Lead conversion rates in the business software industry is a topic of high interest to software publishers and software channel partners alike. That said, little information exists publicly on this very specialized subject. To be sure, lead conversion rates vary for different software ecosystems.
To shed some light on the subject, the software marketing experts at Modern Marketing Partners will provide some necessary sales lead definitions and background information, then compare lead conversion rates for two software ecosystems, and finally, provide some relevant, additional information on sales lead generation.
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MQLs vs. SQLs
Before digging into lead conversion rates, it will be helpful to understand some useful definitions. First, Marketing Qualified Leads or MQLs are defined as individual contacts that can be identified, and that fit a profile or persona of the ideal prospect. For B2B scenarios, MQLs might be industry, company size (revenue or employees), title or department, and geographic location. For B2C scenarios, MQLs might be demographic or psychographic profiles or personas (age, gender, interests, geographic, etc.). Marketers can identify, data mine and verify MQLs, or implement Inbound Marketing, Pay-Per-Click (PPC) and other initiatives to obtain MQLs.
In contrast, Sales Qualified Leads or SQLs are also called Opportunities, or sometimes “pipeline”. By definition, SQLs or Opportunities have been qualified in some way, either by personal interaction (telephone or sales call, referral), or electronically (e.g. completed form with qualifying questions). A common sales qualification is BANT, an acronym for Budget, Authority, Need, and Timing. Obviously, a BANT qualification requires input or feedback from a prospect or MQL to identify the SQL or opportunity.
You are already thinking, what is the MQL to SQL conversion rate. No question, this is important to understand, as it defines the amount of marketing efforts and marketing investment required. Before we get to these conversion rates, there is one more conversion rate this is even more important, Closed Deals (or SQLs/Opps to Closed Deals). This of course is the ultimate metric, getting the order, contract or deal. Show me the money.
Typical Lead Conversion Rates for Software
Ok so what are the conversion rates? Well that depends on several factors. Average sales price or contract level is key. Intuitively, $5,000 vs. $500,000 will have different levels of approval, due diligence, length of sales cycle, and yes, conversion rates. Competitive environment certainly affects conversion rates. Each ecosystem is different so lets describe two ecosystems to illustrate how conversion rates vary.
Financial Budgeting Software with $50,000 average price (subscription + implementation)
- 4% MQL/SQL conversion rate
- 40% SQL/Closed Deal conversion rate
- 90 Days Average Sales Cycle
- Requires 2,000 MQLs to convert to 80 SQLs to convert to 32 Closed Deals
ERP Software with $100,000 average price (subscription + implementation)
- 2% MQL/SQL conversion rate
- 30% SQL/Closed Deal conversion rate
- 180 Days Average Sales Cycle
- Requires 2,000 MQLs to convert to 40 SQLs to convert to 12 Closed Deals
Clearly, MQL/SQL conversion rates are dependent on the quantity and effectiveness of your marketing. Likewise SQL/Closed Deal conversion rates are dependent on sales skills and the quantity or quality of competitors in a given deal. Other factors include seasonal timing, and certainly the economy. First and fourth quarters tend to be more robust than second and third quarters. Recessionary environments often cause big ticket spending to be put on hold.
Finally, having deep experience or ideally, proprietary intellectual property (IP) in a vertical/micro-vertical or niche market can substantially improve conversion rates (to learn how, see Micro-Vertical Marketing Guide below). In the above examples, both MQL/SQL conversion rates can double, along with increased SQL/Closed Deal conversions. Big fish in a small pond.
Please comment on your lead conversion rate experiences, and do social share. Meantime following are some related resources for your inquisitive mind.
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