Launch Clinic

Measuring Marketing Performance

One department within B2B companies that has been the last to have business metrics applied to their performance is marketing. Current metrics are fuzzy at best but at the same time many marketing leaders are feeling the pressure to “show me the money”. There’s a tendency to measure individual marketing tactics but that doesn’t provide a macro level measurement that gauges overall return on investment.

For those marketers with limited financial skills the first thing you need to know is that marketing spend is accounted for as fixed cost (ask your CFO). It’s fixed because when you sell something to a customer you usually don’t incur variable costs associated with marketing. There are exceptions like rebates and market development funds, but you’re likely to have the bulk of your marketing budgeted accounted as a fixed cost.

To keep it simple, let’s look at a formula that connects how much is spent with how much you get…

Marketing Return on Investment = Revenue Booked / Marketing Spend

Notice that revenue is represented by Revenue Booked and not Revenue Recognized. The reason for this is to connect the marketing investment with the overall revenue booked because for large deals (or SaaS subscriptions) revenue could be recognized over several years.

As an example if your annual revenue was $50M and your marketing spend was $5M, your Marketing ROI = 50/5 = 10. Clearly a higher revenue to marketing spend results in a better Marketing ROI. If your competitor has revenue of $50M but is spending $10M on marketing (MROI = 5) you would be twice as efficient.

The incremental impact of marketing can be measured year over year with this approach. Building on the previous example, if your marketing budget increased in the following year to $6M and revenue increased to $80M your MROI = 80/6 = 13.3, an overall increase in MROI from 10 to 13.3.

So what’s a good number for you? I don’t have industry specific numbers (anyone who does please send me a link) but you should consider benchmarking your MROI with your nearest competitors. A relative comparison is a good start but take care to measure apples to apples as best you can. Also consider that if you have mature products in a mature market you may have a higher MROI that doesn’t transfer to a new product in an emerging marketing where a higher marketing spend (and by extension a lower MROI)may be necessary.

Going one step further you could analyze MROI for new license revenue versus recurring revenue to see how you measure up. You may say that recurring revenue shouldn’t be counted. Not so fast. No customer, no recurring revenue. If you do things like newsletters and customer events that are focused on existing customers (hopefully supporting a customer retention goal) they would count. I would expect your MROI to be significantly higher if you are doing a good job of solving market problems and providing sound customer support.

Controversial? For some, no doubt. But for others it’s a meaningful starting point.

What’s your MROI?

What’s the minimum MROI you need to maintain current revenue?

How Do You Measure the Effectiveness of Your Product Marketing Managers?

Too often the primary measurement of a product marketing manager’s performance is the number of leads they generate. Is this really the measure that reflects their individual performance? First, for most organizations, what’s classified as a ‘lead’ is really a response to a marketing initiative like an email or direct mail campaign. Let’s call these what they actually are: responses. Second, the number of leads generated is rarely a reliable predictor of how many of deals will be closed, particularly in complex B2B selling. Third, the definition of a good ‘lead’ is rarely consistent among salespeople, let alone across an organization.

So if generating leads are not a meaningful measure of individual contribution, you could always go to another common measure: deliverables. Data sheet. Check. Sales presentation. Check. Demo script. Check. Deliverables are necessary for sure, but are they a measure that reflects an important outcome, like selling more stuff?

How about measuring performance based on outcomes. Whoa. Wait a minute. You’re asking me to measure my product marketing managers based on revenue? Yeah, I am if it’s a measurement that is valued in your organization. I’m not suggesting they go on sales calls or become sales engineers. And I’m not advocating that they should be compensated on individual deals. But there are ways that you can measure Johnny’s contribution to the overall success to the products he supports in the market.

Arguably there are a whole range of issues that could negatively impact the product marketing managers ability to deliver on a given revenue goal with discounting being the elephant in the room.

What can product marketing managers do to positively impact revenue when they aren’t the one’s doing the selling?

Become the experts on your buyers

A huge contribution to outcomes is to be the expert on your buyers. Product marketing managers are often confined to the four walls of their offices with little contact with real buyers in the market. Set a quota that requires them to interact with potential buyers, outside the office and write up what they learn. Start with eight or ten per quarter. These are interactions that are not conducted as part of a sales call.

You have plenty of experts on your products. Who’s the expert on your buyers?

Identify and correct bottlenecks in the funnel

Conduct ongoing analysis of deals looking at the each step in the funnel. Identify where deals are getting stuck and focus on corrective measures. Identifying patterns over a series of deals and avoid drawing conclusions from a single deal, which could send you on a wild goose chase. Removing a bottleneck in the funnel can have much more impact on sales throughput than generating more leads.

Removing bottlenecks improves sales throughput, effectively increasing the volume of deals your sales channels can deliver.

Take ownership of win/loss analysis

This isn’t the forensic style of win/loss analysis where you look for the person to punish for not winning the deal. It’s the type of win/loss analysis where you identify patterns that can lead to potentially huge revenue improvements. I advocate having product marketing managers own this activity in collaboration with their product manager counterparts. Each has a different filter on the activity that results in identifying different insights.

It’s easy to assume the problem is with the product or price, but is that really true?