Demand Generation vs Lead Generation: What Is the Difference?
Short answer: lead generation captures contact details from people who are already looking. Demand generation creates that interest in the first place and keeps working after the contact is captured, all the way to closed revenue. Lead generation is one step inside demand generation, not an alternative to it.
The demand generation vs lead generation debate is a long-standing one in the B2B SaaS industry.
Sometimes, it feels like people are arguing just for the sake of arguing – without actually understanding the nuances of what each term means or how they’re different.
That’s why we created this blog post, to help you understand each and tell you why you should use both!
Let’s start with demand generation.
What is Demand Generation?
Demand generation is a wide range of sales and marketing efforts aimed at generating interest in your product or service, nurturing high-fit prospects into customers, and retaining those customers over time.
From data-driven business growth to sales and marketing alignment, demand generation allows marketers to make better decisions for their businesses, by not only discovering but also generating opportunities.
Unlike traditional marketers, who are measured based on the number of leads they generate, demand generation marketers are measured based on their overall revenue contribution. To put it another way, the leads that a demand generation marketer sends to sales have to be a great fit for the company and therefore have a greater chance of becoming customers.
How can you increase demand and drive revenue?
Demand generation encompasses the entire marketing funnel, from attracting an unknown visitor to converting the visitor into a paying customer. To recognize the gaps and opportunities that can be optimized for better results, you’ll need full visibility into your funnel. It’s time to assess the problems and come up with a strategy for long-term success.
Demand Generation vs Lead Generation vs. Inbound Marketing:
Here are the industry definitions of demand generation, lead generation, and inbound marketing:
- Demand generation is the focus of targeted marketing programs to drive awareness and interest in a company’s products and/or services
- Lead generation is the initiation of consumer interest or inquiry into products or services of a business
- Inbound marketing is a technique for drawing customers to products and services via content marketing, social media marketing, search engine optimization, and branding
Demand generation is a term that you may be confused with lead and inbound marketing. Demand generation is the umbrella. Inbound marketing is one method inside it, lead generation is one step inside it. Demand generation owns the whole path, from the first time somebody recognises the problem to the moment they pay you and stay. Inbound and lead generation each own a slice of that path.
To put it another way, demand generation is a function, and inbound marketing is a method. You might use an outbound approach to demand generation if you think it would be more effective for your business.
Lead generation is a component of demand generation, but unlike demand generation, it stops when a lead is passed on to sales.
What’s the Difference?
| Demand generation | Lead generation | |
|---|---|---|
| Goal | Create interest in the problem, then capture it | Collect contact details |
| Where it stops | Closed revenue and retention | The moment the lead is handed to sales |
| Main metric | Pipeline and revenue contribution | Number of leads and cost per lead |
| Content | Ungated, useful before anyone buys | Gated behind a form |
| Time horizon | Months, compounds | Weeks, resets every quarter |
| What sales gets | Fewer buyers, better fit, already warm | Volume, quality varies |
| It fails when | You cannot connect the activity to pipeline | Nobody qualifies before the handoff |
Many sales and marketing teams confuse lead generation with demand generation because they use many of the same tools and resources to reach their objectives. But what’s the difference?
Some marketers believe that the only thing to strive for is volume and ARR. But what about having a pipeline of well-qualified leads? For instance, if you were given an opportunity to obtain 500 leads versus 50 well-qualified ones, which would you choose? Sure there may be more chances with those 500 but it will take time to develop them into something great.
And we all know that time is money when it comes to marketing and sales. The impact on the reward is significant and positive if you use it wisely. So, how do companies make the most of their time to convert qualified leads? They find their target audience and establish themselves as a valuable resource.
People build walls as soon as they feel they are being sold to, whether you are trying to connect with a single person or an entire platform. This is the major flaw of lead generation marketing.
Although lead generation has its role and purpose, it places too much emphasis on the seller. It may provide a large number of leads quickly, but it lacks long-term sustainability from a sales and marketing perspective.
After all, finding new clients and customers costs a business much more money and resources than catering to its current market.
Demand generation is almost entirely focused on providing value to the target audience. While you are working in a smaller pond, you are surrounded by larger fish to capture – which, of course, applies to the likelihood of these fish biting and being drawn further into your sales funnel.
With most mid-sized businesses contributing 80-120 percent of their revenue to sales and marketing in the first five years of operation, it’s important to spend these funds wisely and adequately.
