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It’s Time to Kill the Marketing Budget and Think About a Marketing P&L

8 Mar The Magic of the Marketing P&L

To their own detriment, many traditional marketing departments are organized around the annual marketing budget.

Every year the budget is passed to the CMO and subdivided among marketing functions and geographies to meet business and constituent needs. In these traditional organizations, the structure and hierarchy of the marketing team is often organized around the details of the budget allocation.

The problem with being oriented around the marketing budget is that it disconnects marketing from the real business needs. Many companies that focus on the marketing budget view marketing as a cost of doing business and not a measurable investment in growth. The pattern of investment in marketing in these types of organizations mirrors investment in other things that feel like discretionary costs: In tough years the budget is cut mid-year and in good years budget growth is based on based on the CMO’s ability to lobby and build a case for investment.

In today’s era of marketing and “growth hacking,” a focus on the marketing budget is a sign of a weak marketing department. The alternative is to focus on a marketing P&L.

A marketing P&L allows businesses to invest infinitely in the portion of the marketing that drives profitable growth within the financial reporting period

A profit and loss approach to marketing works for the portion of the marketing budget that directly drives near-term revenue. The question comes down to how much a company is willing to spend within a financial period to drive incremental revenue in that period. That number will be different in different businesses: it may be worth spending $1,000 to drive $1,000 in incremental quarterly revenue if that means thousands of additional dollars in future quarters. It may be worth just $50 to drive $1,000 in incremental revenue if your business has low margins and a low rate of repeat purchase or revenue.

No matter what the number is — almost every business has a customer or revenue acquisition cost at which they should buy as many customers or much revenue as they can during any financial period. By limiting spend with a fixed budget and applying budget cuts during tough times, businesses unnecessarily handicap their growth. Instead, businesses should invest infinitely in the portion of the marketing budget that drives profitable growth within the financial reporting period.

Here are examples of types of investments that work perfectly with a marketing P&L approach to investment:

– Search engine marketing expenses to drive profitable online ecommerce transactions

– Lead generation expenses that drive incremental net profit in the financial reporting period

– Expenses that drive profitable incremental absorption of any perishable product such as unsold theater tickets, unsold hotel rooms, unsold airline capacity, open tables at a restaurant, etc

But the list is really endless: the key is that the investment drives incremental profit that is greater than the incremental marketing spend during the financial reporting period.

How to switch from a traditional budget to a marketing P&L

How does this work in practice? the first step is for marketing and finance to split the budget into two categories of spend:

(1) spend that directly drives measurable incremental near-term revenue and

(2) other investments

The “other” part of the budget can remain a traditional fixed budget allocation. But for the spend that drives incremental revenue, marketing and finance should agree on a target return on investment and a timeframe for that return to be realized. Once this is done, smart organizations will let marketing acquire as much incremental revenue as possible at the target ROI without traditional budget constraints.

I’ve seen many profitable, visionary, typically private companies take this further by letting all customer acquisition activities scale without fixed budgets — even if the returns come over multiple future financial reporting periods. If it costs you $500 to acquire a customer in Q1 that will result in a $400 loss during Q1 but $2,000 in incremental profit over three years, you can maximize growth by buying as many of these acquisitions as your cash flow will support. In public companies which need to carefully balance current period earnings and future growth, these sorts of investments are much more difficult to make.

The marketing P&L changes the focus of marketing

As marketing teams align more of their marketing budgets to drive incremental revenue and growth, the way marketers organize and optimize is also changing. Marketing organizations with infinitely scaling acquisition budgets figure out how to drive as much growth as possible within their profitability constraints. By focusing on cost per acquisition and revenue per acquisition and testing multiple acquisition channels to improve profitability and scale, the marketing P&L allows marketing to take the lead in driving long-term growth.

Revenue Marketing: 6 Essential Rules for Success

30 Oct

Over the last decade, I’ve helped to build B2B revenue marketing teams spanning from a few marketers supporting a few sales people to global models supporting 10,000+ sales representatives. While the challenges of different organizations are often unique, I think there are a few key revenue marketing rules that transcend B2B organization size.

