The other day, I had the pleasure of discussing the challenges of marketing ROI with Jim Obermayer, CEO and executive director of the Sales Lead Management Association, on his Internet radio show. Our conversation got me thinking: Why is the holy grail of marketing ROI so tough to achieve in business markets? And what can we do about it?
The “why” part is pretty clear: Business buying cycles tend to be long, and involve multiple parties at either end. Marketers produce campaigns to generate an inquiry, then qualify that interest with a series of outbound communications, and finally pass the qualified lead to a sales rep for follow up. From that point, it can take more than a year to close, and involve a slew of people on the customer side, from purchasing agents, to technical specifiers, to decision-makers.
The sales process is also complex, involving not only the face-to-face account rep, but also sales engineers, inside salespeople, and others. They help get all the buyers’ questions answered, negotiate the terms, deliver, install and trouble-shoot the product, and do whatever else needs to be done to satisfy the customer’s needs.
So, consider the difficulty of establishing the numbers that go into an ROI calculation in this kind of situation. Just to put a definition behind the concept: ROI, meaning return on investment, subtracts the marketing expense from the revenue generated, and then divides by the expense, resulting in a percentage that shows how much net return was produced by the investment.
But in this lengthy, multi-party, multi-touch selling situation, the “investment” part can be pretty tough to get at. Frankly, it’s a bit of a cost accounting nightmare, assigning an expense number to each sales and marketing touch that resulted in a particular closed deal. This brings up issues of variable versus fixed costs, marketing touch attribution—the list goes on and on.
Worse, the “return” part presents its own challenges. The first problem is connecting a particular lead to a particular piece of revenue, which means carefully tracking a lead over its multi-month process toward closure.
Furthermore, if a third-party distributor or agent is working the lead, it’s very likely that revenue results reporting is not part of the deal, with good reason: the distributor considers the relationship with the end-customer as his, and none of the manufacturer’s, business. So the marketer who generated the lead often has no visibility into the associated revenue. Even if the deal was closed by a house rep, you’re looking at the endless squabble between sales and marketing about who gets the credit.
You can’t blame B2B marketers for throwing up their hands and relying on interim metrics like response rate and cost per lead–especially since marketing staffers come and go, and may not even be in the job when the lead generated a while ago finally converts to a sale.
This is why I was so pleased at the arrival of the new book by Debbie Qaqish, The Rise of the Revenue Marketer, where she urges marketers to raise consciousness of their role in driving revenue results. “The revenue marketer uses the language of business,” she says. Examples of the metrics she recommends for revenue marketers include funnel velocity, sales conversion rates, pipeline revenue, and campaign ROI.
My conclusions from this investigation:
- Begin with a deep conversation with your finance counterparts, to get at the best way for marketing to serve your company’s financial interests, such as:
- The right approach to assigning sales and marketing expense
- Whether to calculate returns based on net sales or on gross margin
- Decide which expenses are fixed and which are variable
- How to attribute the contribution of sales and marketing touches across the sales cycle
- Setting the ROI “hurdle rate” needed to support your company’s profitability goals
- Figure out where to get the revenue and expense data. Not everything will be in your CRM system. Your finance counterparts should be help you source the data you need.
- If a distribution channel party is a roadblock to revenue visibility, conduct “did you buy” surveys into accounts to which qualified leads were passed.
- If the account-based revenue is captured internally, try supplementing your CRM system with data match-back to connect campaigns to sales, circumventing the arduous process of following a lead along its complex conversion process.
- Set clear objectives for each marketing expenditure, so you know how to declare ROI success when you see it.
- Get inspiration from The Rise of the Revenue Marketer, Debbie Qaqish’s innovative thinking on the role of marketing in B2B.
- Get an education from Jim Lenskold’s 2003 classic, Marketing ROI: The Path to Campaign, Customer and Corporate Profitability.
- If too many obstacles are in the way, fall back and rely on “activity-based” metrics, like cost per inquiry and cost per qualified lead, which tend to be pretty easy to calculate, being mostly within the purview of marketing.
About Ruth Stevens
Ruth P. Stevens consults on customer acquisition and retention, and teaches marketing at companies and business schools in the U.S. and abroad. Crain’s BtoB magazine named Ruth one of the 100 Most Influential People in Business Marketing. She is the author of Maximizing Lead Generation: The Complete Guide for B2B Marketers, and Trade Show and Event Marketing. Ruth serves as a director of Edmund Optics, Inc., the HIMMS Media Group, and the Business Information Industry Association. Learn more at www.ruthstevens.com.