The Annuitas Group Blog

Measuring for Dollars Helps Close the Gap

Over the last few days I have had a running discussion regarding the value and impact that marketing has on sales revenue.  The debate isn’t about IF marketing affects sales revenue.  After all, when sales closes on leads that were either generated or nurtured by marketing, then it’s certainly reasonable for marketing to take credit for having an effect on sales outcomes.  What the conversation is really about is HOW MUCH marketing affects revenue, and to what degree should they be measured on sales?  Or, to put it in the form of a question, “Why aren’t most marketing organizations measured or held accountable based on sales outcomes?”

Both “sides” tend to look at the argument differently.  Marketing makes the case, “We have no control over the sales process.  We can pass the sales team really good leads, and they can botch the sale on every one.  There’s nothing we can do, so to hold us accountable on sales outcomes isn’t fair”.   Sales responds with, “We have to rely on marketing for leads.  If they don’t provide us quality leads, then it becomes harder for us to sell. If they don’t do their job, then we don’t meet our numbers.”

This typical back-and-forth bickering is simply another example of the deep divide that exists between many marketing and sales teams. In this particular case, the issue is that marketing and sales are traditionally measured on completely different levels, and with completely different metrics.  But if both marketing and sales have the same ultimate objective, shouldn’t their being measured be more comparable? 

There is much that goes into aligning and integrating marketing and sales.  Metrics and accountability is one area that can’t be ignored when doing so. When it comes to rating both marketing and sales, it’s good to make sure both have the proverbial “skin in the game”.   For example, “closing rates on qualified leads” could be a measurement for both.  Marketing wants to see closing rates on qualified leads increase, so they work to provide the most qualified leads possible.  Sales also wants to see closing rates on qualified leads increase, so they work hard to close them when they come.  A team approach to a single metric, with both “sides”, dedicated to reaching the overall goals.

For the Wrong Reasons

"Metrics" has been a buzz word in marketing circles for a long time.  It seems that more than ever, marketers are chasing the elusive ROI metric so they can prove that marketing really does make an impact on sales.  I won't argue that metrics are vital for marketing, or that companies would do well do invest in new processes and systems for measuring their effectiveness.   As a matter of fact, most executives I speak to know that they need to measure.  What kills me, however, is the REASON they say they want the metrics.

Too often, when I speak with marketing executives about metrics, and I ask them why they want to measure, the number one reason usually comes back as a  military metaphor: 

• - "I want to arm my marketing team so they can combat sales' when they
     attack, when they tell us that we don't provide any real value."
• - "I need the metrics to battle sales when they say that we don't generate
     enough leads for them."
• - "Having metric data allows me to defend my position."

(And we wonder why there's a gap between marketing and sales?)

Rather than using the metrics to arm yourself for battle, use metric data to improve upon past successes and avoid past failures. I rarely speak with or consult marketers whose mindset is to use metrics in this fashion. But it makes sense.  When it comes to metrics, the process should be...

Launch - Measure - Analyze - Adjust - Re-launch.

If your primary use of metrics follows this formula, you will exponentially improve the value of your marketing dollars. 

How Much?

I had an interesting question posed to me a couple of weeks ago:  “What percentage of annual revenue should be allocated for marketing?”  While it was a legitimate question, it betrayed the questioner’s thought process.  He views budget allocation according to percentages, which can be a faulty and even dangerous way of trying to prepare annual marketing budgets.

Instead of using a rule of thumb percentage, we advocate using a “start with the objective” rule of them.  We used this practice effectively in the businesses we’ve managed, and also in helping clients to determine the answer to the aforementioned question.  The process goes like this…

• First, marketing needs to work with sales to determine annual revenue objectives and projections.  
• Next, marketing and sales should determine how much of that total is expected to come from new customers (as a result of marketing’s efforts), versus how much is expected to be generated from existing customers. The “new” sales number becomes marketing’s main objective.
• Next, use historical data to determine the revenue for the average sale, lead to close ratio, and cost per lead.  These three numbers will allow you to determine how many leads are needed to arrive at the sales goals, and what it will cost to generate them. 
• Finally, using those costs, marketing and sales together should determine (using historical data) which marketing communications methodologies will generate the number of leads needed to arrive at the agreed to sales objective. Then, allocate spending to each of those methodologies proportionately.
   
  Here’s an example of what we’re talking about…
  
• Total Sales Objective                                  $25,000,000
• Objective for “New” Sales (20% of Total)       $  5,000,000  
• Average sale                                           $         5,000
• Total sales needed from new customers                  1,000
• Lead to close ratio                                                20%
• Total leads needed                                              5,000
• Historical cost per lead                          $             50.00
• Total Marketing Budget for new business $      250,000

You can use a similar process to determine the budget needed for growing existing customers to arrive at the total sales objective.

By using this budget process and making sure sales is involved, you’ll be able to avoid an arbitrary percentage budget trap.  Instead, you’ll have a unified marketing and sales team, each knowing that the right money is being spent on the right activity.

And the Objective is...?

More than once in my days at the various companies I’ve worked for, I would find myself sitting in a meeting when about half-way through, the thought would come to me: Why are we having this meeting?  (If I was in the right mood, I’d ask the question to the rest of the group.)  I think we can all relate to this scenario, and have all been in enough of those meetings, wishing we could have those hours of our life back.

