Demand Generation vs Lead Generation: What's More Effective?

Don’t you get surprised by how many companies treat marketing like its sales? Especially B2B tech companies.

They’re guiltier than Carol Baskin in the eyes of Joe Exotic (And if you don’t get that reference, congrats on surviving Covid Quarantine without succumbing to Tiger King on Netflix).

When I think about marketing strategies used by B2B companies, I just see a swarm of covered-up attempts at getting people into a sales funnel.

It's annoying. And it’s a huge problem. Mostly because it doesn’t work, and it comes at the cost of diluting your brand. But it’s so common. The first company I worked at as a marketer was drinking the marketing-as-if-its-sales Kool Aid too.

I pivoted from that by building their marketing strategy from the ground up using demand gen instead of lead gen, and I’ve spent the last 5 years really trying to help companies see that it's the better way.

But before I go any further let me just explain what demand gen and lead gen are.

What is the difference between lead generation and demand generation?

Demand generation is activity that educates your ideal buyers and drives awareness of your brand. Lead generation is activity designed to create contacts that your sales team can sell to.

In this article I’m going to go over:

• Examples of lead gen and demand gen
• Why demand gen is more effective marketing
• The hidden costs of lead gen
• Why is lead gen still used
• How to pivot from lead gen to demand gen
• Why measuring attribution on social creates lead gen activity
• The 5 metrics to measure demand gen

Alright, adjust your home office chair, postpone your zoom calls, and grab a Corona (if they’re still in business), let's get into it. (Or if you’re reading this in the future, what year did they let us out? Are we shaking hands again or do we just bow now?)

Examples of Lead Gen and Demand Gen

The first thing to know is that the same exact types of actions could be either demand gen or lead gen based on their goal.

ActivityWhat makes it lead genWhat makes it demand genSocial media advertisingrunning ads to create leads or book a demo.using paid ads to distribute content that helps peopleHosting a Lunch and Learnyou invited everyone so they can try your product or hear why your product is great.you invited everyone because you’ve put something together that will serve them whether they become a customer or not.Launching a podcastthe episodes are about why the audience needs your serviceeach episode is a uniquely helpful piece of content designed to serve an audience who matches your buyer persona, regardless of whether that episode is about your service.

An example of lead gen:

An ABM company invites you to a nice restaurant for a “lunch and learn.”

You show up to the event. You find out it's basically an educational pitch for their product or service.

Right after the event an account executive is following up with you. It’s thinly-veiled sales

At a high level the difference is: are you trying to get a lead for your sales team or not?

An example of demand gen:

This is a similar example but with a different driving intent.

You invite your buyer persona as a guest to a field marketing event. You talk about something that person cares about. Even if it has nothing to do with your product or service. You film the event.

Maybe you interview them as an expert and chop the video into clips they can post on their LinkedIn that make them look awesome.

Through that education you’ve created awareness. For several of the people at that event you’ve become a trusted source of education and they see that you also have the product or service you sell. They show an interest. That is demand gen.

Most brands are trying to measure each piece of content on how many leads it generated, instead of seeing that content creates brand power and that is harder to measure but produces long term results.

The byproduct of being genuinely helpful is awareness of your business.

Intent is everything. We all want to buy from people we trust have our best interest in mind.

I think businesses should look at their marketing strategies and ask themselves a very important question:

The Key Question:

1. Do my marketing activities themselves serve people?

Or

2. Are they just attempts at getting people to convert?

Why is Demand Gen More Effective?

Ok, I’m a huge proponent of demand gen, but why?

I get that it’s counterintuitive. Why put so much effort into creating all this content meant to educate and only say 2% of it is actually about your product or service?  

The other 98% is just quality education that your ideal buyer wants to consume that isn’t about what you sell

How is that supposed to be effective marketing of your product or service?  Well for one, even if you’re not directly marketing your product, you're marketing your brand.

But when you do lead gen, you dilute the power of your brand.

When you focus on demand gen activity people will actually want to consume your content. They get value out of it. And then you become a trusted source of information.

What’s better?:

1. A thousand of your ideal buyers consume a 90 minute video meant to educate them about something they care about.

Or

2. A hundred thousand people saw your logo in an ad they quickly scrolled right by.

It’s obvious. And it’s the difference between demand gen and lead gen. Everyone wants reach, but unless your ideal buyers are deeply engaging with your content, you’re not actually reaching them.

Hidden Costs of Lead Gen

One reason I’m not a proponent of lead gen is because I’ve experienced the cost of it first hand:

1. You run request-to-demo ads on LinkedIn
2. You get people to fill out the form for $200 each
3. You get to send 25 leads to your sales team
4. Zero of them convert.
5. You wasted both your marketing and sales team’s time
6. You spent thousands of dollars.

This isn’t just my experience. Outbound leads don’t convert at high percentages. It’s costly, and not just in terms of dollars

The real cost, which is also the hidden cost, is the waste of your people’s time.

If your team is heavily invested in the outbound channel and you are not heavily investing in the inbound channel - which is converting at a much higher percent - you are wasting your people’s time and focus.

Why is Lead Gen Still Used

One reason lead gen activity is so common is because companies are making this mistake:

Mistake: Putting one leader in charge of both sales and marketing

When companies try to have the functions roll up to one person that isn't the CEO, your marketers will do the things that are important to that person.

