Is Cold Calling Effective?
Depending on where you look online you can find very different opinions of cold calling. Is cold calling effective? This is the question I had and wanted to find out the real answer. Some experts say cold calling is dead, a waist of time and the old way of selling. Yet other experts say that if cold calling is done right it can be very effective and rewarding.
I have tried using cold calling for my own business and found it not to be very effective. Then again I have tried implementing this approach for some of my customers and experienced results that were worth while. I don't think there is a easy answer to the question of this blog. I really think it comes down to a case by case basis and you need to use the below metrics to determine the answer.
Cold Calling Benchmarks
1. Calls Per Hour
My Results = 17 (but ranges from 4-26)
Industry Benchmark = can not find a benchmark
2. Calls To Meetings Set Ratio
My Results = 1 in 20
My Results Excluding Calls Where I Leave A Message = 1 in 10
Industry Benchmark = 1 in 10
3. Close Rate (Sales Made At Meetings)
My Results = 50%
Industry Benchmark = depends on industry, ranges from 15-50%, for most services it is around 42%
I will use my results to show how to determine if cold calling is effective. To do this we will need to determine the profit generated from a day of cold calling. Once we have calculated this we can easily determine if it is a viable means to generate new customers by simply comparing it to the cost. If the additional profit is greater then the cost, then it is worth while. Lets look at how to calculate the additional profit generated. Below is the formula
Hours Of Calling x Calls Per Hour x Calls To Meeting Ratio x Close Rate x Average Sale x Contribution Margin
Contribution margin being the fraction of the sale that contributes to cover fixed costs. So for an example lets use my above results, 8 hours of calling, an average sale of $5,000 and a contribution margin of 50% to keep things simple. The additional
Number Of Sales Meetings = 8 x 17 x 1/20 = 6.8 or 7
Additional Profit = 8 x 17 x 1/20 x 50% x $5,000 x 50% = $3,500
So for the 8 hours of calling the business generated an additional $3,500 in profit. To calculate the cost you would either just look at your bill from the cold calling company or calculate the value of your time if you are the one who did the cold calling. If you did the cold calling the return on your time would look like this
You Do The Cold Calling
= Additional Profit/(Hours Of Cold Calling + Number Of Meetings x Hours Per Sales Meetings Including Follow Ups)
Lets assume the following
= $3,500/(8 hours cold calling + 7 meetings x 2.0 hours per meeting/follow ups)
= $159.00 additional profit per hour
This works out to $159.00 additional profit per hour for your time...not bad. If you pay someone to do the cold calling the return on your time would look like this
You Pay Someone To Do The Cold Calling
= (Additional Profit - Cost Of Cold Calling)/(Number Of Meetings x Hours Per Sales Meetings Including Follow Ups)
Lets assume the following, you way someone $22.00 an hour to do cold calling.
= {$3,500 - ($22 per hours x 8 hours of cold calling)}/(7 meetings x 2.0 hours per meeting/follow ups)
= $237.42 additional profit per hour
When looking at the above the cost of cold calling is only $176 dollars for 8 hours. This is why it makes your profit per hour of your time increase. In this case it is definitely worth the businesses owners time and money to have a cold calling program to generate more customers. And in this example it is worth paying someone to do the cold calling. If cold calling for a business is worth while it is usually more efficient to have the actual cold calling done by a third party as shown in this example.
The only other two things to consider is the amount of time an initiative like this would take you to manage and the impact this will have on your brand. If the additional profit is only slightly higher then the cost then it is probably not worth your time. On the flip side if the additional profit is significantly higher then the cost, like in the example above, then it will be well worth your while to spend a few hours a month managing a third party company that can provides this activity for you. In regards to the impact cold calling will have on your companies name and brand it all depends on how the cold calling is handled. If you have pushy, aggressive people do the cold calling for you, the negative long-term impacts may not be worth the sales and profit increases. If on the other hand you have a good person or cold calling company doing this for you I have found, from my experience, there are ways around the negative connotations associated with cold calling. These would be being friendly, listening more then talking and respecting the other person's time. How to achieve this I will maybe save for another blog. That being said, you will always have some people that will react negatively but this is easy to rectify....just don't call them again. If they only get one cold call from you company, they will forget about the call in about 3 months and there will be no lasting negative impact.
I help various B2B small businesses in Waterloo and Kitchener generate new customers. If you are interested in keeping up to date on issues related to generating new customers for B2B small businesses consider subscribing by email to this blog.
Is cold calling effective for your business? If you have not tried it I would suggest outsourcing this to a company that has experience doing it. From a short test you should be able to determine if this sales tactic will be viable for your business. A short test would be a minimal investment and I am sure any of the companies that provides these services would be happy to conduct a test to prove their services. Feel free to share this blog post on Facebook if you know of other people that would be interested in it.
