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Only 5% of B2B buyers are in market today; but where did that statistic come from?

Sometimes statistics shared on social media take on a life of their own – that’s a problem if we don’t understand the source and methodology; here’s the source on the “95:5 rule” 

Only 5% of B2B prospects that vendors are trying to reach are in the market for a product. That means for every 20 people your marketing efforts reach, just one has the intent to buy. By contrast, 95% are not in the market currently.

This statistic has profound implications for how marketing leaders invest budgets to drive growth. But where did that statistic actually come from?

I first heard that statistic from Jon Miller. He was a co-founder of Marketo (acquired by Adobe) and is currently the CMO for Demandbase – among many other accomplishments. He’s obviously got street cred and I’ve been following him for a while on LinkedIn and Twitter because I can learn from him.

To that end, I believe the things he says, and I started using that statistic too. I’m usually very suspicious of statistics and dive into the details. If you read my posts, they are all about surveys and studies and I checked the sources (i.e. I got fed up with the attention span of goldfish statistic a couple of years ago; it’s 100% fictitious and yet went viral).

So, when I saw a LinkedIn post about the source of that statistic, of course, I wanted to have a look. And was feeling a little embarrassed it took me so long to do my due diligence.

As it turns out the source is a study commissioned by LinkedIn and completed by John Dawes, a professor of Marketing at the Ehrenberg-Bass Institute for Marketing Science, which is part of the University of South Australia. He wrote it up in a paper published online titled, Advertising effectiveness and the 95-5 rule: most B2B buyers are not in the market right now.

From the summary:

“It might surprise you to learn that up to 95% of business clients are not in the market for many goods and services at any one time. This is a deceptively simple fact, but it has a profound implication for advertising. It means that advertising mostly hits B2B buyers who aren’t going to buy anytime soon. And in turn, that tells us about how advertising works: it mainly works by building and refreshing memory links to the brand. These memory links activate when buyers do come into the market. So, if your advertising is better at building brand-relevant memories, your brand becomes more competitive.”

How can this be?

The very first paragraph answers that question:

“The time between purchases for many goods and services is quite long. Corporations change service providers such as their principal bank or law firm around once every five years on average. That means only 20% of business buyers are ‘in the market’ over the course of an entire year; something like 5% in a quarter – or put another way, 95% aren’t in the market.”

That makes sense. The costs aside, ripping out old technology, say a new CRM system, and putting in something new is a change management problem.  But even so, how did the study arrive at that 95:5 number?

According to the paper:

“The 95% figure is not meant to be a precise rule. We’re using it as a heuristic to get the idea across that the vast majority of businesses, for a large proportion of products, are not in the market in particular time periods.”

That doesn’t sound quite as compelling, does it?

Now to be sure, the paper is written for business, it’s not an academic report.  While it does build on other studies, you won’t find and exhaustive literature review.

More importantly, Professor Dawes describes a way for you to calculate this statistic for your own business:

“If you know the average interpurchase time for your category you can readily calculate the proportion of potential buyers who are in-market. Suppose a category has an average interpurchase time of two years. That means 50% are in the market over the course of a (whole) year, or around 13% in any quarter. If that sort of information is not at your fingertips, a straightforward survey can yield the information. All you need to ask is along the lines of, ‘How frequently do you purchase X’ with simple response categories calibrated to your market (e.g. once in five years or less often… annually… each quarter…).”

Of course, not everyone can do that, which is why heuristics are useful. Yet we need to make sure we understand the process behind it. There’s no excuse for throwing around stats without examining them.

As Jon noted in his LinkedIn post on the statistics:

“Whether we’re talking B2B best practices or world information, there’s often nuance behind headline statistics. As marketers and individuals, we should be careful how we use statistics, and think critically, dig deeper, and understand the context and limitations of the information we consume and share.”

I couldn’t agree more.

>>> Need an extra pair of hands? Sword and the Script Media can help with B2B marketing, PR and social media.

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