the addressable market is large enough, a well-thought out GTM strategy can deliver fame and fortune without operating anywhere near 100% conversion rate.

M-PESA’s Funnel

To quote an example, the Indian ecommerce company Flipkart attracts a daily traffic of 5.2M page views (Source: FreeWebsite Report). According to this Forbes India article, Flipkart generates around 17,500 sales a day, which translates to a conversion rate of 0.34% (17500/5.2M*100%). Even taking 50K, the higher figure for transactions per day reported by the FORTUNE magazine a few months ago but  missing from its online version, the conversion works out to 0.96% (50000/5.2M*100%). Either way, Flipkart’s conversion is less than 1%, but, despite that, it happens to be India’s largest ecommerce company.

To quote another example, M-PESA has become the world’s most successful mobile money service despite having a conversion of ‘only’ 1.08% (2/184*100%) (Source: McKinsey).

Have Flipkart and M-PESA achieved their respective leadership positions by fluke? Certainly not. On the other hand, are we implying that business owners and marketers can’t achieve higher conversion rates? No, we’re not. In fact, as you can see here, we’ve helped several companies achieve manifold increase in conversion of website visitors to leads / deals. Our point is simply that 100% conversion is well nigh impossible in marketing and also that a random approach wouldn’t even yield an apparently low conversion of 1%.

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