However, this dynamic isn’t only related to meetings.  It’s something that occurs within marketing departments every day.  A few years ago, I was part of a group that was responsible for analyzing the ROI of our company’s marketing activities.  As we were reviewing our tradeshow participation, one particular show stood out like a sore thumb because of its lack of ROI.  So as any good marketing team would do, we highlighted that show and several others as bad investments.  We marked them as shows that we would not participate in the following year.  Then one of the team members who had helped plan that show said, “Our goal with that show was not to generate leads. We participated so we could gain awareness within the vertical.  In addition to a sponsorship, we had 3 speaking engagements to drive our thought leadership.” This new information changed our team’s view of the show completely, and it highlighted an important point:  in order to achieve the proper measurement, the objective needed to be stated up front.

If in the pre-show planning it had been stated that this show was an awareness generator, then our team could have developed our metrics accordingly: How many people attended our sessions? How many people stopped by our booth? How much signage and advertisement did we have among the show material and on the show floor?  We could have conducted a pre and post show survey to measure our company’s brand recognition.  Instead, we applied the same measurement criteria to this show as we did to all of the other lead generation shows.  As a result, we almost axed a very important show for the following year.

So remember, when developing and measuring your campaigns, understand the purpose of each activity.  And state it up front.  From there, it will be much easier to measure against that purpose.

The Devil is in the Details

Years ago, I worked at a summer camp.  One of the jobs I was given that summer was to help construct a play fort.  I’m not talking about a little play house. I’m talking monumental, 75 feet across, “Custer’s Last Stand” kind of fort.  I remember one hot June day we were putting on the finishing touches which included cutting the railings for the top decking (told you it was huge).  Another worker and I were calling out measurements from the deck.  Two of our co-workers were on the ground, cutting the rails, and handing them up to us. For the first railing my co-worker from the deck called out, “36 and three-eighths”.  Obviously, he needed a piece of railing that was 3 feet and 3/8^ths inches long.  However, the saw operator below first cut, then handed us a 3 foot rail plus three 8 inch long boards.  After all, the measurement called a 36 and three 8’s, right?

We learned a few things at that moment:

1.  The saw operator needed to be reassigned to something else besides carpentry.

2.  The saw operator was using the wrong measurement.

While this story is amusing (and one I tell often) it is not too much different that what many companies do today when measuring their marketing effectiveness:  they apply the wrong units of measurement.  Usually, the only stat that really matters to marketing professionals is ROI (see Counting the Losses – August 17).  They measure the results of campaigns at a certain point in time, assign an ROI, and are done with it.  But to do so is not much different then providing a 3 foot piece of wood and three more that are 8 inches long. There are other measurements that need to occur.  One of those measurements entails taking into account your sales cycle. 

One of the companies I did work for in the enterprise software market had a sales cycle that was 6-9 months.  Using a point in time measurement only skewed any kind of quarterly ROI numbers.  Certainly a few deals would close within the first three months of a campaign launch, but they weren’t the whole story.  The majority of deals would not be realized for nearly 9 months after campaign launch.  That’s why we created Pipeline Return on Investment^TM or PROI^TM: measuring results in terms of what is put into the pipeline.  By including PROI^TM  in your analytics report you will get a more accurate picture of the true impact of the campaign, plus additional data to help determine sales’ close rates and forecasting accuracy.

By not including metrics such as PROI^TM in marketing analytics, much data is being left out, and measurement will be way off.

Counting the Losses

We all know the big thing in marketing today is analysis and measurement of ROI.  These three letters make any marketing persons heart jump and pulse quicken as it is vital we show the continued value we are bringing to the business.  While measurement is very important (See the post "What Do They Want - July 20), it is only going half-way and not truly giving a representation of what we have done from our campaigns.

Companies launch a campaign, the responses start rolling in, they get passed to sales, the responses that turn into leads get counted, we track the leads that close and then derive the ever important ROI analysis (Note:  Some companies do this well, some do not). However, what most companies fail to do is to nurture and manage those contacts that did not go from response to lead, or lead to closed deal.  In essence they are left on the floor to dry up and die on the vine, even though the company has already paid for them.  So here we have good contacts who have responded to the message, which have been paid for and then ignored.

With this in mind next time a campaign is being measured it is only fair to measure LROI^TM or Lost Return on Investment^TM.  This is the investment that has been made in responses and/or leads that go ignored and non-nurtured.  If the money has already been spent to get them, you have to measure this against your ROI to truly get an idea of the health of your marketing.

What Do They Want?

I was recently asked the question of "what are executives looking for from their marketing investment?" It was an interesting question on several fronts because I think it has the potential for a myriad of answers, depending on the executive and on their view of marketing.  I think the more important question that should be asked is, "what do the marketing stakeholders want from their marketing campaigns?"  This is a question we ask our clients and prospects all of the time and the answers vary from "I want awareness" to "I want leads that turn into sales" to "We have not really thought about that."  The bottom line for all marketing no matter if you are talking to the CEO or the Direct Marketing Specialist is marketing needs to show results . . . in other words "show me the money!"

Results in marketing always come down to the return on the investment i.e. what revenue marketing has produced (to steal a line from The Princess Bride . . . ."anyone who tells you something different is lying.")?  Marketers need to be able to show a positive impact on revenue as a result of the marketing spend or run the risk of losing the confidence of the business.  While it seems rather simple, it is ultimately what marketing has to do in order to be relevant and help drive sales.  

With that in mind, when a CEO or CFO asks "what is going on in marketing", they are not really asking for a rundown on the latest campaign or banner ad, what they are really asking is “what was the return on the money we invested in marketing?”  The ones who win will be the ones who can answer their "what's going on question" with an ROI answer.