Friday 28 March 2008

Zero

“Didn't pull anything at all.”

“Hardly any conversions... in single figures. The whole lead generation exercise was a waste.”

“Zero. Ziltch.”

You don't hear these too often, but you hear them often enough to worry. Because word spreads, and soon enough the whole industry is being tarred with the same brush: Direct marketing doesn't work. Lead generation is BS. Cold calling is the only way.

It's a mystery if something, anything, doesn't work at all. Probability loathes unmitigated disasters.

Let's think of an financial services company that agrees to pay, say, Rs 100 per lead. No sales manager would agree to such an amount unless he's quite sure that he will be able to convert a substantial number of these leads. We don't have to stretch credibility to envisage a binomial distribution with p = 10%, that is, there is a 10% probability that a lead randomly picked from the bought list would convert.

With such a probability what should one expect from a list of 2,500 leads, where a lead is defined as someone who explicitly expresses interest in a particular product of a particular brand by filling a form, and asking the company to get in touch with him?

The number of trials and mean are large enough to apply the normal approximation. And this says that there's a 99% chance that one should make between 288 and 211 converts.

The probability of making less than a hundred conversions is... zero, negligible.

“10% is too high,” you'd say. Let's try 5% for argument's sake (remember, it's Rs 100 a lead).

Even after halving the probability of success, we retain a 95% chance of making 103 to 146 sales. The probability of converts staying within double figures is 1.09%. Again, negligible.

So what do we tell the sales manger when he complains that leads were all duds? Logically, you should tell him that his lead management system doesn't exist: It's a wonder that his company does.

In real life, you bow your head and watch him renegotiate the rate, reducing it by 99%. Because theory be damned, he's god.

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