What is the purpose of Leads and do I have to use Leads? Leads are a way to separate prospects (people you’d like to sell to) from business contacts (people you’re actively selling, have sold to, or are business acquaintances, partners or vendors). Think of a Lead as a business card that you’ve captured from a fishbowl at your tradeshow booth (OK, maybe it’s a marketing list you’ve purchased or a web form submission from your website – just go along with my rant for the moment…). A business card gives you a person with some contact information and a business name and maybe a website, but little else to know if they would be a good "fit" to be a customer. When you start selling – which includes making contact and qualifying them as having potential to become a customer, you may want to "Convert" this single Lead Record into potentially three separate records in Salesforce that are tied together: an Account, Contact and Opportunity record.
Whether your business should use Leads at all and when you "convert" a Lead is all dependent on your sales process. Yes, I said it. It is OK not to use Leads. If your list of prospects is finite (e.g. you’re a lobbyist and your "prospects" are all the Senators and Congressmen in Washington), then you might be fine just having Contacts and not using Leads in your sales process. In 100+ some odd implementations of Salesforce.com I have had a handful of customers that did not use Leads, and not using Leads has been debated passionately more than once in the Dallas Salesforce User Group meetings ;).
Leads are helpful when you want to separate "prospects" from your other Contacts in Salesforce and when you have a lot of prospects that need to be sorted through and qualified. Having Leads will also help reduce search result "noise" in Salesforce for those Users that are not in Sales or Marketing. By leveraging Profiles you can keep Leads (people you’ve never sold to or are targeting) out of User’s search results.
For more on this topic, see our ShellBlack Whiteboard episode – Overview of Leads, Accounts and Contacts – The Salesforce Data Model.