A few months ago I received from Michelle Bennett at Ivey’s Executive Development Program an absolutely terrific piece of research – MIT Lead Response Management Study. The study examines one basic question:

When should companies call web-generated leads for optimal contact and qualification ratios?

If I could send one study out to every business in Canada, this would be the one because in my experience Canadian business is really lacking in this area.

Below I’ll discuss some of the results of the study and when I like to think of the results in terms of microeconomics (specifically industrial organization).

Four definitions are important here:

Lead Created Time: The date and time that a web-form was filled out and submitted by a lead.

First Dial Attempt Time: The first date and time that a sales or lead qualification represenative attempts to call or dial a web lead.

First Contact Time: The first date and time that a sales or lead qualification representative makes a successful contact.

First Qualification Time: The date and time that a lead becomes qualified.

Nobody should be surprised to hear that responding back to requests promptly is important. I was shocked, however, by exactly how important it is:

Day of week and time of day were found to be statistically significant variables in contacting and qualifying leads, but the significance of data we analyzed around response time dwarfed them both.

We started our analysis by measuring response times by hours and found an incredible drop in the odds of contacting and qualifying leads if you wait to begin calling for just 1 hour…

The odds of calling to qualify a lead decreases by over 6 times in the first hour…

The odds of qualifying a lead in 5 minutes versus 30 minutes drop 21 times. And from 5 minutes to 10 minutes the dial to qualify odds decrease 4 times.

At our company (Nexreg) we have always made it a point to respond to requests promptly. Since we were made aware of this research, however, we work by the following adage: “If you don’t contact a lead within a half-hour, the sale is already gone”. Our response time to a web request averages around 15 minutes; I’ve been working with our staff to get it down to 10.

But why is it so important? The obvious answer is signalling, particularly for service providers – that by getting back to a potential client quickly, you signal to them that you will provide prompt service and that their time is important to them. I don’t want to underestimate the importance of that, but I believe there is a second reason why response time is so vital.

If your company is the first to respond to a request, you are in quasi-monopoly type position, as for the time being, you have no competitors. If you provide both a quotation for services and information on the benefits your company’s products will provide to the client, they have nothing to compare it to. It’s not a true monopoly – the client does have the option of waiting for more quotes (or soliciting more quotes if they have not filled out any other web requests). The option to wait comes with an opportunity cost, particularly if the client has a boss that’s behind them saying “Have you made any progress on the XYZ project?!? We needed that done yesterday!” Because of that, your company (the quasi-monopoly) can charge prices well above marginal cost and still make a significant number of sales.

Suppose the lead decides to continue soliciting quotes. By initially providing information that differentiates your services from those of your competitors, the worst case scenario is that you’re in monopolist competition, a market structure that allows for above marginal-cost pricing (and allows you to avoid the Bertrand outcome.

But what if you wait a week to respond to a lead? By then either the lead has already picked a service provider (bad) or they’ve already got quotes from 20 other providers (bad), so there is no way to stand out from the crowd. You’re in commodity hell, and the only way to ‘win’ the sale is to be the firm who is willing to go the closest to marginal cost. Sure, you will make some sales, but only if you’re doing a huge volume can you make a significant profit. All else being equal, you make as much profit on one sale at a 20% profit margin as you do on ten sales at a 2% profit margin. It’s an obvious point, but one I believe a lot of Canadian companies forget. Profit Magazine isn’t helping much in this regard, promoting the ‘success’ of companies that have significant gains in revenue, but often with little-to-no-to-negative profit margins.

We recently experienced this first hand, when our office moved locations about a month ago. We had to pick a number of suppliers (movers, internet providers, etc.) and we were surprised at how many companies would contact us over a week later from a web request. Needless to say, we did not go with a single one of those. I considered sending them the MIT Lead Response Management Study, but in the end I decided against it, since I couldn’t think of a polite way of doing it.