Lead Gen ROI: Calculating Marketing Contribution to Sales Revenue
Posted by Vince Koehler on Mon, Feb 06, 2012
Hard-hitting Lead Generation programs are rapidly being implemented across the corporate landscape. In the spirit of the results-oriented approach to Lead Generation, marketing is transitioning away from soft success metrics. The favorite metric of the past year is the Marketing Contribution as a % of Total Revenue.
Sounds great doesn’t it? Calculating Marketing Contribution provides a hard metric that is highly relevent to the CEO. However, it’s difficult to quantify.
The purpose of this article is to provide marketing and sales leaders a framework to define the metric properly for your company through two steps.
1. Marketing & Sales Agreement
The senior leadership of marketing and sales must sit down and agree on how to define ‘marketing contribution’ for your business.
Net New Customers are easy to define. It’s common for sales leaders to ask marketing to focus in this area. This makes sense for marketing to direct significant resources on new logos. This should not be a sole focus that excludes existing customer upsell/x-sell.
The acquisition of new upsell & cross-sell to existing customers is difficult to define the true marketing contribution. Among existing customers there are often deep relationships across the sales force. The most annoying thing for a sales leader is to see marketing ‘claim’ credit for driving revenue among customers cultivated long-term by their sales reps. The most annoying thing for a marketing leader is to be closed out of the existing customer base when most businesses generate 80% of their business from their base. The base is a fertile and efficient hunting ground. Sales and marketing leadership need to approach this with a partnering mindset.
Sales resources can’t cover every account. Marketing can drive awareness and early stage interest. Plus, the most efficient lead generation efforts are those campaigns run with the existing customer base. By leveraging marketing, sales can increase the opportunities in the funnel.
Focus on identifying an ‘Inactivity’ period that defines a scenario where a sales rep is not engaged in an active dialogue. Marketing efforts that activate a contact to engage should be credited as a contribution by marketing. The percentage of revenue derived from these activations should be tracked and celebrated.
Sales leaders can get sideways when they see ‘activations’ that would have likely happened sooner or later regardless of marketing involvement. Yes, that can be true. The advantage is that marketing efforts drive engagement early in the process. This early engagement is combined with lead nurturing with sales brought in at the right time. Early entry increases close rates and keeps competitors at bay.
Document the agreed definition and maintain a dialogue as marketing and sales review the bottom line results of lead generation.
Run through scenarios to validate that the definition plays out right for common occurrences in the field. Don’t focus on rare exceptions.
Agree on a draft definition and plan to revisit the definition monthly. Expect to need to tweak and fine-tune the definition as you begin to track actual results with real-life examples.
2. Determine the % of Marketing Contribution
Separating the revenue into three buckets:
- Net New Customers – New logos
- Existing Customer – Upsell and cross-sell
- Re-occurring Revenue – Maintenance fees, service agreements, license upgrades, etc. that are considered carryover sales from past efforts.
It’s important to split Net New from Existing Customers since they are vastly different in the difficulty of acquisition and the expected percentage of contribution.
Once you have segmented the revenue, think through the expected marketing contribution based on the agreed upon definition.
- Net New Customers – Marketing typically will have a contribution rate of 15-30%. The range spans based on the level of maturity of marketing capabilities. A best-in-class demandgen team supported with experienced lead management staff will trend toward 30%.
- Existing Customers – Marketing contribution will range between 10-20%. This is significantly less than Net New customers due to greater quantity of sales deals derived from existing customers. The % of contribution is lower, but usually greater than Net New revenue.
Below is an example - Download PDF:
Another factor that raises the percentage contribution is field marketing personnel located at the geo level. Organizations with field marketing personnel have a greater capacity and therefore have higher contribution levels.
Download a Worksheet to get started. Work through the exercise and develop your baseline. The ranges provide yardsticks for comparison. Once the baseline is established, the marketing team goals itself to beat their number. This continuous improvement approach leads to best-in-class performance.
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