Are you wondering if the marketing investment to get more traffic, leads and sales will pay off? Here's how to begin estimating the revenue growth.
Businesses have wanted to know about their marketing return on investment (ROI) long before retailing pioneer John Wanamaker famously proclaimed “Half the money I spend on advertising is wasted; the trouble is I don't know which half.”
And now in the Internet era when so much marketing activity can be tracked and tied back to marketing, the interest in measuring marketing ROI has only increased.
The problem with measuring marketing ROI, however, is that it’s like teenage sex: everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it.
But the truth is, most companies are still not measuring their marketing ROI. Even some of the largest companies. But they want to.
Anyone who buys something wants to know if it’s worth it. They want to know if there will be value from the purchase. I certainly do. Don’t you?
When I talk with prospects about filling their sales pipeline with leads, the subject of ROI is usually discussed. It should be. When a prospect asks about the ROI of what we are proposing I often ask how they are are measuring their current marketing investment. Most often, the answer usually boils down to something like “we aren’t, really.”
I have come to the conclusion that most companies are not measuring the ROI of their marketing for one primary reason – they don’t know how to start.
The ability to accurately measure marketing ROI, while long wished for, is actually a rather new phenomenon in the history of marketing.
This can be new and frightening for marketers. Most marketers have been measured on activity rather than results. But with closed-loop marketing, that is changing. Closed loop marketing relies on data from prospects that enables sales teams to report what happens to leads so that Marketing can do more of what’s working and less of what’s not working.
Not surprisingly, the ability to trace lead activity from conversion to close is creating something of a gravitational pull between marketing and sales that has not always existed.
Granted, it’s creating a lot of disruption in the traditional love/hate relationship between Marketing and Sales, but resistance is futile. There’s no turning back. Marketing is becoming inextricably linked to revenue.
In Debbie Qaqish’s book “Rise of The Revenue Marketer” she traces this transformation of B2B marketing from a cost center to a revenue center. Her “Revenue Marketing Journey” model has four stages of a company’s marketing evolution:
1. Traditional Marketing - (45% of companies)
In this stage, marketing has very little political clout, does not have a seat at the revenue table and is looked upon as the “make it pretty” department. Management doesn’t connect marketing activity with revenue possibilities and reporting is activity-based metrics (e.g. number of ads, impressions, event attendees, website visits, social media interactions, etc.). Budgets are basically a blind spend.
2. Lead Generation - (25%)
Here, the primary marketing goal is to generate sales leads. Any and all leads with a pulse get sent to sales. The expectation is that sales will pounce on every lead and follow up. The problem is that after a salesperson has followed up on a few unqualified leads, they stop following up on any of marketing’s leads and tend to source the leads on their own.
This, of course, is what leads to friction between marketing and sales – sales thinks marketing are arts-and-crafts party planners who have no understanding of or concern about quality sales leads. And marketing views sales as lazy, arrogant cowboys who don’t follow up on leads.
Even when sales does follow up on a lead, marketing has no insight into what happens because there is no automated closed-loop reporting in place. Key marketing metrics at this stage include more activity based things like emails sent, open rates, click-through rates, conversion rates, cost per lead, etc.
3. Demand Generation (25%)
This is the toughest strategic leap for most organizations to make. It requires strong executive leadership and the marketing team may be uncomfortable with revenue accountability. Change is scary.
In this stage, marketing automation and a CRM form the backbone of the closed-loop reporting system which is the foundation of marketing’s changing role. Funnel conversions, especially lower in the funnel, become the focus of marketers. Their job does not stop when a lead is passed to sales either. Instead, marketing works with sales to provide relevant insights and intelligence based on the lead’s digital body language.
The metrics in this stage differ significantly from prior stages: from activity-based metrics to revenue-based metrics. Key metrics here include number of marketing qualified leads (MQLs) sent to sales, percent of MQLs that convert to opportunities and sales, and the number of days to close.
4. Revenue Marketing (5%)
This stage has everything in Demand Generation with one big difference: the revenue generated and attributed to marketing is now delivered through a repeatable, predictable, and scalable machine. Marketing can now show their past revenue contribution and forecast revenue from marketing based on the budget level.
Back to those 70% of companies in the first two stages: Traditional Marketing and Lead Generation. Many of them have not been measuring the ROI of their marketing investment, or have been struggling to do so.
Adding to the complication of calculating marketing ROI is the growing number of tactics and activities that are available to marketers each year. From webinars to podcasting to social media advertising.
To get started, however, begin with your inbound marketing activities. Inbound marketing is a philosophy rooted in the idea that people value personalized, relevant content – not interruptive messages.
The inbound methodology is about helping brands attract, convert, close and delight visitors, leads and customers through a variety of channels like social media, blogging, SEO and email.
For most companies, inbound marketing is the foundation upon which all other marketing activities should be built. And the center of that universe is your website.
If the journey of a thousand miles starts with one step, the first step to measuring inbound marketing ROI begins with just five numbers:
- Average Monthly Visitors to Your Site – Use Google Analytics or a similar service to get this information.
- Average Leads Per Month from Your Site – How many monthly leads are you generating through your site? More specifically, anyone who has provided their email address to you. That could be in return for downloading an ebook, subscribing to a newsletter, requesting a quote, etc.
- Percentage of Qualified Leads – Of those leads described in #2 above, what percentage of them are qualified to enter your sales process? If you’re not sure, guess to the nearest 25% to get started.
- Close Rate – What is your percentage of qualified leads who become customers? Again, if you’re not sure, guess to the nearest 25%.
- Customer Lifetime Value - What is the average lifetime value for a customer for your company. If a customer represents more than a one time occurrence, add up what you make from a customer over the course of a relationship.
For instance if you make $1,000 per customer each year and you tend to keep customers an average of seven years, the customer lifetime value would be $7,000.
Keep it simple to begin with. Later you can use this infographic at Kissmetrics on calculating lifetime value to get the most accurate measurement.
Once you have those five numbers, put them into this inbound revenue calculator (click to open the calculator) and begin to see how your inbound marketing activities can be linked directly to increased revenues.
The calculator is free and requires no download or registration. (Click graphic below to open the calculator.) There is also a video that explains how the calculator works.
And remember - when it comes to return on investment, that which can be measured can be improved!
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