TOFU Economics
Apologies for the jargon title. “Top of the funnel” economics was just way too long. Plus, it doesn’t roll off the tongue.
Also, that picture of Ben Stein has nothing to do with the article, but all I could think of when justifying the title in my head was Ben droning on about voodoo economics in Ferris Bueller’s Day Off.
Anyway…
A couple months into the new gig and am basically back in the SDR (“sales development rep”) saddle drumming up sales opportunities in a variety of ways. What is astounding, however, is how ineffective cold outreach has become since my post college days back in 2014. What I remember was a roughly 2% opportunity creation rate with a certain amount of volume. Now, this:
There is a lot here, but I will sum it up like this: I have gotten no results from cold emails/calls. Not even a conversation.
A few things to note: 1)There is a market for what we sell as I’ve been able to generate a healthy pipeline through other business development tactics (partnerships, investor/executive introductions, etc…) and we have a steadily growing customer base 2) The messaging has a control variable in place, as it is essentially cut and pasted from other technology company cadences.
I will concede that what FPS offers is more nuanced than, say, a cybersecurity tool plugging a specific hole for a CISO. However, after a number of conversations with sales leaders it is becoming clear that the effectiveness of cold outreach is not only experiencing diminishing returns since pre-2020, but is straight up not working at all. But what does this mean exactly?
The Growth-Stage Investment
While hiring an army of sales development reps was table stakes for scaling growth following a series B, C, D, etc…, go-to-market leaders must be more cost/ROI conscience when optimizing opportunity creation. The fact is, executives who once took meetings from unsolicited outreach will not anymore. The sheer number of emails per day has gone from dozens to hundreds, to thousands thanks to platforms like Outreach. Even if something is top of mind, it becomes white noise because it would take too long to sift through, find and respond to emails that “might” help them with their strategic initiatives.
The fact is, however, all executives still require numerous tools to help them hit their KPIs. But instead of responding to cold outreach, they have set up internal processes for their end-users to proactively identify and buy tools to push the envelope forward, preferably with limited interaction with the vendor they are evaluating.
Thus, based on this new buying preference, the value of the SDR has declined significantly over the past 5 years. Moving forward, it is far wiser for GTM leaders to invest their new capital infusion in more cost-effective and scalable pipeline generation/conversion mechanisms, while hiring a lean sales team focused on more strategic funnel creation.
Note: Outsourcing the entire sales operation is not advised, as you will need future sales leaders as the company grows.
Conversational AI
While AI is not yet sophisticated enough to power self-driving vehicles with 100% of the risk being eliminated, AI is most certainly able to effectively qualify and route inbound leads to optimize the customer buying experience. And the best part? The AI gets smarter with each conversation it has; so, as long it is implemented and managed effectively, it‘s unit economics are phenomenal.
Drift, a pioneer in the space, has invested a significant amount in developing their conversational AI platform. While the website chatbots are great in helping organizations effectively convert website visitors into inbound leads, it saw scalability issues as organizations saw the need to increase headcount alongside the increase in web traffic, in order to qualify website leads appropriately. While margins are healthy in this situation, the upfront investment associated with AI automating website lead conversion not only removes the cost of increasing headcount to manage the bot at scale, but the AI becomes significantly better with more conversations. This leads to more effective qualification as internal routing processes become more complex. Without the need to scale headcount to handle an influx in website traffic, cost per lead goes down significantly, leading to much, much higher margins as the company scales through the growth stage.
The Bottom Line
As recently as a few years ago, B2B tech companies investors and CEOs encouraged their GTM leaders to grow revenue at all costs. Oftentimes this meant a seemingly unlimited amount of money to spend on sales and marketing personnel to throw the kitchen sink against the wall without any concern for ROI-especially as acquisitions based on revenue multiples ruled the day. While acquisitions based on revenue multiples still prevail, the seismic shift in how companies buy software has investors and executives thinking far more strategically and cost-consciously about growth models and which functions to invest in (models like product-led growth are a symptom of this and will only become more important in the coming years). This leaves Sales and Marketing leaders with far smaller budgets than the “unlimited” ones they’d become accustomed to.
With our customer acquisition program specifically focused on the B2B tech market, FPS designs, deploys and manages programs that help GTM executives optimize their top of funnel to maximize LTV:CAC. In some programs we provide outsourced agents to supplement SDR volume outreach at a fraction of the cost, in other cases our conversational AI experts implement and manage tools like Drift, and oftentimes we do both. In all of our programs, however, we partner with executives to ensure the programs we deploy are optimized to help them hit their business objectives in a profitable manner.