There’s a lot of talking about B2B companies investing more in product marketing instead of investing in content marketing and demand. For me, it’s not an “OR” comparison.
Those things aren’t different. You can’t do one without the other.
I wrote about it on Linkedin.
Why you need to stop confusing these strategies
It is easy to see why many sales and marketing people confuse lead generation with demand generation because as we already said, they use many of the same tools and resources to reach their objectives. However, lead generation is almost always completely focused on obtaining contact information. On the other hand, demand generation, focuses on establishing a relationship with the potential customer by providing a clear sense of added value. This, of course, raises demand.
While both strategies benefit from compelling content that converts, the targeting and content are used for different purposes.
The Achilles’ heel of lead generation
All companies, especially those in the digital space, need leads to keep their revenue streams afloat.
However, in the rush to get as many leads as possible, qualifying these leads becomes an afterthought, which means the team is selling to people who don’t really need or can’t use your service for various reasons.
Only about 56% of B2B companies qualified their leads before passing them on to their sales teams, according to research from the time.
Many of those businesses are likely to have spent a significant amount of time, money, and resources in collecting and pursuing those leads. The ball was dropped after the contacts were obtained, whether by email collection, ebook downloads, or some other sort of collections-based outreach. You now have an entire company’s worth of employees devoting their efforts to a large number of leads that will never convert.
Refocusing on a demand gen approach
If you ask any salesperson what their perfect lead is, they will almost always say that the best lead is the one that comes to them. When a customer contacts you through email, visits your website, or calls your phone, you’ve already overcome the most difficult aspect of sales and marketing: generating demand.
The most difficult challenge is creating demand for service because customers do not act until they have a need, or demand, for something. Demand generation is a buyer-centric strategy that aims to raise awareness and educate potential buyers who meet the required qualifications.
Although there are likely fewer leads, they are more qualified, which is essential for a higher conversion rate. With 93 percent of B2B companies at the time believing that content marketing produces more leads than other marketing tactics, it’s difficult to see why more companies haven’t adopted a demand generation strategy yet.
The most effective way to attract those who are already interested in what you have to offer is to create content that relates to your services/products and provides valuable information and resources to your target market.
These leads are searching for information on similar services and products to yours, so the new challenge is to make sure you’re allocating your effort in a way that puts your content in front of these potential customers while they’re looking for it.
There’s still a place for lead generation
Lead generation may generate a large number of low-quality leads, but it is not a useless strategy. To be truly effective, marketing and sales strategies must include the right combination of outreach and education strategies.
Too much emphasis on producing a large number of leads forces a business to constantly work to persuade potential customers to become new customers, which is both time-consuming and ineffective. Using lead generation as a secondary technique, on the other hand, promotes outreach and the ability to cast a wide net.
Use both to complete your funnel
Understanding the buyer’s journey is the most effective way to collect high-quality leads and convert them. What challenges and obstacles are your customers encountering as they consider buying your or a competitor’s service? What goes through their minds when they consider the best choice for their teams and company?
Understanding your buyer’s perspective and mindset allows you to address their unique problems and concerns. This is why a buyer-centric strategy like demand generation is so important for marketing teams.
Although both lead gen and demand gen approaches have a place in the same outreach and marketing strategy, the latter should receive more attention and play a larger role. What strategy is your company employing?
Demand generation vs lead generation FAQ
Is lead generation part of demand generation?
Yes. Lead generation is the capture step. Demand generation covers everything around it: creating the interest, educating the buyer, qualifying, and staying involved until the deal closes and the customer renews.
Which one should a B2B company start with?
Start with demand. If nobody knows they have the problem you solve, a form only collects people who were never going to buy. Once the interest is real, capturing it is the cheap part.
Does demand generation mean no gated content?
No. It means the form stops being the goal. Give the substance away, and keep the form for the thing that genuinely needs a conversation, like a template somebody will fill in with their own numbers.
How do you measure demand generation?
Pipeline created, win rate by source, deal size, and sales cycle length. Ask every new opportunity how they heard about you and compare that answer with what analytics reports. The gap between the two shows you where demand is actually being created.
Related reading: how to build a demand generation strategy, demand gen manager vs demand generation specialist, and how to create a B2B content distribution plan.
This article is from the Funky Marketing blog archive. The work continues at Funky Enterprises: positioning, demand generation and commercial systems for B2B companies.
If you want to look at your own commercial system, book a 30-minute needs assessment. New conversations with people who build revenue are on the Funky Enterprises Show.
