If you’ve been using “prospect” and “lead” interchangeably - you may want to keep reading.
Across marketing, sales, and business development, these terms are often thrown around without being properly defined. Their meaning has shifted even further as more companies have adopted the terminology used by their CRM software.
The difference might be minor, but misunderstanding key parts of your sales funnel can be detrimental to reaching your overall business goals.
So what exactly is a prospect, and how is it different from a lead? Let’s take a closer look at each in further detail.
A prospect is an individual or organization that fits a seller’s criteria to be a potential customer.
What is a prospect?
In short, a prospect is a potential customer.
Based on your company’s customer profile, you’ll determine a list of criteria that dictates the type of person that is the best fit for the product or service that you are trying to sell. This criteria varies greatly from one organization to the next, but often includes details such as demographics, company size, and geographic location.
Sales and marketing teams use this as a guideline to determine what kind of audience to target. This allows each team to hyper-focus their efforts toward a segmented part of the population that is going to have the highest potential of buying.
Note: The individual does not have to express interest in what you are selling to be considered a prospect, they just have to fit the right qualifications. See more prospecting tips here.
The term prospect can be used on both an individual and organizational level. A company can be on your list of prospects, but that doesn’t mean you want to sell to every employee at that organization. Only certain contacts at that company who fit your specific target qualifications are considered true sales prospects.
TIP: Oftentimes, you can connect with prospects in a more personalized and unique way than leads because of commonalities.
What is a lead?
To put it simply, a lead is a person or organization that has expressed interest in what your business is selling.
At many organizations, lead generation is at the center of the relationship between sales and marketing. A key metric most marketing teams are measured on is the number of Marketing-Qualified Leads (MQL) they generate.
These leads enter the sales funnel in a variety of different ways.
The most common are:
Signing up for a marketing newsletter
Downloading gated content, such as a case study or e-book
Attending a webinar or other e-learning event
Filling out a contact form or requesting a product demonstration
This person or organization has raised their hand indicating that they are open to being contacted and have provided their contact information.
It’s important to note that not all leads are created equal. Leads are unqualified contacts. This means a lead must fit one or more of the target parameters before they move on to the next phase of the sales process.
That’s where business development comes in.
Once action is taken by a lead to show interest, the business development team is responsible for determining whether or not the lead is qualified. If they qualify, they move down the funnel and become prospects. Meanwhile, the unfit leads exit the funnel and are placed in a marketing nurture campaign. This tactic ensures that your brand stays top of mind should the lead become qualified at a later time.
Note: Unqualified leads are still valuable and should never be deleted from your database. Just because they may not be fit to buy at this time, doesn’t mean they won’t qualify in the future.
Lead vs. prospect
The first key differentiator between a lead and a prospect is level of qualification.
Leads are gathered through a variety of different marketing channels and often in large quantities. This opens the door for a broad spectrum of individuals or businesses to come through as leads that may not fit your ideal customer criteria. In short, leads are unqualified.
On the other hand, a prospect has already been determined as a good fit for your business. As a result, they are qualified and ready to be sold to.
The second way to easily differentiate between a lead and prospect is by looking at the level of engagement.
A lead has requested to be contacted, but there is little engagement beyond providing their contact information. A prospect, however, has likely already spoken to a sales representative and opened the door for two-way communication. With more engagement comes a higher potential of the prospect converting to a real opportunity down the line.
Where are prospects and leads in the funnel?
Now that we’ve defined a prospect and lead, let’s take a look at the sales funnel to see how everything fits together. The goal of creating a funnel is to help visualize the customer’s journey and find any gaps in the process that could be potential barriers to making the sale.
Since leads are unqualified, but have expressed interest in your offering, they are at the very top of the funnel and at the beginning stages of the buying cycle.
Once a lead is qualified, it will move on to the next step and become a prospect. Prospects are further down the funnel because they are qualified, more engaged, and have a real potential to turn into a legitimate sales opportunity. At this stage in the buying cycle, these buyers are interested and open to evaluating your solution.
The goal is to convert a lead to a prospect, and a prospect to a customer. For this process to work, it’s important that sales and marketing work together and have a strong understanding of the different stages of the funnel.
TIP: Buyers need to see it to believe it in today's noisy market. Bolster your online presence and claim your G2 profile so that prospects can find you and learn more from current customer insight.
Define your sales process
Understanding the difference between a prospect and lead is essential to fine-tuning your sales process and creating consistency across your sales, business development, and marketing teams. By clearly defining what these terms mean, your teams can focus on what matters most - attracting new customers and closing more deals. Remember that no definition is set in stone and these terms will evolve just as your business does.