The Number One Sign You Have an Unhealthy Sales Funnel. And How to Fix It.
I love building and scaling marketing teams. I love hiring. I love fixing problems. I love rolling up my sleeves and getting sh*t done. And I have had the opportunity to help scale and build talented and effective marketing teams at a variety of different technology companies — focusing on post Series B venture funded organizations.
Joining a team in its infancy or in various stages of growth can be incredibly challenging. Many early marketing teams are just starting out, and as a result, are lacking in marketing sophistication. There may be process challenges, a lack of tech, data cleanliness issues, an insufficient program strategy, and more. While this can certainly be daunting to address, this is an exciting opportunity to make a quick impact.
If you are a new marketing leader entering an organization, how do you quickly find and address problems? A critical step to your success is to undergo a thorough investigation of the sales funnel.
A Forensic Investigation of the Marketing and Sales Funnel
The first place I look to quickly triage critical issues is the marketing and sales funnel. Even if your company’s data isn’t perfect, understanding how leads flow through your funnel can help pinpoint where to focus your attention.
Note: If you aren’t a power user of Salesforce or Marketo, I highly recommend you partner with someone in a marketing or sales operations role to help you run the reports and understand the data.
Investigating the funnel helps you uncover a wide variety of issues including (but not limited to):
- Funnel leaks
- Data quality issues and Salesforce hygiene
- Overall lead quality
- Program effectiveness (top, mid, and bottom funnel)
- Lead scoring effectiveness
- Marketing and sales handoff issues
- Sales Development messaging inconsistencies
- Meeting quality
- Opportunity sandbagging
- Sales process and sales rep problems
- Product/market fit and messaging issues
- Lack of alignment between marketing budget and expectations
- And more…
To assess the health of your sales funnel examine the conversion rates. By looking at how prospects move from stage-to-stage, you can quickly uncover bottlenecks and areas of concern.
Note: Before you look at your conversion rates make sure you understand the definitions around your lead and opportunity stages. While there are traditional stages and stage definitions that many companies follow, I have found that there can be several iterations of funnel stages — so keep that in mind as you continue reading.
Lets dig into what you should look at.
The Conversion Rate from New to Marketing Qualified Lead (MQL)
Look at how net-new leads are converting to Marketing Qualified Leads (MQL). Just because a lead comes into your system doesn’t mean that lead is qualified. You don’t want to pass your Sales Development Reps (SDRs) leads that have email addresses of “mickeymouse@gmail.com”. Instead, you want to make sure that your reps are following up on the highest quality leads — people who fit a basic demographic and firmographic criteria, and who have engaged with your company. That way, you can better ensure that your reps are not wasting their time going after crappy leads.That is where a good lead scoring methodology comes in.
There are a number of industry reports on what the “ideal” conversion rate is from lead to MQL, but it is incredibly dependent on your needs and company stage. For instance, if you are a smaller startup just starting out chances are you need to optimize for a larger amount of leads hitting the MQL stage so your SDR team has enough to work. For a company that is looking to optimize for volume as they grow, I typically target a ~60% conversion rate from lead to MQL. This ensures that there are some controls in place but you are still sending volume to the SDR team.
Conversely, for a larger company that is more mature in the market, I would optimize for quality over quantity — especially if the company is generating a larger number of leads at the top-of-funnel. In this case I would work towards a Lead to MQL conversion rate of 40% or less. Because the more targeted you can get with your scoring, the better the leads will be, resulting in higher conversion rates down the funnel.
Investigate your current scoring methodology and spend time with the sales and SDR teams to understand the general sentiment around lead volume and quality. Adjust your scoring to get closer to the goal — but make sure that you have a consistent feedback loop with your SDR and sales team as you experiment with scoring.
Note: that if you are leading a global team, you may have to implement different scoring thresholds based on the regions. For emerging regions you may need less strict criteria so that your reps have inbound leads to call.
