The Shrinking ROI of Cold Calling

Why it's Happening and What to do about it

[Update as of June 8th: The huge response to this post (and its precursor post) have now been analysed. The findings and insightful quotes are on the last 2 pages]

What was once considered a ‘necessary evil’ by most BDMs, Sales  Managers and organisations, is rapidly becoming an ‘unnecessary evil’.

And below is the research proof.

We are, of course, talking about cold calling. Ten years ago it generally delivered a positive ROI for most organisations who did it well; but, for a long time now, we have seen its effectiveness and relevance decline. From talking to customers, to other business leaders, and to sales people across all industries over the past five years, the feeling is that the cold calling ‘pestilence’ is thankfully waning.

So we decided to quantify it a little more.

In March and April this year, Lead Creation ran research on the effectiveness of cold calling, asking over 100 senior professionals working in sales management and sales training.

We asked several questions on the impact of cold calling - the questions and responses are below, together with our analysis….

Question 1: On a scale of 1 to 5, do you think there has been an increase or decrease in the effectiveness of cold calling in the past five years? (1 = greatly increased, 5 = greatly reduced)

Key Finding:Not one respondent said that the effectiveness of cold calling had increased in the past five years.

Over 80% said that the effectiveness had reduced, with the majority saying that it had ‘greatly reduced’. In fact the average score on the scale was 4.4.

Question 2: What are the positives and negatives of cold calling?

The positives

Some respondents felt that there were some clear positives to cold calling:

“I think it creates awareness of a service/product.”National Sales Trainer

However, even when trying to name the positives, some respondents had to venture beyond strict cold calling to ‘warm conversations’ to find any:

“People like referral traffic and warm handovers. If you can invoke the name of someone they know (esp. in B2B calls) you are more likely to reach second base.”Marketing & Membership Manager

 

"There are no positives to cold calling."

The negatives

There were no such difficulties in finding the negatives, with one respondent being very forthright with his opposition:

“There are no positives to cold calling. As a recipient, I hate it. The callers are always rude and pushy and they are selling something I don’t want. If I need a product or service, I will find it! I would ban it if I could.“Joel Lentin, Head of Marketing, Holding Redlich 

Over half of respondents directly or indirectly referred to damage to the brand caused by people not wanting to be sold to:

“Cold calling focuses on the product/service rather than what the person on the other side feels – there is a lack of empathy which can create the wrong perception of the brand and perhaps damages it in the long term.”National Sales Trainer

“It is a waste of time, ruins lots of good prospects that could be handled better… learn how to network and get referrals.”Business Development Director

With 12.5% of respondents, the invasion of privacy was another key negative of cold calling:

“Known sales tactic - people are far less tolerant - perceived as rudeness - invasion of privacy with contact details - rude staff can leave a bad taste - no personalisation - no relationship - therefore low potential for repeat business.”Director of Marketing and Advertising

Question 3: What are the two main personal attributes that make a good cold caller?

Question 4: If you had to train a cold caller on only two skills, what would they be?

How can you compensate for the decline in cold calling ROI?

The responses to the first two questions are of particular interest here.

Without question, the widespread perception is that the effectiveness of cold calling has faded considerably in the past five years; and, while the list of positives gets shorter, the list of negatives seems to grow.

This is largely because people are now more aware that better alternatives exist, with much better ROIs.

This trend is only going to accelerate as we become more adept at using online resources. Today, does any B2B organisation not research extensively long before making a purchase or switching suppliers?

Our survey findings are backed up by some other notable research on cold calling:

1. 
   
   90% of C-suite executive say they never respond to cold calls or email blasts, according to Harvard Business Review.
2. 
   
   
   
   Cold calling costs at least 60% more per lead than other methods, like social selling, according to The State of Inbound Marketing by HubSpot well over a year ago.
3. 
   
   
   8 attempts are required to reach a prospect with a cold call on averagetoday, compared with 3.7 in 2007, according to TeleNet and Ovation Sales 

Cold calling has always been considered difficult, and most salespeople loathe it; this means that they are generally not very good at it.

However, the issue is NOT simply that effective cold calling requires better recruitment and training.

There is a perception out there that telemarketing done well can still be a very effective sales tool. But, as outlined in questions 3 and 4, the very skills necessary for high quality cold calling are exactly those that could be better directed to converting warm leads into sales.

Such skills are scarce and very valuable to any organisation, and they should be applied where they are most effective. The talents of well-trained cold callers are essentially wasted on calling that is totally cold.

Even the most ardent fans admit it's less effective than it used to be.

