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The Abusive Math of Cold Calling

If you are emotionally attached to cold calling, you might want to stop reading this post now.

mathAt a recent conference I heard Mahan Khalsa, co-author of Let’s Get Real of Let’s Not Play share the following statistics. (I don’t have the source of the data, but my experience tells me it’s pretty accurate.)

Cold calling results in about a 1-3% success rate for getting an initial appointment and it’s generally abusive to both parties. When that same call is made with a referral, the rate jumps up to 40% and even much higher when that referral comes from within the company.

The conclusion anyone should make from the gap in these two points is that you should never leave the office or get on the phone to call on a prospect without some form of a referral. In fact, if you’ve got a hot prospect, you should probably wait to find someone who can refer you or you might just waste any chance of getting in the door.

So, let’s do some simple math – if you have a list of 1000 names to cold call, you’re looking at getting 30 appointments as doing quite well (who knows if they are the right 30, but we can use this for conversation sake.) Now, let’s say you drill down and do enough research to find 250 prospects on that list that are very well suited to your business. Then you do further research using social media to locate information and contacts that would allow you to get referral introductions and recommendations to most on that pared down list. Experience tells me this approach is likely to turn up 75-100, well qualified prospects willing to discuss your ideas further.

Make fewer calls, get better results – that’s marketing math you can live with.

A referral into a prospect can come from one of three places, your current customers, your network, or a strategic partner. It’s important to mine all three of these groups as you build your prospect list.

A key aspect of this concept, of course, is that you are constantly developing a hot prospect list. In other words, a list of customers you would like to do business with. When you have this as your starting point you can target your referral sources for specific requests. When you go to a customer or strategic partner and ask if they know anyone on your list, it’s much easier for them to help.

Now, here’s where social technology can really be your friend. Once you have a prospect list, connect with them in social networks like LinkedIn, Facebook and Twitter. When you do this, not only will they tell you a lot about what’s important to them and what their challenges and opportunities are, they’ll probably show you who their peers, friends and network members are. They may actually identify for you the best way to get to referred into them.

Do this with your existing customers as well because it will make it easier to identify the ones that are influencers, who participates at a high level in social media, and who might be great candidate to refer you to your hot prospect list.

The last piece of this tactic is that you also have a plan to educate your referral sources. If you find that you are just one LinkedIn connection away from a hot prospect and you would like someone in your network to make an introduction, make sure that you take the time to teach them how and why to introduce you. This assures you don’t waste anyone’s time and your referral source including that of your referral source.

This approach obviously takes more time and planning. You must develop a prospect list, research using social media, and plan for referred introductions. The end result, however, is a success rate that any sales and marketing person would be envious of.

Image credit: stuartpilbrow

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  • http://www.providentpartners.net/blog Albert_Maruggi

    Of course this is the very foundation of LInkedIn, it comes from a line in the movie classic Starsky and HUtch – when I think Snoop Dogg was asked “where did you get the car” he replied, “Let's just say I know somebody, who knows somebody, who knows somebody.” Translation, When you know some body who knows the body you want to talk to, get that somebody to call your somebody about your body. Dig.

  • http://www.soundadvicesales.com Phyllis Nichols

    Your opening sentence about being “emotionally attached to cold calling” had me laughing and cringing (is that a word?) at the same time.

    So many sales managers push for cold calls because they measure numbers & activity vs. results. Your analysis is spot on and makes so much more sense.

    The next sales manager I talk to who thinks spending an hour on LinkedIn is a waste because the number of “touches” goes down is getting a link to this post!

  • http://www.ducttapemarketing.com/blog ducttape

    Right ON Phyllis – send them my way, I'll abuse them for a while!

  • http://www.ducttapemarketing.com/blog ducttape

    Right ON Phyllis – send them my way, I'll abuse them for a while!

  • http://www.ducttapemarketing.com/blog ducttape

    That's the truth Albert, but classic and Starsky and Hutch – that's more abusive than cold calling

  • http://www.ducttapemarketing.com/blog ducttape

    That's the truth Albert, but classic and Starsky and Hutch – that's more abusive than cold calling

  • http://www.ducttapemarketing.com/blog ducttape

    That's the truth Albert, but classic and Starsky and Hutch – that's more abusive than cold calling

  • http://www.RelyLocal.com/california/victorville Alyssa Penman

    My challenge is that I'm just starting my business and I am just starting to build my network. I'm trying to build a prospecting system in tandem with my social media and offline networking efforts that warms my leads up a bit. I understand that people buy from people they like, and that relationships and referrals matter, but does that mean excluding sending a letter and picking up the phone to ask some questions?

