February 24, 2013
I recently stumbled upon a very old quote from Peter Drucker, which completely nonplussed this lifetime marketer. Mr. Drucker observed (in his 1973 book Management: Tasks, Responsibilities, Practice) that the fundamental purpose of a business enterprise is to create a customer. And because of that, he said, “The business enterprise has two – and only these two – basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs.”
Today’s B2B marketing execs know that Drucker’s statement is a fragile hypothesis that gets tested at least every budget cycle and often every quarter. You know that if you are not able to quantify the business impact of the budget dollars spent on advertising, trade shows, and promotion, your CFO looks at marketing as a cost center: one of the first places to cut when the business indicators dip, and one of the last to be renewed when things turn around.
Revenue is the lingua franca of the modern enterprise
That’s why demonstrating the revenue return on marketing investment (ROMI) is the No. 1 issue for B2B marketing executives. In Forrester’s most recent B2B Marketing Organizations And Investments Survey, when we asked marketing execs to identify the most important metrics for their marketing organization, 56% identified a revenue-related metric — compared with 44% for customer satisfaction and 40% for brand awareness.
Revenue performance management has become a widely accepted measurement criteria for the current crop of B2B marketers, but when the concept was first introduced (more than a decade ago) the idea was transformative. The practice required re-engineering of marketing and sales management practices and measurement systems, and would not have been possible (in a company of any scale) without the automation of sales and marketing tracking and reporting processes. Early adopters of the approach have seen significant gains by euthanizing underperforming pet programs and prioritizing investments on the basis of ROMI. But after copping the quick wins, revenue performance pioneers are finding it hard to continuously improve revenue performance. That’s why it’s time to take a balanced approach when measuring marketing performance.
A question of balance
Building a high-performing L2R process means finding an optimal balance of these component factors that drive ROMI.
■ Volume: Volume is the raw material in the process of manufacturing leads. These traditional benchmarks for marketing activities (e.g., the number of new names added to the database, tradeshow scans, followers and leads) are generally easy to capture and measure.
■ Value: It is often easier to move the needle on revenue performance by shifting the mix to higher value prospects than it is to increase volume. By analyzing the sources and programs that have yielded the highest value prospects, you can revise your mix to target the highest-value segments.
■ Velocity: Velocity is a measure of the time it takes for a prospective customer to advance through the stages of the buying process. Measuring velocity is the best way to pinpoint the execution shortfall in your end-to-end process
■ Efficiency: Efficiency metrics tell us how cost-effective our programs and processes are.
■ Effectivity: Effectivity metrics tell us which programs and channels deliver the best conversion performance. Analyzing these metrics, in conjunction with the other metrics, helps marketing leaders determine in which programs and channels to increase or decrease investment.
What it means
To get and keep the attention of top management – and to keep from inching down that slippery slope to a cost center – marketing leaders must consistently communicate the performance of the lead-to-revenue process in a way that resonates with the top agenda items for CEOs and CFOs. Measure performance with a mix of the relevant metrics (volume, value, velocity, efficiency, and effectivity) that drive ROMI. The benefits are manifest: more revenue, at higher margins, via shorter sales cycles, with a higher win rate, and more predictability. It’s time to claim the destiny that Peter Drucker envisioned for marketing.
For more info:
Join me for a webinar on this topic, this upcoming Tuesday, called "Metrics That Matter In Lead-To-Revenue Management" Click here to register.