The Conversion Rate from MQLs to Sales Accepted Lead (SAL)
To gut check the quality of your leads and scoring threshold, look at your MQL to Sales Accepted Leads (SAL) conversion rate. I tend to see different names for this stage at companies, but essentially the metric you are looking to isolate is how many MQLs your SDR team accepts.
Of course you want this number to be high, however, you need to make sure that the conversion rate is not abnormally high indicating a problem. In other words, a 90% conversion rate from MQL to SAL indicates there are is probably an issue with your lead-to-SDR handoff process and your SDR team likely accepting more leads than they should be.
Now that sales automation tools like Outreach and Salesloft are table stakes for SDR teams, I have experienced situations were MQLs are automatically added into SDR email sequences without a gut-check by the SDR. Don’t let your SDR team treat their sales automation tool like marketing automation. Ensure that you put into place qualification criteria where the SDR needs to manually check every MQL that comes through to determine if that lead is a potential good fit for your product — ie, has the right title, comes from the right type of company, etc.
If your SDR team is properly qualifying and only accepting the best leads, this conversion rate will go down. The size of your company and the top-of-your funnel will indicate where this number should land. If you are employing an ABM or very targeted approach you might see high conversion rates of 60%+, since your demand generation efforts will be much more precise. I personally like to target about 40–50% to start with.
The Conversion Rate from SAL to Sales Qualified Lead (SQL)
Now that we are entering the middle of the funnel, you should look at the conversion rate between SAL to Sales Qualified Lead (SQL). In many organizations, an SQL indicates a qualified meeting that the SDRs set for your Account Executives. You can look at his data in a few different ways — the percentage of inbound SALs that convert to meetings, the number of outbound SALs that convert into meetings, and the total number of SALs that convert into meetings.
At the SAL stage, your SDR team will not only be reaching out to marketing leads, but they will also be reaching out to prospects that they have researched and are outbounding to themselves. This may be based on an Account-Based methodology you have in place, territories, verticals, etc. Outbound strategies might include personalized email, calling, social selling, direct mail, and more.
A healthy conversion rate at this stage will show how effective your SDR outreach is, if you are targeting the right types of prospects, and how effective your mid-funnel programs are. You want to see around a 40% conversion from SALs that your SDRs are actively working to qualified meetings for your AEs. A low conversion rate indicates some issues in the middle of your funnel that you will have to address (this can be a whole blog post on its own, so I will save that for a later date).
The Conversion Rate from SQL to Opportunity
Next, look at how many meetings are converting to Opportunities. A good SQL to Opp conversion rate can be around 50–60%, especially as you continue to hone in on your meeting qualification criteria.
If you are looking at a much lower conversion percentage, there may be issues with the quality of meetings that your SDRs are passing to sales. Alternatively, this could also indicate that your sales reps are “sandbagging” Opps — not converting meetings to Opportunities to avoid visibility with sales leadership.
Even more issues can arise in this stage if SDR quotas are overly rotated on meeting volumes vs. sourced Opportunities. If your SDRs are paid only on meeting volume, then they are going to optimize for getting as many meetings as they can — which will impact the overall quality of meetings.
If this conversion rate is an issue, I suggest you look at meeting qualification criteria, SDR compensation, sales reporting on how long prospects are staying in SQL stages, etc.
The Conversion Rate from Opportunity to Close
And finally we have Opportunity to Close. This refers to the percentage of Opportunities that become Closed/Won customers. Ideally you are looking for a 25% conversion rate here, but I have seen lower (but still healthy) conversion rates in smaller startups that are still trying to figure out their market-fit.
A low conversion rate here can indicate issues within the sales process itself, issues with product-market fit, and messaging. A low conversion rate can also point to capacity issues — like not having enough rep coverage, or issues with opportunity volume — sometimes your sales reps might lower their opportunity standards so that they have more pipeline to work.
Investigating the sales funnel can be an exercise in detective work. However, it is critical to assessing the state of the marketing organization you have just joined. By addressing each area step-by-step you can quickly identify issues and make an impact.