    My business is all about relationships and social media, so I really do get the importance… I”m just finding the cash flow challenge a little more overwhelming than anticipated. I need customers now! :)

    Thanks for all the great articles, btw. I read Duct Tape Marketing a few years back and have used the principles in every role since.

  • Michael Carels

    Alyssa I'm also starting my business and cold calling I find is an effective to get business.

    Based on the numbers, for every 30 dials you should get atleast 1 if not 2 appts. 30 dials should take you about an hour. (You should be sold that these are good clients for you). Then for every 2-3 visits you should get 1 deal.
    Therefore by doing 1 hr of calling per day you should get 1-2 deals.

    Best of luck!

  • Jaclarge

    If you read Jill Konrath's books of “Selling to Big Companies” or “Snap Selling” she discusses doing research on companies you determine might be a fit for product or service.

    The other couple of factors to consider on cold calling…I'll bet a dollar to dog poo in my mouth that you'll only get 2-4% answering their phones anyway and then they thought you were someone else.

    Also the “guts” you would need to call that many without screaming into the night or talking to yourself would stop a high percentage.

    You're right, do the research, get some referrals without trying to “smile and dial”. Thanks for the post.

  • Kathleen

    John,
    I never intentionally thought about using people to “link with” to eventually get a referral for a hot prospect, but that’s an interesting idea.
    As for cold calling, it has definitely taken a back seat to social media. Companies are finding anyway they can to block out the sales person and make it difficult for them to get into the door. Social media is a non-threatening away to introduce a company. After a prospect has an idea of your company, you continue to contact them through social media updates and eventually make a sale (hopefully).

    http://grmwebsite.com/

  • http://twitter.com/JohnChepyha John Chepyha

    Sorry, have to disagree with some of the logic. You can research all you want, but everything you want to know is on the other end of that copper wire. The best part is, when done right, it usually takes less than 90 seconds.
    Cold calling is not about making appointments, it is about discovering opportunities for new business.
    The article is right about the percentages. My question is if the list was made up of the right target. Then what happens with the other 97%.

  • http://twitter.com/landonloveall Landon Loveall

    Alyssa, I am right there with you. Here are two questions I have for John after reading the post.

    1. How does someone just starting out begin to incorporate this approach, when your network is, well, small?
    2. What is the best way to ask for an introduction after you have identified that a member of your network knows a key prospect?

    Alyssa, if you have read Duct Tape Marketing, you need to check out The Referral Engine.

    Landon

  • http://sohomt.com Anthony Kap

    I used to be a cold calling monster and I got a system down to get targeted leads and a contact management soluton to blas 60 calls a day…

    HOWEVER, the landscape is changing and I have seen better results for less cost from referrals.

    I do “warm” calling now to other business contacts that would be non-competitive referral “agents” and offer incentives to them as well as a few free leads that fit their target market/contact.

    If there is a consistent flow we formalize the incentives. I do not discount using the phone; leverage it with referrals, social media, web site, free events, emails, direct mail, and connecting at chamber meetings with existing and new contacts.

  • http://www.alphagraphics.com/centers/phoenix-arizona-us106/index.html Stephen Eugene Adams

    I have to agree with some of your commenters. Cold calling still has a place when you are starting a business and have few contacts to help you with referrals. I used cold calling to get my businesses initially off of the ground and if I was doing it all over again, I would probably do a lot of the same procedures to get leads. Now that my businesses have matured, we definitely rely on referrals and networking. I love your referral discussions and your book “Referral Engine” and I hope that we can improve our referral results based upon your suggestions.

  • http://www.adrianswinscoe.com/blog/ Adrian Swinscoe

    Hi John,
    I like your approach to thinking about leveraging your network to facilitate introductions rather than hitting the phones.
    If people are worried that your approach may take longer, despite being more effective, then perhaps they should relook at their business plans, ask themselves what sort of relationships and business they would like to build and adjust accordingly.

    Adrian

  • http://www.practical-success-secrets.com Jon (from P-S-S)

    This reminds me of a story from my early days in sales.

    I was brought up in a fishing town on the north-east coast.
    The trawlers would come into port, unload and then share the income from the fish sales. The normal thing for most of the fishermen was to then go out drink a lot and find a girl.