The real ROI comes from having skilled sales people talk face to face or on the phone with targeted prospects who have already shown interest. These leads are generated from well-managed, highly targeted Social Media campaigns that build relationships and replace the increasingly questionable need to cold call.

Yet many organisations continue to persist with outdated methods. They have failed to adapt to the recent changes that have occurred in sales and marketing and in spite of the declining ROI expected from it. In the last five years US$22 billion was spent on telemarketing globally, so not a small amount!

There is clearly a large vested interest for sales and marketing organisations who run call centre operations. These appear to be the only people who still consider cold calling to be effective – as evidenced in the recent article Why Telemarketing and Cold Calls No Longer Work. It details four main reasons why cold calling is no longer viable:

1. 
   Even the most ardent fans admit it’s less effective than it used to be.
2. 
   It positions you in a negative light in B2B sales.
3. It won’t find what we all want: qualified leads.
4. 
   
   
   Salespeople typically hate it – and are therefore not very good at it (the opposite of “Love what you do and success will follow”!).

The article attracted some comments from people disagreeing that cold calling was poor value for money. Most of these were from those with a vested interest in the business.

A typical comment was:

“Cold calling is an art form. To be good it requires hard work, intellect, charisma and a thick skin among other attributes. It’s not as effective as it used to be because it’s been around longer than it used to be, and emerging technologies offer other routes to contact people.”

“Cold calling is one of the best means of generating growth for any company, but only if it’s done the right way.”

However, comments from those on the receiving end of cold calls overwhelmingly agreed with the premise of this article:

“I get telemarketed to death. It’s got to the point all private number calls are ignored and sent to voicemail and if they call from a registered number their number goes into the automatic ignore list so I don’t know if they call back again or not.”

The fact is that a well-managed and targeted Social Media Marketing strategy produces results. Results that increasingly leave cold calling trailing and highlights the wide array of negatives associated with cold calling that simply don’t exist with Social Media.

Organisations investing large chunks of their budget in cold calling can expect far greater ROI by formulating a smart inbound marketing strategy. One that incorporates social media channels such as LinkedIn, Twitter, Facebook, etc as their primary lead generators.

Such a strategy engages contacts and builds relationships before any selling is done… then the skilled sales people come in and convert the leads into revenue.

Furthermore, the budget involved for SMEs to deliver warm leads via this methodology is a LOT lower than the salary of a talented cold caller.

We’ll be happy to share our targeted social media marketing strategies and tools developed over the last eight years with you. We’ll start the conversation and get your prospects talking back to you.

June 8th: What are the insights from responses so far?

The main insight is the responses explain why so many people still believe cold calling ("CC") is essential, despite the growing evidence against it. And in particular that there is a lot of confusion about just what CC is.

So why do so many persist with CC? The 89 responses were very revealing ...

•   That SMEs believe they can’t afford other types of marketing

  
  

That their options for B2B lead gen are still only advertising, SEO, sponsorships or trade shows. These are all expensive and are dominated by the big players.

SMEs do have other options: you now own the media and you can publish and distribute. Do it well and you’ll get an audience of thousands, and then you can selectively connect with them. Then take it to another level as we do with our clients and ourselves ...

Conduct research on LinkedIn groups and also direct message your most valuable Connections who are interested in the area. And do the research in an area that is topical, and of course leads to what you sell (and you are reading a case study of how to do this!).

•  A key part of the problem: The definition of Cold Calling

  
  

“It's funny how the cold-calling debate has become all about semantics...If you call someone who does not know you and is not expecting your call it is a cold call.”  Jordan Lindenbaum.

Which was our understanding when we started this research: Cold is cold. However, many define it more narrowly, particularly those who espouse ‘R&D Calling’ ...

John La Mel defines it well: “Such calls build your knowledge of the prospect and their organisation” so you can take it to the next stage.

However, our research shows that most calls are not R&D, and the callers have zero interest in who they are calling. They are just playing the numbers game, particularly the poor sods from India.

Then we had Tyler Vance and others: "CC is not dead - selling on a cold call is dead. Making cold calls is about generating enough curiosity to elicit a second conversation."

Costas Perkas broadened it further: You are referring to companies that employ telemarketers and apart from a written "pitch" they offer nothing else. CC nowadays involves social media engagement, web based research, a value prop, a great and relevant hook, intelligent questioning, trial closing etc.

