Geoff Anderson, back for the final installment of a series on the measurement of B2B marketing for the Technology Marketing Center's Leader's Blog.
A slight recap, after taking over the marketing communications function in my last job, at review time, it became clear that the old measures of marketing effectiveness are beyond their sell by, or even their use-by dates.
It is possible for Marcom to obfuscate the increasingly difficult acquisition of leads, by moving their budget to increase the number of touches, and thus collections of contact information to be logged as leads. This practice does produce a natural indicator of the efficiency of that engine, or the cost per acquired lead. But this is a backwards view, increasingly giving you diagnostic evidence that your efforts are failing.
But what to replace it with?
Early in my career, I tried (and failed) to extract a useful rule of thumb on the progression:
raw leads -> opportunities -> won orders
This simple ratio was tricky to get my arms around, as Sales was responsible for making the determination of when a lead became an opportunity, and when it was closed-won or closed-lost. My ultimate goal was to tie the expense of a particular campaign to the revenue generated.
Marketing program expense and revenue behavior over some time frame are two "knowable" numbers, and are quite relevant to the performance of the marketing expense, yet it isn't quite possible to jump straight to this state based on our internal tracking tools. The hurdles to be overcome include:
Patchy, or incomplete information in the CRM tool
Opacity of the actual state for each opportunity in the funnel
Resistance by the sales team to share data
But each of these are addressable, and can be fixed, given the right incentives. Assume that you have resolved these issues, what does this expense to revenue metric look like:
Campaign cost - the total amount spent. This you either track directly, or you can get from finance.
Qualified leads generated - this assumes that you have some inside sales, or sales development team doing the pre-qualification of the incoming leads. An interesting side metric is the ratio of raw leads to sales qualified leads that you hand to the team to run down.
Lead to sales conversion rate - how many of those campaign leads turn into purchases. Again, a trailing indicator, but if you properly tag and track the lead through the funnel, your CRM can generate this report for you. This is a percentage.
Average order price - or the revenue per order. This again is a simple to calculate number, and give you the bonus of understanding the ASP for sales related to the campaign, and can help drive segmented marketing efforts (i.e. you will be able to identify how profitable the campaign is, and move towards spending your marketing dollars on campaigns with the best payoff)
Total Sales Revenue for the campaign - easy calculation, but it gives you a concrete number, hopefully some large multiple of the cost.
Finally, you can calculate the return on the campaign, by dividing the total cost of the campaign by the total sales revenue, and represent this as a percentage, where lower is better. That is, a small number means your marketing effort is highly effective, and a large number means that it wasn't an efficient spend of money.
The great thing about this series of calculations is that it is conceptually simple to implement. Most of the direct numbers are already in your hands, or are easily calculated. Furthermore, if you explain what you are calculating, the groups involved (sales, marketing communications, and finance) are likely to agree on it being valid and worth measuring, and even help you capture good data.
There are many possible means to get a valid, meaningful measure of your marketing spend. I identified one here that has appeal, is possible to measure without massive system overhauls, and one that will energize the stakeholders to actively participate in, and possibly improve their internal tracking and reporting accuracy.
It is infinitely better than the same old "total number of leads generated", but still requires some improvement in knowing when and how leads become qualified, then opportunities, then won orders. With time, you can begin to understand when they leak out of the funnel, and target how to plug those leads, and drive increased closure rates.
However, it wasn't intended to be the one-and-done change, but merely a starting point, with future course corrections, and additional measures to guide the annual and quarterly planning efforts.
Until the next time, happy marketing!