    When I went into insurance sales one of my early mentors said, “If you go down to Raby Square on the evening of payout day and ask 100 girls if they'll go to bed with you, then you'll get face slapped a lot but there's a good chance that you also get laid.

    “On the other hand, if you also tell those girls that you know Archie Best (he was the skipper of the biggest and most successful trawler) then chances are you'll get laid each night for a fortnight.”

    My mentor's somewhat crude but effective lesson was that first of all you've got to learn to ask for the deal, but if you can warm up the contact by talking of someone they know then you hugely increase your success chances.

  • http://www.ryanhanley.com/about Ryan Hanley

    John,

    I completely agree that Referrals are the way to go, I read Referral Engine, I drink the Kool-Aid.

    But I do not think that Cold Calling, in every industry, is as big a time waste as you show here. I do not have documented numbers so this is purely my experience, but I find with practice and a good relationship oriented approach you can set an appointment ~10-15%. You don't always know the quality of the lead. But if I make 100 calls a week. I'm setting 10-15 appointments with probably 3-5 sales… (Insurance Industry)…

    You mix that WITH referrals and now we're doing business…

    Ryan H.

  • http://www.vongehrconsulting.com/ Erroin Martin

    Alyssa, one of the things you can do is find local networking groups like your Chamber of Commerce to meet people face to face. It is a warm call that allows you to build your network quickly. Look to find similar groups and events. Anywhere and everywhere that you can meet other businesspeople face to face is better than cold calling.

    While cold calling works based on volume, it is the rejections, hostility, and potentiality of creating a bad brand image.

  • Jsilverman

    Albert,
    Everywhere I look, there you are!
    Regards,
    Jack Silverman

  • http://www.simpleclicktocall.com.au dave from click to call

    The sad part is that the 3% success rate of cold calling still means its a cost effective marketting method to many business, if only there was a way of making it less!

  • http://www.spottydotbabyshoes.com.au/ baby shoe maker

    I do some web work for a packaging company who have reps that cold call most of the time, and I generate sales leads through their web site then pass it onto the reps to follow up. They much more prefer to follow up these leads than cold call and closing a sale from these leads are better too. A prospect who enquires through a web site expects the call, rather than getting an unexpected intrusive cold call!

  • Ross

    Likely, with the other 97%, or at least a large proportion of them, you'll have pissed them off. People don't like to be cold called and it doesn't put your company's best foot forward. If you have a good sales team, they should be creative in finding leads. Games of numbers are for amateurs, and a waste of time and money if you value man hours.

  • http://www.ducttapemarketing.com/blog ducttape

    Ross – that's my belief as well – I know I get pretty irritated when someone contacts me but doesn't demonstrate any knowledge of my business.

  • http://benefitsgrowthnetwork.com Kevin

    Even better than referrals are introductions. The difference being the referral source shows his/her belief in you by making time out of there day to be part of the initial contact.

    If you want introductions, you have to beyond educating them on how and why to introduce you, you have to show them why and how they will personally benefit. If you have a unique offering or a way to truly create value, then your center of influence will indirectly benefit from making the introduction. When you provide someone with a way to enhance their credibility with their best clients/relationships, they will be looking for introductions to bring to you.

  • http://www.OakcrestStrategyGroup.com Doug Strahm – Oakcrest

    John,
    Agreed, when not done properly, i.e. just by the numbers, cold calling is an abusive and masochistic process at best.

    However, recent research shows that it is still the TOP performing method for generating qualified B2B leads – why? Because when done properly it allows the salesperson to “step into” existing purchasing cycles that they otherwise would not have known existed. Who cares if they don't answer, leaving a quality voicemail can be just as effective.

    By all means, use your network and any other referral means to “warm up” a prospect. Not taking full advantage of your network is foolish. But mark my words, a well trained and equipped cold caller WILL step into, and very likely derail or at least delay one of your deals. I've seen it happen – been the victim, and been the beneficiary on more than a few occasions.

    B2B prospecting for new business is a three legged stool – networking, outbound marketing, and cold calling being the three legs. Leaving any one of these out, or undercovered, leaves you unbalanced and underperforming. Folks can downplay the importance of the cold calling leg all they want. My clients all hear me preach about its importance, and it helps them take business away from the ones that won't call!

