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

What Is Cold Calling?

Cold calling (sometimes written with a hyphen) 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 for salespeople.

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

Key Takeaways

  • Cold calling is a sales practice in which individuals are contacted who have not previously expressed interest in a product or service.
  • Cold calling is commonly used in telemarketing, and only produces maybe a 2% success rate for the most skilled professionals.
  • 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 is a technique in which a salesperson contacts individuals who have not previously expressed interest in the offered products or services. Cold calling typically refers to solicitation by phone or telemarketing, but can also involve in-person visits, such as with door-to-door salespeople.

Successful cold-call salespersons should be persistent and willing to endure repeated rejection. To be successful, they should adequately prepare by researching the demographics of their prospects and the market. Consequently, professions who rely heavily on cold calling typically have a high attrition rate.

The Difficulty of Cold Calling

Cold calling generates various consumer responses, such as acceptance, call terminations or hang-ups, and even verbal attacks. According to a 2020 LinkedIn report, roughly 69% of prospects accepted a call from a new salesperson in the previous year, with 82% of the group ultimately willing to meet. However, the success rate correlates to the persistence of the seller, with an average of 18 calls needed to connect with a buyer. Meanwhile, most sellers gives up after 4 calls, never getting to a "yes." The LinkedIn report referenced a study from consulting firm Rain Group, which was surveyed by buyers in 2019. Conversely, a warm call salesperson can boast a more favorable success rate.

As technology advances, cold calling has become less desirable. Newer, more effective prospecting methods are available, including email, text, and social media marketing through outlets like Facebook and Twitter. Compared to cold calling, these new methods are often more efficient and effective at generating new leads. 

So-called robo-dialing (robocalling) is the latest innovation in cold calling whereby algorithms automatically dial and produce pre-recorded messages. Government regulations, such as the National Do Not Call Registry, have negatively impacted cold callers' efforts to reach potential clients en masse.

Scam artists frequently use cold calling as a method to defraud, which further 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 of stockbrokers, crammed into tight 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. Those 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. Likewise, Kirby Company sends its salespeople door-to-door selling high-end vacuum cleaners to homeowners.

Cold Calls and Do Not Call

In 2003, the National Do Not Call Registry was born from the Federal Trade Commission and the Federal Communications Commission. This allowed consumers to opt-out of cold calls for a period of five years. After five years they simply had to 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 legalities 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. Maybe the business owner is concerned about the high-fee structure associated with his employees’ retirement plan. The advisor might make suggestions of 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, especially those early in their careers.

Article Sources
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  6. Southwestern Advantage. "America's Oldest Entrepreneurial Program."

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