If you have no CMO, and your marketers report to your CRO, and that CRO used to be the VP of sales, I’ll give you two guesses whether they’re doing lead gen or demand gen (I don’t think you’ll need the second guess).

You end up having a marketing team doing a lot of sales activity and very little marketing. You see marketing teams running direct mail to book meetings as if they're an SDR team.

Solution: Have a dedicated CMO for Marketing, and a CRO for Sales.

How to Pivot From Lead Gen to Demand Gen — A Step by Step Guide:

Step 1. The number one thing you have to do is recognize that it’s a culture and leadership issue.

Making the change is not a small thing. It requires a cultural shift in your organization.

If the leaders in your company are so sales-minded that they don’t think about marketing as a brand-building activity, this is going to be impossible.

It’s like trying to convince Nicholas Cage to make a movie that’s relevant.

You can’t move on to step 2 without new leaders, a new company, or a dramatic shift in the leader’s mindset.

Step 2. Leadership has to prioritize marketing over sales.

Did you gulp as hard as I did?

Yeah, I hate to sound pessimistic, but if your leader isn’t bought in, you can put bandaids on the problem, but you will never be able to fully execute.

Marketers, you’ve got two options: either accept your fate and take orders from the sales team or find a new company.

Step 3. Decide to score the marketing on completely different metrics than sales.

If your marketing is being scored on sales dev metrics like:

• How many meetings can we book?
• How can we get 30,000 leads that our sales team can call?

You’re measuring the wrong things.

Why Measuring Attribution on Social Creates Lead Gen Activity

Before we go into how companies should be measuring their marketing, here’s one more mistake I see companies making all the time:

Mistake: Trying to measure attribution on every channel.

For example they treat social the same as Google ad words. With google, someone says “I want to buy this product, can you show it to me”, you present your ad, they click through and convert to a demo. Great. That’s Google.

If you treat social that way you’ll end up going down all the wrong roads we’ve talked about in this article.

Solution: Focus on business level metrics.

Attribution is worth understanding for Google ad words, but marketers marketing on every channel need to be primarily focused on business-level metrics.

The 5 Metrics to Measure Demand Gen

If you want to maximize what marketers can do and create marketing and sales alignment without marketing and sales role confusion, these are the 5 metrics marketers need to focus on:

1. Inbound revenue contribution as a percentage of net new logo revenue

Take all the customers that come through your demo form or your web chat or who call your sales line, how much revenue does that produce?

Demand gen marketing created that.

2. Marketing sourced qualified pipeline generated

You have to decide what qualified means, but as long as it remains consistent, how much qualified pipeline is being generated?

3. Sales cycle length compared to the outbound channel

This is of course the length of time from the day the opportunity is opened.

For inbound that would be the day that someone submits the form.

And for outbound, it could be the day someone agrees to a meeting.

It ends when the lead is either won or lost.

Compare the length of the inbound to the length of the outbound

4. Win rate of marketing source versus outbound channel

Of the opportunities that you deem meet the qualification criteria, what percent convert to customers?

This is also a very good surrogate for how good your leads are.

5. CAC

Customer acquisition cost asks:

• How many customers are we acquiring?
• How much recurring revenue are they generating?
• How much is it costing?

Don’t make the mistake of measuring this at the channel level and not at the overall level.

There are some channels that you can measure at the channel level, you can measure performance marketing at the channel level for something like Google ads.

But for brand marketing you have to measure it at the business level.

Benchmarks

There are so many different factors to influence these metrics. For example how long a sales cycle should be is influenced by

• How much does your product cost?
• What is your sales model?
• Is it product-led?
• Is it sales-led?
• Who are you selling to?
• How complex is the sale?
• What's the implementation time?

There are a million different factors; and this is true for each of the five metrics.

So instead of giving you an arbitrary number to tell you whether or not you're doing well (this is different for every business) the way to think about it is to consider the outbound channel as the baseline and compare the inbound channel against it.

I see companies whose outbound sales cycle is above 200 days. And their inbound cycle is below 60.

Their outbound win rate is under 10%, while their inbound is over 25%.

Below is an example of the kind of data that a marketer could show a leadership team in an organization that hasn’t fully embraced inbound.

OutboundInboundrevenue contribution percentage79%21%qualified pipeline generated$7.4M$1.9Msales cycle length210 days57 dayswin rate7%27%CAC$1,200$640

If you look at those numbers in pure black and white when your organization has to make investment decisions towards sales or marketing, which channel to scale becomes a no brainer.

The problem is many companies don’t even have a quality marketing engine that’s producing revenue, so they don’t have data.

And therefore they think “We have to grow outbound.” Because it’s all they see. They don’t know there’s a better path to grow.

In Case You Skipped Right to the End

Demand gen is better because:

• It causes people to know and trust your brand
• Inbound leads convert better
• No role confusion between marketing and sales
• You’re not wasting time and resources

Start creating content that:

• Educates and entertains the people you want to serve
• Is helpful independent of what you sell

By doing this you are:

• Investing in activity that grows the inbound channel
• Creating a trusted brand

Everyone, including sales, wins when you invest heavily in building brand. If you care about serving over selling, you’ll end up selling anyway.