  • http://www.stonebrookservices.com Beth Sager

    It is a catch 22. New business no network. No network equals cold calling. Cold calling equals terror (at least for me!). Which leads me back to no network. What's a new business owner to do?

  • http://www.RelyLocal.com/california/victorville Alyssa Penman

    Thank you Beth – you feel my pain! :)

    I'm trying to do as much networking as I can and doing as much to warm up my leads as possible. Calling to follow up on the letter and email and… etc, is literally terrifying though. I will be much nicer to people on the phone from now on. :)

  • http://twitter.com/BobPoole Bob Poole

    Great article, John. There are salespeople who you will never convince about the time and opportunities wasted on cold calling not to mention the loss of goodwill. My 35 years experience and tons of cold calling in the early days tell me you are right on. When I switched to referrals, networking, relationship building, and connecting people – everything changed for the better. My advice is to let go of cold calls and listen to John's recommendations. The toughest sale will be convincing your manager and convincing yourself that it will work much better.

  • http://www.ducttapemarketing.com/blog ducttape

    Very well said Bob, it still kind of surprises me how much push back this post received in the comments. I know it's tough when you are first starting but I think people really underestimate the fact that even if they are getting a 3% appointment rate, they are doing damage to the brand and their personal reputation with the other 97%. So, while it may work to some degree, I don't know anyone that enjoys begin cold called.

  • http://www.ducttapemarketing.com/blog ducttape

    It is a only a bit of one – if cold calling equals terror then you'll never succeed at it anyway, so focus on the network building and start going out of your way to make referrals to others and you'll soon see the results

  • http://www.ducttapemarketing.com/blog ducttape

    The part I can't reconcile Doug is the damage you do to your brand and your personal reputation to the masses that hate to be cold called and might likely write anyone off that does it – I'd say that's the majority these days.

  • http://www.OakcrestStrategyGroup.com Doug Strahm – Oakcrest

    In the first line of my post it says, “…when done properly…”. Unfortunately, it is rarely done properly.

    Yes, there are a few prospects that will get all spun up when you leave them a message, or actually get them on the phone, but the world has its share of people that are just wired to get upset – at anything. The experience of my clients, my sales teams, and myself have proven that when done correctly, it produces results that would never have been realized otherwise – and rarely leaves any “muddy footprints.” The real proof is when you have a prospect say, “I'm really glad you called. Your timing is perfect.” If you are not getting that on a regular basis, then it's being done incorrectly.

  • http://www.bnurture.com Geraldine

    Interesting post. It got me thinking…
    1) Why not do it the other way around? Instead of looking for the profile of your prospects on linkedin, look for the connections of your existing customers and see which ones match your ideal customer profile (yes, I've read Duct Tape:))? Could that possibly take less time? That said, I'm not sure it would work for someone like Alyssa.
    2) Mind you, I still believe in cold calling – when done properly. I think it forces you to articulate your value proposition very clearly (yes, I've read Jill Konrath too :)) and it forces you to accept rejection, which is part of doing business. So, in my mind, this is a good tactic to better prepare your calls (see your common acquaintances, etc.) but it doesn't mean you should drop cold calling alltogether. Besides, it is not because someone is part of your LinkedIn connections, that this person feels comfortable referring you.

  • Nigel

    John,

    I pioneered a methodology called Social Calling (TM) that I've been presenting and training sales people on for 2 years using the approach above.

    My data is cold calling 100:1 dials to one appointment, Social Calling 12:1 – now I agree with Mahan (who I know) that my Social Calling data is actually a little pessimistic. Outcome from my math therefore is an 8 x improvement using the referral mechanism (Social Calling bakes in the concept of trigger events too but the referral is the biggest improvement factor).

    Nigel

  • http://milleronmarketing.com Jeff

    I have read several marketing books, as I am getting into the business. Cold calling is clearly one of the most foolish things you can do. I am currently reading “No More Cold Calls,” By Dr. Jeffrey Lant. What you need to do is get a list (rent one, use a directory, brute force it and compile one yourself) and start with some direct response marketing. This can easily be measured for profitability and is a great way to gauge response rates and get started in your network building.

  • http://twitter.com/marketingfails Paul L'Acosta

    John, even though I hate to be the nth person saying it, I'd have to say I don't believe in cold calling as a sales tactic either. However, I do believe in it as a training tool as it polishes your skills and forces you to really think about your business idea and what it does for your customers. So I say that the recipient of that one cold call can be considered just a casualty of war… I mean, training. Thanks John!