What is a Sales Qualified Lead (and Why Misunderstanding Could be Killing Growth)

If you’re involved in demand generation or lead generation, then it’s a pretty good bet that creating sales qualified leads (SQLs) is an important priority for you. And with the proliferation of demand generation approaches, I’m hearing more and more executives - from marketing and sales - talk about SQLs more frequently.

Unfortunately, when I dig deeper with these executives, I find that while they use the term liberally, they do not have a clear definition for it. They often misunderstand what an SQL is, and how it should be handled. What’s worse, this mismanagement creates significant hidden costs in three ways:

• Loss of opportunities that could have been captured if sales had developed the opportunity better.
• Lower closing rates because the process often gets rushed.
• Lower value perception - and therefore a willingness to spend less on the buyer’s part - because needs are not fully developed and worth isn’t established.

What a Sales Qualified Lead Isn't

As I’ve written before, a sales qualified lead is not the equivalent of an order-ready lead. An SQL is not should not even be one that has fully fleshed out what their needs are. And an SQL is not even one that is actively seeking to buy something. All of these are criteria for what, at Imagine, we refer to as a sales (or pipeline) opportunity.

While there are many definitions/criteria used to define a sales qualified lead (here’s ours), the details are less important than the intent. An SQL should represent a company that:

• Fits your client profile.
• Has your key buyer personas engaged and talking with you.
• Demonstrates and acknowledges pain, problems or opportunities that you can address.
• Understands your basic value proposition and is willing to investigate those pains, problems or opportunities with you.

Three attributes that often get used as part of an SQL definition and shouldn’t be are:

• Timing
• Defined need  
• Budget

All three of these issues should be addressed by:

• Your ideal client profile. The way in which you define your client profile should mean that a significant majority of the companies that fit your profile will have the resources and needs. Budget is one of the most misused excuses in sales. I often hear salespeople say a lead is bad (or not qualified) because the customer does not have the budget. Recently a sales rep for a customer that sells a technology solution with an average sales price (ASP) of about $80,000, reported that a company with more than $100 million revenue “didn’t have the budget.” I responded, “Are you telling me that a $100 million company doesn’t have $80,000 to spend, or that they choose not to allocate those funds for this use?”  The answer was obvious (more on this below). When budget is a legitimate issue (i.e. the company can’t afford what you do), it should be disqualified before reaching SQL status.

• Your sales process. Salespeople should not be order-takers. They must move beyond peddling solutions to developing needs. I hate it when a sales conversation starts with the prospect believing they know what they want or they’ve defined their needs (as a matter of fact, it’s one of our red flags). I know they don’t fully understand their problems, the causes of those problems or the implications. By the time a qualified prospect has gone through your sales process they should:

• View their problem/opportunity as bigger and more urgent than when they started.
• Understand the implications of their issues more deeply and clearly.
• Realize the value of solving the problem is greater than they anticipated.

When that happens, needs become explicit and timing and budget is viewed through a completely different prism. Now I realize that taking this approach means that I’m not going to make as many sales next week or next month from the SQLs I create today; but I am going to capture a much higher percentage of them at a much higher value.

Three Reasons To Expand Your Definition of an SQL

1. Break Away From "What's It Cost"

When you define SQLs too tightly, you actually take away the value creation opportunity for sales. This means that the level of conversation never advances to a deeper level and you never escape the gravity of a “what’s it cost” conversation. Your solution gets commoditized, and sales costs go up.

2. Dramatically Increase Your Win Rate

I remember when I started working for Merrill Lynch. I’d regularly win business that others couldn’t. I became (for lack of a better word) a mentor to many advisors, where they’d bring opportunities to me that were stuck (or they’d actually lost) and I’d work with them to recover the opportunity.

I was successful here because I never started with an expectation that the prospect totally understood their needs. I developed a strong capability in needs development (or what I like to call diagnosis), where I was able to change how the prospect perceived the issues.

Most often you only get one chance at making a sale. If you wait too long or push too hard (too early), you lose a lot of valuable chances.

3. Eliminate Competition

Someone recently asked me if Imagine has a competitive advantage. I immediately said yes. I was challenged to explain what it was. At first, I was going to talk about our understanding and ability to address The Third Discipline.

Just as I started talking, I realized that while that is certainly our advantage, our real competitive advantage is our ability to talk with prospects earlier than just about anybody else. Our ability to engage with prospects before they’ve even defined the problem enables us to not only heavily influence the decision that gets made, but to eliminate competition in the process.

Here’s the bottom line, an SQL should represent a high quality, high probability lead at the beginning of a professional, value creative sales process. Remember, there is (or at least should be) a reason we call it selling and not question-asking & order taking.