Cold Calling: Definition, How It Works, Examples and Difficulties

What Is Cold Calling?

Cold calling is the solicitation of a potential customer who had no prior interaction with a salesperson. A form of telemarketing, cold calling is one of the oldest and most common forms of marketing.

Warm calling is the solicitation of a customer who had previously expressed interest in the company or product.

Cold calling by phone has been on the decline in the U.S. in recent years due to the adoption of cell phones and the decline of landlines. Federal Communications Commission (FCC) regulations forbid telemarketers from calling cell phones without the consent of their users. The introduction of a national Do Not Call registry erected barriers for consumers with landlines.

Key Takeaways

  • Cold calling is a sales practice in which individuals are contacted who have not previously expressed interest in a product or service.
  • Even for the most skilled professionals, cold calling produces perhaps a 2% success rate.
  • Consumers tend to dislike cold calling; Congress has passed laws making it more difficult to cold call on a large scale.

How Cold Calling Works

Cold calling typically refers to solicitation by phone or telemarketing, but can also involve in-person visits by door-to-door salespeople.

Successful cold-call salespersons are persistent and immune to repeated rejection. The most successful of them research the demographics of their prospects and the market in order to identify consumers who are likely to respond positively to their pitches. 

Professions that rely heavily on cold calling typically have a high attrition rate.

The Difficulty of Cold Calling

Cold calling generates a range of responses including call terminations, hang-ups, and verbal attacks. According to a 2020 LinkedIn report, roughly 69% of prospects accepted a call from a new salesperson in the previous year and 82% of those prospects were willing to meet with the salesperson who called. However, the success rate correlates to the persistence of the seller, with an average of 18 calls needed to connect with a buyer. Most sellers give up after four calls, never getting to a "yes."

Cold calling has become less desirable as more effective prospecting methods evolve, including email, text, and social media marketing through websites like Facebook and Twitter. Compared to cold calling, these new methods are often more efficient and effective at generating new leads. 

Robo-calling, which relies on automated dialing and pre-recorded messages, is the latest innovation in cold calling. Government regulations such as the National Do Not Call Registry have thwarted cold callers' efforts to reach potential clients en masse.

Scam artists frequently use cold calling as a method to defraud. This hampers the effectiveness of legitimate cold calling.

Examples of Cold Calling

In the finance industry, brokers use cold calling to gain new clients. Consider the movie "Boiler Room" in which a room full of stockbrokers crammed into cubicles call names from paper lists hoping to pitch them on obscure stocks. The movie portrays cold calling as a numbers game. The brokers receive far more rejections than acceptances.

Brokers who secure lucrative deals seldom use the cold call method.

Some brands are known for their door-to-door operations. Southwestern Advantage, an educational book publisher, employs mostly college students to canvass residential neighborhoods. Kirby Company sends salespeople door-to-door to sell its high-end vacuum cleaners to homeowners.

Cold Calls and Do Not Call

The National Do Not Call Registry was introduced by the Federal Trade Commission and the Federal Communications Commission in 2003. It allowed consumers to opt out of cold calls for a period of five years. After five years they could re-register.

By 2010, the registry topped 200 million numbers and by the end of fiscal year 2021, there were 244.3 million actively registered numbers.

After numerous lawsuits from the telemarketing industry, courts upheld the legality of the Do Not Call Registry, making cold calling a very challenging service to continue.

But the registry only applies to households—not businesses. As a result, financial professionals can still cold call businesses. The good news is that with businesses, the payoff is potentially much higher. Although it’s often hard to get through to the decision-makers at companies, going after the company’s 401(k) plan or the business of a highly-paid company exec may make the added effort worth it.

Cold callers today know that pitching a product is a fool’s game. It’s all about building relationships. Some advisors use the strategy of asking specific questions and offering free advice based on the response. Business owners may be concerned about the fee structure associated with their employees’ retirement plans. An advisor might make suggestions of other companies to check out and offer to do some research and get back to them. This soft-sell approach has worked well for some advisors.

Is Cold Calling as an Effective Sales Strategy?

Cold calling is surprisingly effective. About 82% of prospects who do not hang up the phone actually book a meeting to follow up on the pitch.

What Makes an Effective Cold Call?

An effective cold call is made by a sales person who has researched the customer in advance and prepared a personalized approach.

Effective cold calls are not totally random. They are made to people who have been identified as being receptive to the product being offered. For example, a broker might make calls to people who are active on personal finance discussion sites or who watch business television shows. Or, a supermarket chain introducing a home delivery service might call only those who live in the area being served.

Are Cold Calls Made by Scam Artists?

Absolutely. And that is a problem for legitimate salespeople who are in the cold-calling business. Customers who are wary of telephone scams might hang up on any stranger who calls in case it's just another scam.

Some of the signs of a scammer are:

  • A claim that you have been "specially selected" for an offer.
  • Use of high-pressure sales tactics and "limited-time offers."
  • A reluctance to answer questions about the company behind the call.
  • A request for you to confirm your personal information.

The Bottom Line

Cold calling has always been a tough job for sales people, requiring considerable persistence and a tough skin. In modern times, it is increasingly difficult. Fewer people have landline phone service, and cell phones are off-limits to unsolicited callers. Door-to-door sales are less effective in the era of two-income families.

"Warm calling" is clearly more desirable, from both the sales person's perspective and that of the customer. The customer has at least indicated some interest in the product and a willingness to hear more about it.

Article Sources
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  1. U.S. Securities and Exchange Commission. "Cold Calling."

  2. Federal Trade Commission (FTC). "Complying with the Telemarketing Sales Rule."

  3. LinkedIn. "Cold Calling Statistics That You Need to Know."

  4. Federal Trade Commission. "National Do Not Call Registry FAQs."

  5. Southwestern Advantage. "America's Oldest Entrepreneurial Program."

  6. Kirby Home. "Still Door-to-Door."

  7. Federal Trade Commission. "National Do Not Call Registry Opens."

  8. Federal Trade Commission. "FTC Releases 2021 Do Not Call Registry Data Book."

  9. Federal Trade Commission. "National Do Not Call Registry Tops 200 Million Phone Numbers."

  10. Zendesk. "Cold calling scripts: 14 examples, templates, and tips."

  11. Texas Attorney General. "How to Spot and Report Phone Scams."

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