Monday, June 15, 2009

CLV – CCA = profit

By Mark Helfen

Its not a pipeline, it's a refinery…

When David Tabor spoke to the SDForum Marketing SIG on Monday (June 8) his objective was to show how to optimize the following equation:

CLV – CCA = profit

CLV = Customer Lifetime Value
CCA = Customer Cost of Acquisition
Profit = the part you get to keep.

Tabor is CEO SalesLogistix and the author of the recently published Secrets of Success: Best Practices for Growth and Profitability

His focus was on CCA, and his prescription for reducing the cost of getting a customer is to re-architect the way you handle leads in your company.

His methodology is targeted at large enterprise sales, where a direct sales model is required - real people who visit real, if still potential, customers.

Despite the advances of E-commerce models, Tabor lists three reasons why direct sales is still a winning, or at least a required, model:

  • For some types of products, you just have to.
  • Some types of customers won't buy any other way
  • There is no other way to do $100K deals.

But the cost of acquiring a customer this way can be more than $40,000.

Tabor's strategy is to move away from looking at the pure number of leads sent to sales. Lead number aren't what causes business to close. It's the number of sales cycles started. Leads need to be highly qualified. By the time the information is given to the sales force, prospects need to be ready to enter a sales cycle – ready for an appointment with a sales rep.

The strategy he proposes has three layers:

1. An initial response. In particular, this response need to be quick - within 48 hours maximum.

"By the time 48 hours have passed, most people will have forgotten their initial inquiry," said Tabor. " Business aren't losing to competitors, they're losing to inaction."

Tabor describes these leads as "low grade ore."

2. The "lead refinery." Instead of a pipeline that all leads follow, the refinery engages prospects over time, turning the low grade ore into qualified sales prospects. These are people who are expert at qualifying leads.

New leads are "new members of your community of interest." This new lead qualification layer communicates and keeps prospects informed about your business and products, and when a customer seems ready to consider a purchase, delivers a lead, in the form of an appointment, to the sales rep.

When it comes to qualifying leads, "marketing doesn't know how, and sales hates doing it," says Tabor, so the lead qualification team does it. Tabor suggests "burned out" customer support reps, or systems engineers, who have strong product knowledge, know how to talk to customers, but want to apply these skills in a different way.

3. Layer three is the sales force, handed fully qualified leads. Sales reps get only qualified leads, and don't spend time with the low grade ore of unqualified leads. Giving a rep a large pile of random leads "gunks up" the sales team. Instead, they are given prospects ready to start a sales cycle.

To understand how your system is working, you need to "go backwards," starting with closed business to see where those leads came from. Don't rely on peoples impressions – instead use some real statistical data.

You can see Tabor's web site here.

You can view a copy of his presentation materials here.


Mark Helfen is a journalist, writer, and marketing consultant.
He can be reached at:


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