Originally published in August 2020

Note: This is an actual scaleMatters analyst insight report delivered to our customer's executive leadership team in August 2020. To protect customer privacy, their company name has been hidden from all charts. At the time of this writing, our customer was a $15M ARR marketing software company serving SMB home services businesses.

🚨Over-investing in Facebook Ads Channel is Hurting Near Term Bookings [APR-JUL 2020]

Summary Findings

1. Current amount of both SDR and AE resources applied to working leads/meetings/opps from Facebook Ads channel are not sustainable unless Bottom of Funnel pipeline conversion rates improve substantially.
2. Facebook Ads cost of acquisition is 5X higher than SDR Prospecting and the SDR/AE resources being applied to Facebook Ads are pulling away from SDR Prospecting efforts. It's a double whammy.

Analyst Recommendation

1. Use less costly resource than existing SDR team to process leads into meetings (offshore, automated screening)
2. Enhance the sales team's skills at selling to prospects from Facebook Ads.
3. Facebook Ads spend and associated SDR/AE resources should be scaled back until overall conversion rates improve dramatically. Otherwise, short term aggregate bookings will continue to be at risk.

Pipeline Quality Comparison: Facebook Ads vs. SDR Prospecting

Facebook Ads Cost of Acquisition 5X Higher Than SDR Prospecting

Problem 1. Bottom-of-funnel conversion rate drains AE resources

The April-July combined conversion rate from Meetings Set to Deals was 3.3% for the Facebook Ads vs, 17% for SDR Prospecting.

This implies that ~31 Meetings Set are required from Facebook leads to generate a deal while only ~6 Meetings Set are required from SDR Prospecting to generate 1 new deal.

With a ramped AE capable of handling 52 set meetings per month, this implies the Facebook Ads channel requires 0.59 ramped AE per deal which equates to ~$7,062 at a $12K/month fully-loaded cost, while the SDR Prospecting channel requires only 0.11 ramped AE per deal which equates to ~$1,355.

Problem 2. SDR Prospecting resources also being drained by Facebook Ads lead follow-up

It takes ~78 calls against the Facebook Ads leads to set a meeting.

It takes ~111 SDR Prospecting calls to set a meeting.

Given the BoFu conversion rates, this implies ~2379 calls to get a deal via Facebook Ads vs. ~655 calls to get a deal via SDR Prospecting.

At roughly 1,300 calls/month/SDR, it requires 1.83 SDR staff-months to generate a deal via Facebook Ads vs. 0.50 SDR staff-months via SDR Prospecting.

At an estimated $6K per SDR staff-month, this implies $10,980 to source a deal via Facebook Ads vs. $3,000 in SDR Prospecting.

The ad spend to generate the Facebook leads for the period was ~$17,200 (not including agency costs) which translates to $4,300 per deal.

The lead costs for the SDR Prospecting strategy were ~$8,000 which translates to ~$222 per deal.

Accordingly, top-of funnel costs are: