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Demand Generation Benefits & Drawbacks

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Demand Generation Benefits & Drawbacks Tn

Demand generation is an approach to B2B customer acquisition that involves creating new interest in a company through marketing that is tailored to each stage of the customer acquisition funnel. It uses a mixture of channels to attract prospects across a range of intents, from people who know they have a problem but aren’t sure how to solve it to people who are certain they want to buy from a company like yours. This approach stands in contrast to one-size-fits-all approaches like large-scale email blasts or display advertising, which seek to bring in new customers through sheer volume.

In this article, we will discuss the benefits and drawbacks of adopting a demand generation approach. The table below gives a brief overview.

Benefits Drawbacks
  • Increases conversion rates at each stage in the marketing funnel
  • Reduces CACs and increases ROI over the long-term
  • Produces high quality leads that are a good fit for your products & services

Below, we discuss each benefit and drawback in more detail.

The Benefits of Demand Generation

Demand generation has three primary benefits for B2B businesses. It:

  • Increases your full-funnel conversion rate by converting more prospects at each stage of the marketing funnel, ensuring more of your leads become customers.
  • Produces high long-term ROI and reduced CACs by using organic channels efficiently, substituting hard work & creativity for pure ad spend.
  • Produces quality leads that truly want your products & services by “nurturing” prospects with personalized content over time.

These benefits are expanded upon below.

Increased Full-Funnel Conversion Rate

At every step in your customer acquisition funnel, potential customers are lost. The image below is taken from our report on B2B SaaS funnel conversion benchmarks. It indicates that only 0.044%—or about 1 in 2,300— website visitors eventually become a closed sale:

b2b saas funnel conversion benchmarksDemand generation attempts to seal the cracks in the funnel where prospects are lost through personalized content & advertising. Whereas practices like lead generation and inbound marketing focus only on the top of the funnel, and practices like lead nurturing and CRO focus only on the bottom of the funnel, demand generation seeks to improve conversion rates across the board. It asks marketers to focus on the lowest-converting stages of the funnel in order to minimize prospect loss.

Reduced CACs and Higher ROI

Demand generation makes strategic use of low-CAC marketing channels like e-mail marketing & SEO to gather leads and high-CAC channels like ABM to nurture and close your highest value prospects. This practice uses marketing dollars efficiently, producing a high ROI.

The tables below show the 4 lowest CAC demand gen channels and the 4 highest close rate demand gen channels.

Lowest CAC Demand Generation Channels 

Demand Gen Channel Average CAC
Email Marketing $510
Public Speaking $518
Webinars $603
Thought Leadership SEO $647

Source: CAC by Channel

Highest Close Rate Demand Generation Channels 

Demand Gen Channel Close Rate*
ABM 41%
Public Speaking 40%
Informal Networking 38%
Webinars 35%

*% of prospects that proceeded from the “Opportunity” stage to Closed

While this leads to higher initial costs as discussed below, the long-term impact is that the cost to acquire each new lead and new customer is lower than that of a less organically focused approach.

Improved Lead Quality

Demand generation increases the quality of leads coming through your pipeline because it does such a good job of nurturing potential customers. Educating your prospects results in customers that come into the relationship with a high degree of trust. A good demand gen program will set customer expectations about what working with a company like yours involves and how they can contribute to the partnership’s success. This color is absent when companies focus only on top-of-funnel lead generation, leading to longer sales cycles, lower conversion rates, and shorter customer lifetimes.

The Drawbacks of Demand Generation

While its upsides are significant, demand generation has three notable drawbacks:

  • Complex and difficult to execute because of its emphasis on multiple funnel stages, making it difficult for less-experienced marketing teams to manage in-house
  • Expensive in the early stages, requiring an in-depth initial planning period due to their inherent complexity
  • Ineffective without the right budget allocation based on the company’s lifecycle stage, industry, and existing visibility

High Executional Difficulty

Because demand generation targets the entire funnel at once, teams must understand and manage many moving parts. For any marketing channel, your team must:

  1. Understand prospect intent for each marketing channel, where your prospects are in the funnel when they use that channel, and what problems they turn to that channel to solve
  2. Create tailored content that answers prospects’ specific problems and builds trust with them by offering valuable insights and solutions to their problems
  3. Conversion optimize each channel span by creating clear conversion pathways and personalized CTAs
  4. Measure and iterate on results by tracking KPIs and comparing them to established benchmarks, and making adjustments as necessary

All four of the above are necessary for a single marketing channel, and demand generation will frequently utilize more than 3 channels even for companies with simpler products. For most companies, this requires working with an outside agency to do so effectively, but doing so presents its own operational challenges.

Expensive Early Stages

While demand generation does result in lower CACs after 1-2 years, the initial expense is higher than in traditional approaches to marketing. The complexity of demand generation requires an in-depth planning process to execute effectively, increasing the required investment of time and resources before companies will see a return on their investment. While the impact of this lead time can be mitigated through judicious use of rapid lead gen such as SEM/PPC, doing so presents its own increase in both complexity and cost.

Requires Proper Budgeting

How companies should allocate their demand generation budget between lead generation and lead nurturing varies depending on the company’s size or lifecycle stage. Earlier stage companies will need more lead generation, as they have few leads to nurture, while midsized and enterprise companies can afford to spend more of their efforts increasing their funnel conversion and close rates. Below are recommended budget allocations for 3 common company types.

Startup Midsized Enterprise
Lead Generation: 75%
Lead Nurturing: 25%
Lead Generation: 55%
Lead Nurturing: 45%
Lead Generation: 30%
Lead Nurturing: 70%

Evaluating & Implementing A Demand Generation Strategy

Ultimately, demand generation is a powerful approach to marketing if you have the needed expertise and resources to execute on it. While the difficulty involved may seem at first to preclude its use for some companies, most will be able to implement demand generation with the help of outside marketing agencies.

We’re one such agency, offering full–service demand generation with an emphasis on ghostwritten thought leadership content that generates awareness and builds trust in your brand. Contact us if you’d like to learn more about our process.

Evan Bailyn

Evan Bailyn is a best-selling author and award-winning speaker on the subjects of SEO and thought leadership. Contact Evan here.