Why Leads Won't Help - Part 2

Welcome to Part 2! This article will explore the operational processes and profitability that you will want to have in place before you look at leads to grow your business. 

Did you miss Part 1? Check out how to increase your sales through your existing customer base here.

Scalability & Fulfillment

So let’s say that you’re comfortable that you are converting the maximum number of leads possible and customers are routinely  repurchasing and giving you referrals - you have the green light to invest in lead generation right? Well, not quite yet. Are you actually in a position to take on more work, and if so, how much more work? 

It can be attractive to think you can “double” your business, but I’ve seen more businesses fail than succeed increasing sales without a real plan for how to scale the fulfillment of that business. This is especially true of small businesses that have largely leaned on their founders, family or friends to staff their business and/or have relatively simple distribution models. Scaling up means finding and hiring staff outside of your immediate circle and possibly looking at larger, more complicated manufacturing and distribution models. 

It can be a real balancing act. Increase too little and you risk having too much work for your current model, but not enough to warrant more staff or investing in better systems. The likely result - a decrease in quality and in worker satisfaction (yours included!). Increase too much, and you risk growing too quickly, resulting in a disconnect to the day to day operations and being forced into hasty decisions. 

So let’s say you look at your business and determine that you can comfortably increase your sales by 40%. If Bob’s current lead conversion rate is 10% and he gets 100 leads a month, then he knows he needs to find 40 more leads a month. Why is this valuable information? Because this forethought allows him to only spend as much as required to get those extra 40 leads a month. There’s little value in paying more for more leads if you know that you aren’t going to be able to fulfill them. 

How do you start getting more leads? That’s largely going to be determined by where your customers are currently coming from and if it makes sense to increase efforts in what you're currently doing or try to go after a new segment of the market. Many brick and mortar stores experienced this when Covid hit - they had to adjust to attract more online customers. 

Your timeline also matters. Social media is great for brand awareness and engagement, but it can be a slow ramp up from impressions to sale. SEO and content marketing can similarly be slow to really take foot. 

Interested in getting more leads? Ask us about our advertising services. We can just help you with set up, or we can manage the whole process for you. 

Also, ask us about our business analysis and road mapping service - helping you grow your business scalably. 

Training & Documentation 

This really builds on the last section on scalability & fulfillment. Having good training and documentation sets ok companies apart from great companies. As a former trainer, I really could go on about this - but here’s a few of my top reasons why training & documentation is important: 

  • You want to create leaders, and not crutches. It can be tempting to think that you will find a few key employees and trust them to do their jobs - and you should! The trouble arises when the companies replace training and documentation with people. ‘Your leaders should do just that - lead. They should not be the foundation that keeps the house up, they should be the roof that protects those below them. If not, the whole company collapses when they’re not there, and that’s simply not sustainable.
  • You can’t plan when an emergency will strike. You or your key employees may not always be there, and it is HIGHLY stressful to try and work through these events and sometimes outright impossible to do it. You need to know that in a pinch, there’s a backup for all the key tasks in your company. 
  • You need time off. Perhaps a cheerier version of #1, everyone needs to be able to walk away from work. And I’m not just talking about two weeks once every other year where you come back to a huge stack of work because your plan was to turn on your autoresponder and do everything when you get back. Working through your holiday is also not an option. I’m talking about the ability to focus on you and your family when you get home (or leave your office for us work from homers), the ability to actually take weekends off, and yes - the ability to take longer holidays. It recharges you and it makes you a better boss - and it makes your employees better employees. 
  • Trust me, it’s not common sense and it’s not “standard”. I’ve heard countless managers and business owners never explicitly state their expectations and then lament about how it’s so hard to find employees that “do it the right way”. It’s not just about finding great employees either. Consistency across the company is important for customer experience, training new employees, and updating processes. 

So how do you start doing this? Well, there is no shortage of great resources for developing training programs or companies dedicated to helping create operating systems and manuals. But if you want to start small, here are a few simple things you can do: 

  • Record yourself doing tasks. Are you updating the products on your website - well quickly use a tool like Loom to record yourself performing the tasks. It’s very little effort to turn screen recording on and it starts creating a knowledge base for your company. 
  • Ask trainees to write it down. This is one I use a ton because it solves two birds with one stone. I ask trainees to write the process down when shown how to perform a task and then send me the instructions. This allows me to objectively review and verify if they really understand the task and how I’d like it to be performed as well as creating documentation in the process. 
  • Make a peanut butter and jelly sandwich. Search for “exact instructions” challenge and you’ll find lots of funny videos of people trying to write down the instructions for a simple task in excruciating detail (ie. making a PB&J sandwich). It is not as easy as you would think. Now do the same thing with your staff and you’ll likely find a deceptively easy exercise has inspired a number of conversations. 


You know what popular saying I hate? “You gotta spend money to make money”. And it’s not that I don't believe in it either. I obviously want you to spend money on marketing! But this quote often gets used to justify spending that is incompatible with profitability. And here’s why - bringing in leads can’t just pay for itself - it has to pay for everything else too! So buckle in, because we have a lot of math to get through. 

We are going to review cost per lead (CPL) or customer acquisition cost (CAC). This is the expected marketing spend required to attract a new customer. Often this will be presented as “spend $500 to get $10,000” or “20x your investment!”. And based on those numbers, this seems like a great deal! 

Right now Bob sells service X for $10,000, but after product costs, shipping, wages, rent, utilities, taxes, transaction fees etc.his net profit is $1,500 net per customer after accounting for all these costs

If the Marketing team he engages advises he will need to spend $500 in marketing dollars on average to retain a new client, that net profit is quickly eroded down to $1,000/service X, a 33% decrease.

Really, Bob is spending $500 to make $1000. He’s still making a profit and it might still be very worthwhile for him, but 2x your investment is very different than 20x your investment. This is further exacerbated by the fact that lots of companies will see this huge influx of leads and feel the need to grow their sales team. The cost of these employees further cut into Bob’s margins. 

Let’s have a look at the difference between the profitability of Bob’s current company vs the cost of marketing to get those two extra sales a month. 

*assume that the first 5 leads make $1500, additional 2 bear the marketing cost

Bob makes less per sale, but he’s making less out of a bigger pie. But let’s tie this back to the beginning. What if Bob focused on his conversation rate first - trying to get 2 extra sales out of the 95 leads a month that aren’t currently buying.

As you can see, Bob actually makes more by focusing on his lead conversions first. Now watch what happens if he increases his lead conversion and also invests in marketing which increases his sales from 7 to 10 per month.

You can see that there’s a huge compounding effect when you combine the power of converting leads with marketing to a new customer base.

So, if you’ve made it to the end, congratulations! But you also might be wondering why a marketing company who wants you to invest in marketing would give you compelling evidence against marketing. Well we aren’t - but what we are saying that it’s not just as simple as hiring a company to bring in leads. At Larkspur, we are committed to helping you grow your business sustainably and building relationships that have longevity. So if you want to learn more then check out our Business Analysis services. Or, if you feel like you have the foundation to jump right into marketing, then check out our Marketing Services. Either way, we’d love to help.

Learn more:

December 9, 2020 | Jessica McAndless

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Why Leads Won't Help - Part 1

Too often lead generation is toted as the 'silver bullet' of increasing sales. We feel that while leads are important, it's much more important to ensure that you have certain foundational items nailed down first.