What’s the difference between leads, prospects and customers?
What’s the difference between leads, prospects and customers?
Read any marketing advice these days and the terms leads, prospects and customers are used – but what is the difference between them, and how do you work out where they come from? In simple terms, a lead is someone who has expressed an interest in your business, and who has given you their contact details. A prospect is someone you have had a discussion with and sent a quote to A customer is someone who has purchased something from you. Your customers come from prospects and leads that have been turned into sales. In most cases, a customer goes through a three-step process before they arrive with their wallets open. They have been converted from a member of your target market to a lead, then to a prospect then to a customer. And this is all part of what is called the customer journey. So, when you advertise or send any marketing material out to your target market, you’re not really trying to generate customers. Instead, you’re trying to generate leads. When you look at your marketing campaign this way, the idea of generating leads rather than customers seems a lot less daunting. The pressure of closing sales is no longer placed on advertisements or brochures. It also helps to determine what the objective of your marketing piece is , because it isn’t to get a sale, it could be to get a phone call, to download something, to ask for a brochure unless you are selling off the page or have an e-commerce website it is rarely to get a sale. From this perspective, the general purpose of your advertising and marketing efforts is then to generate leads from qualified customers. Seems easy enough, doesn’t it?
Where Are Your Leads Coming From?
If I asked you to tell me the top three ways you generate new sales leads, what would you say?
- Word of mouth?
- …don’t know?
The first step toward increasing your leads is in understanding how many leads you currently get on a regular basis, as well as where they come from. Otherwise, how will you know when you’re getting more phone calls or walk-in customers? If you don’t know where your leads come from, start today. Start asking every customer that comes through your door, “how did you hear about us?” or “what brought you in today?” Ask every customer that calls where they found your telephone number, or email address. You can even use tracking phone numbers for each piece of marketing you do so you know precisely whether a lead is coming from your website, social media, and advert or a direct mail piece. Then, record the information for at least an entire week. When you’re finished, take a look at your spreadsheet and write down your top three lead generators.
From Lead to Customer: Conversion Rates
Leads mean nothing to your business unless you convert them into customers. You could get hundreds of leads from a single advertisement, but unless those leads result in purchases, it’s been a largely unsuccessful (and costly) campaign. The ratio of leads (potential customers) to transactions (actual customers) is called your conversion rate. Simply divide the number of customers who actually purchased something by the number of customers who inquired about your product or service, and multiply by 100.
# transactions / # leads x 100 = % conversion rate
If, in a given week, I have 879 customers come into my business, and 143 of them purchase something, the formula would look like this:
[143 (customers) / 879 (leads)] x 100 = 16.25% conversion rate
What’s Your Conversion Rate? Based on the formula above, you can see that the higher your conversion rate, the more profitable the business. What is your current conversion rate? Add up the number of leads you had in the last week – the ones you tracked – and divide that number into the total transactions that took place in the same week. As you can see a lot of proper marketing has maths at its core, which is why we always say Marketing = Creativity + Maths
Quality (or Qualified) Leads
Based on our review of conversion rates, we can see that the number of leads you generate means nothing unless those leads are being converted into customers. So what affects your ability (and the ability of your team) to turn leads into customers? Do you need to improve your scripts? Your product or service? Find a more competitive edge in the marketplace? Maybe. But the first step toward increasing conversion rates is to evaluate the leads you are currently generating, and make sure those leads are the right ones.
What are Quality Leads?
Potential customers are potential customers, right? Anyone who walks into your business or picks up the phone to call your business could be convinced to purchase from you, right? Not necessarily, but this is a common assumption most business owners make. Quality leads are the people who are the most likely to buy your product or service. They are the qualified buyers who comprise your target market. Anyone might walk in off the street to browse a furniture store – regardless of whether or not they are in the market for a new sofa or bed frame. This lead is solely interested in browsing, and is not likely to be converted to a customer. A quality lead would be someone looking for a new kitchen table, and who specifically drove to that same furniture store because a friend had raved about the service they received that month. These are the kinds of leads you need to focus on generating.
How Do You Get Quality Leads?
- Know your target market. Get a handle on who your customers are – the people who are most likely to buy your product or service. Know their age, sex, income, and purchase motivations. From that information you can determine how best to reach your specific audience.
- Focus on the 80/20 rule. A common statistic in business is that 80% of your revenue comes from 20% of your customers. These are your star clients, or your ideal clients. These are the clients you should focus your efforts on recruiting. This is the easiest way to grow your business and your
- Get specific. Focus not only on who you want to attract, but how you’re going to attract them. If you’re trying to generate leads from a specific market segment, craft a unique offer to get their
- Be proactive. Once you’ve generated a steady flow of leads, make sure you have the resources to follow up on them. Be diligent and consistent, and follow up in a timely manner. You’ve done work to get them, now reel them
Get More Leads from Your Existing Strategies
Increasing your lead generation doesn’t necessarily mean diving in and implementing an expensive array of new marketing strategies. Marketing and advertising for the purpose of lead generation can be inexpensive, and bring a high return on investment. You are likely already implementing many of these strategies. With a little tweaking or refinement, you can easily increase your leads, and ensure they are more qualified. If you are looking for some help with generating leads or increasing your conversions then we are really good at that! Book a call here