In my last post, I walked through an overview of B2B Revenue Marketing. Now, here are my five key tenets to making sure that your revenue marketing programs are as good as they can be:

(1) Focus on revenue: While this seems incredibly obvious, most B2B marketing organizations focus on other things. While leads and pipeline often lead to revenue, focusing on leads and pipeline metrics can create conflict between marketing and sales. The most important metrics for revenue marketers are (a) the amount of marketing-sourced revenue driven by marketing programs and (b) the effectiveness of the marketing investment (ROI). While pipeline goals are important to see how thing are progressing — they are not a substitute for revenue goals. In my experience, lead goals such as the quantity of leads or the number of qualified leads tend to be completely counterproductive.

(2) Sign-up for accountability: Revenue marketers should be paid like sales people. They should have a  quota based on the level of investment that they control and a significant portion of their pay should be variable based on performance (i.e. revenue). Great revenue marketers should be highly compensated. the key to this, however, is true marketing accountability for revenue and results.

(3) Make marketing & sales as a single integrated function: Every dollar spent on revenue marketing is a dollar that could have been spent on sales. For revenue marketing to make sense, it needs to provide leverage to the sales team and allow the sales organization to scale cost-effectively. If you are a young company and want to grow sales at 100% or more per year, you’ll need to get the right balance of sales and marketing investment to support hyper-growth. No matter what your goals are, it’s important to look at marketing and sales as a single continuous function (hopefully with different owners), with joint planning, shared goals, and a clear model for resource allocation.

(4) Design a process that eliminates conflict: Too often, marketing organizations sabotage themselves by putting in place lead generation processes that create conflict with sales. A bad lead process creates a rapid death spiral that looks like this: (a) marketing sends tons of leads, (b) sales says the leads are weak, (c) sales stops calling the leads, (d) marketing says sales is weak, (e) marketing stops getting any ROI from its investments, (f) people get fired.

From my experience, the number one source of friction tends to be the definition of a qualified lead. If sales and marketing are arguing over whether a lead is really qualified — or whether lead quality is high enough — you likely need to fix your definitions and processes. You can find my thoughts on lead qualification best practices here.

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Revenue Marketing: The Future of B2B

17 Oct

Marketing means different things to different people. For me, marketing is about solving business problems. Sometimes that means building awareness, sometimes it means better understanding customer requirements, sometimes it means investing to generate revenue, and sometimes it means galvanizing employees around a common purpose.

But over the last decade, B2B marketers have made an unprecedented shift of resources to focus on revenue generation. Today, B2B marketing program managers, lead generation experts, event teams, search marketers, content creators, and database marketers all align to drive revenue with the highest possible ROI. This is the core of “Revenue Marketing.”

What is Revenue Marketing?

Revenue Marketing is the development of repeatable prospecting programs that new drive customer acquisition and measurable sales.  The key to revenue marketing is a predictable return on investment: if you know the impact of marketing investment then it’s possible to link marketing plans to specific revenue objectives.

The rise of Revenue Marketing as a discipline is the direct result of new CRM tools and models. In sales-driven B2B companies, marketers have earned a seat at the table by tracking the bottom-line impact of every dollar invested.  CRM systems now make it easy to track how campaign investments generate leads, how leads become opportunities, and how opportunities become revenue-paying customers. The result is a new focus on ROI: optimizing the marketing mix to drive as much revenue as possible from a given marketing investment.

In the most sophisticated companies, revenue marketing now drives the entire sales pipeline. Sales people don’t make cold calls. Instead, inbound leads are automatically nurtured until they are right for sales. In these companies, marketing programs people are paid like sales: they have pipeline and revenue goals and substantial at-risk compensation built around these goals. The quarterly planning process begins with the revenue goal and backs into required marketing program investments and sales staffing.

