sylvain courcoux

internet entrepreneur

my blog

Does telemarketing actually work?

I'm sure more than one person has asked themselves that question: "Does telemarketing actually work? Because I'd never buy anything over the phone." The first time I was exposed to telemarketing was in the context of a college internship in the late 90's. At the time, I was finishing my studies in finance and my goal then was to become a stock trader so I went to an investment bank for an internship. My internship manager asked me a simple question "What do you want to do?" So I said, "Well, I want to do portfolio management". His answer: "Managing portfolios is the easy part, the hard part is finding portfolios to manage, and that's what the job is really about". So instead of doing portfolio management, I found myself part of a small team of 5 in a branch in Lyon with a phone and a list of people to call. I started doing what others were doing: cold calling. My job during that internship was to set appointments for the firm's salespeople. 3-4 days out of the week, I would go between classes to the office and make phone calls: I really hated it. At times I thought "no way this is what I went to university for" and "this simply doesn't work". And the reality is that most of times, prospecting phone calls lead nowhere. Most people say they're not interested, some are rude, some hang up, some are funny, some say yes but really mean no: in most cases, prospecting doesn't seem to produce any results, and so many people think it doesn't work at all. It took me a good month of prospecting before I was able to bring a prospect into the office for a meeting with one of the salespeople.
In reality however, things are different: telemarketing does work. Usually, the generally-accepeted conversion ratio is 1% which means that it takes about 1,000 calls to acquire 10 solid prospects, or that 99% of all people will say no. Note that I'm not using the word customer because once you have a prospect; you then need to convert that prospect into a customer: prospecting is not about necessarily selling over the phone, sometimes it's just about getting an appointment. For instance, if you're selling a product or a service that requires one or more face-to-face appointment then 1,000 calls will yield 10 appointments which may in turn convert to 0 or 10 customers. Of course, the number varies a lot from salesperson to salesperson and from industry to industry. And when people from the general public think of telemarketing, they think of businesses calling consumers but actually, the bulk of business is businesses selling their products or services to other businesses, and consumers only purchase the end-products that result from a supply chain that involves many other businesses. And so firms that sell advertising, photocopy machines, industrial equipment, corporate IT services and countless other business services rely on B2B salespeople who make a lot of prospecting phone calls. Telemarketing is therefore not really a matter of using the phone to make a sale to consumers, but rather a matter of using the phone to nurture business relationships. Overall, telemarketing is a numbers game that relies on the law of large numbers, meaning lots and lots of phone calls, and whose purpose is usually to prepare a sale.
For telemarketing to work as a distribution strategy, 3 conditions must be met. 1) The price of the product or service you sell must be high enough to support the cost of the salespeople. For instance, if your conversion rate is 1% and a sales person can make 40 calls per hour then to make 1,000 calls will take 50 hours. If a salesperson costs a total of $50 per hour then the average cost of acquisition will be $2,500 per new customer just for the sales person and may therefore require pricing well above that to account for other costs of sales; think of the cost of the photocopy machine itself. 2) Telemarketing works well when buyers are usually not the ones initiating the purchase. For instance, we all have things in mind that we would like to buy but how often do we actively think that we want to buy life insurance? If you're selling something that people in your target market don't think of buying, then with telemarketing you can contact them directly and offer them your service. Needs and demand are different. 3) Finally, telemarketing works well when you're selling into a widely dispersed market. If you're selling jumbo jets, then you don't need telemarketing because the number of potential buyers is limited, but what if you're selling something to pizza shops in the US? You can try to reach these shop owners with advertising but telemarketing is usually much more efficient. So there are the 3 conditions that make telemarketing a viable distribution strategy: when you're selling something expensive to a large number of people who don't think about buying what you have but need it. Some people call it telemarketing, some people call it prospecting, for others it's cold-calling, inside sales, in the UK it's called telesales, but it's all the same job. Next time you hear someone say that they do inside sales, you'll know that part of their work includes telemarketing, even thought it's not politically correct to say so.
In a sense, asking if telemarketing actually works is kind of like asking "Does online advertising actually work? Because I never click on those online ads."
So, how did I use my telemarketing experience? I ended up becoming a self-taught programmer and I built the CRM sales software I had always wanted when I was cold-calling: the goyaPhone. Check it out!