Which lead to a great rebuttal…

Jason Culligan: “Once you mix emails and social selling into the process before calling it ceases to be a 'cold' call. CC in its absolute purest form is finding a business that has never heard of you before, identifying key decision makers and then picking up the phone to start a conversation.  It is my experience that simply calling people who have never solicited a conversation without any previous 'warming' of that lead is the quickest way to waste what could be good leads. It's critical now to warm an account first with outbound marketing before the initial call.”

• “‘Social’ doesn’t work in my business”

  
  

Interesting that we had 2 thoughtful and completely opposed views on which services ‘Social’ does work well with ...

MariAnne Vanell says CC applies to high value Enterprise sales with their long lead times. While ‘Social’ applies to “more transactional deals, <10K, who can have an inbound model that is fast-paced and surfaces opportunities.”

Jordan Lindenbaum however says CC is best “if your product offering requires a very fast sales cycle. For example, I offer unsecured Loans/Working Capital to Small Businesses who either can't go to their bank or simply don’t have the time. Their need is immediate. Making an informed, well thought out and articulated call to quickly explain the benefits is effective."

Our view, no surprises, is that it applies to any business that sells B2B. Though of course the tactics will vary significantly from selling a million dollar IT solution to a small business server.

•  Other Reasons offered for persisting

  
  

“‘Social’ will never replace calling”: Agree, it only replaces the beginning of the sales cycle when it loads lots into your funnel. To get clients, you then need to call.

“CC is better than being connected on LI”: Of course - by itself a connection or a thousand connections does zilch. Messaging prospects with valuable content does.

“Multi-nationals need CC to feed the sales teams in each country”: Why? Leads can be generated in any country in the world, even Afghanistan!

“Unique, ultra niche and very new services get hidden because of all the marketing clutter so CC is needed”: No, it’s not. Direct messaging on Social is perfect for the unique as you need to educate them first.

•  And a few great comments and one real head scratcher!

  
  

Love this response from Patricia E. Shrimpton: “Written posts are a form of CC. A comment, or like, is a call back.” And if a comment is a call back, you could say a connect request is a response to that and a sign that we might be doing business soon?

One asked me: “If you have only made two or three cold calls, then are you qualified to say it’s dead?” Guess I don't need to know how to use a slide rule to know a calculator is better!

However this one from MariAnne Vanell got us scratching our heads: “Our experience is the inbound traffic gives us a read on who is reading what content for sure, but we generally skip the scoring effort and just call them.”

Surely that defeats most of the benefits of using a Hubspot in the first place? And does her funnel need more in it?

•  The Future as seen by the anti CCers

  
  

Many of course believe CC remains the future - not surprising they are very vocal as we want to eat their lunch! Here are the responders who see a different future:

Kevin "Bo" Hamlett: CC is as effective today as a 1980s used car salesman would be today.

Russel Godden: “Some of the voices around this subject reminded me of when somebody criticised Henry Ford saying “You don’t need to build a motor car, what people need is faster horses”. The same is happening in the area of sales by phone. The change may be up-rooting and stressful but far less than the stress of a very low ROI and being overtaken by competitors.”

Bryan Marlink: "The real ROI comes from having skilled sales people talk face to face or on the phone with targeted prospects who have already shown interest. These leads are generated from well-managed, highly targeted Social Media campaigns that build relationships and replace the increasingly questionable need to cold call".

Marc Roth  As someone who has made an enormous amount of cold calls over 20+ years people don't like receiving them. What they want is information. From that information a conversation ensues and then a face to face and a potential new relationship.

Chad Nuss: Thanks for bringing me into this 'heated debate' Tim Stuart! I think a lot of these comments are hilarious, people take the cold calling debate so personally. This is about #s and $s, and pure cold calling is 2x less productive (velocity metrics: decision maker conversations, connects, engagements, and conversions to lead/sale). I have run head-to-head studies in our Sales Innovation Lab, and social 'acceleration' techniques blended with phone based blitz techniques crush a traditional cold caller (love it Chad, right to the point!)

JohnBlake:

It's Authority Suicide: The other reason that you may want to either reduce or stop cold calling is that when you cold call a prospect, mentally , you are immediately put in the same category as an off shore telemarketer who calls you at 7pm while you are trying to bath the kids and suggests you should change telephone carriers. If you want to go direct there are still some great ways you can achieve this and show up with way more credibility.

•  New Research needed

  
  

Shekhar Prince “There is another article that needs to be written about the critical success factors of CC amongst other competing or evolving methods and trends. How technology, information / insight platforms and experience can be leveraged effectively by an open minded and dynamic cold caller.”

We are working on it!

Cheers, Toby

Toby leads a team of young, international B2B marketers at Lead Creation. www.leadcreation.com.au