The Revenue-Focused CMO

Over the last few months, I’ve had the opportunity to talk to dozens of B2B marketing and sales executives about their approach to revenue generation. I was surprised to see how similar revenue marketing practices are across a diverse set of companies. The tools, roles, tactics, language, and best practices are becoming firmly entrenched. Today in B2B, revenue marketing is a clearly-defined discipline. And like any high-value, growth discipline, expert practitioners are both hard to find and well-paid.

This new focus on revenue is one of the reasons that CMO influence is on the rise. Continue reading

Predictive Analytics Will Transform B2B Sales & Marketing Execution

11 Sep predictive_analytics

Consumer marketers have become adept at driving revenue based on predictive analytics. Potential customers are routinely scored on a wide variety of attributes from lifestyle to promotion receptiveness.  These scores allow consumers to be  segmented into groups based on shared interests, purchase likelihood, and total buying power. By starting with highly differentiated segments, marketers can design programs that are highly relevant and effective.

This is not the way that B2B sales and marketing works in most organizations today.

Yet, B2B is a ripe environment for predictive analytics: selling costs are high, sales probability is low, and resources are very expensive. While the language of B2B marketing and sales is full of references to probability — customer funnels, response rates, conversion rates, close rates, call-to-close ratios — it’s rare to see B2B organizations leverage prospect and customer data to score customer attributes, build discrete segments, and allocate resources to maximize the conversion and revenue.

But all of this is about to change. Over the next five years, common consumer marketing techniques will find a happy home in many B2B marketing and sales organizations.

Here are 6 reasons why:

  • Electronic sales processes are creating massive amounts of useful data: Today, B2B buyers spend more time interacting with companies online than they do with sales people in person or over the phone. For every successful sales call they attend, a typical prospect may spend hours interacting with content, reading forums and blogs, and testing sample products. In today’s world, every buyer action leaves a trail of digital clues that signal their context, needs, purpose, and intent.
  • Prospect attributes can be easily deduced from observable data: Most B2B organizations with CRM and content marketing capabilities have enough data to score prospects on purchase probability, likely problems or interests, and potential solution needs.
  • Relevancy matters: Even as the typical portfolio of products and solutions becomes more varied and complex, B2B sales and marketing messages tend to be narrow and simplistic. The patterns that work most consistently are destined to be forever repeated. For prospects, this means that they are often hit with messages and a pitch that ignore the nuance of their particular needs and segmentation. For many prospects, this is a turn-off that is difficult to reverse.
  • Sales & marketing funnels are based on probability: Typically, 2% of targets respond to a marketing campaign, 60% of leads are accepted by sales, 50% of accepted leads become opportunities, and 25% of opportunities close. When you look at the full marketing and sales funnel, a pathetic 1:667 targets becomes a closed deal. Using predictive analytics to improve any stage of the funnel has the potential to create incredible value. Continue reading

Categorizing Sales Prospects: Understanding Propensity & Engagement

12 Jun

As the sales process becomes digitally observable, smart sales and marketing organizations are developing sophisticated mechanisms to electronically score leads and prospects.

A typical business-to-business sales person manages 1,000 – 2,000 sales contacts. If they are lucky, they’ll also interact with hundreds of new leads each year. In sophisticated organizations, leads and prospects “travel” with electronic scores that help sales people prioritize outreach and focus on the highest value accounts. This scoring information is typically one dimensional: often a single score or categorization that captures demographics facts, project details, qualification information, and measures of engagement.

A much better approach is to evaluate and score prospects based on two discrete dimensions: propensity and engagement:

  • Propensity Scores: For any lead or prospect, a propensity score compares collected demographic information to that of other prospects to determine the probability of a purchase and potential opportunity value. If you sell hammers, a construction contracting company might be a high propensity target while a dry cleaner may not. By considering attributes such as industry, employee size, contact title, budget, revenue, headquarter country, company revenue, and company profitability, propensity scores qualify leads and prospects based on their fundamental attributes and statistical propensity to buy.
  • Engagement Scores: The problem with propensity scores is that they aren’t able to differentiate a cold lead that doesn’t know you exist from a prospect that has done their research and is ready to buy. Engagement scores, on the other hand, vary in real-time based on electronic measurement of prospect activity, increasing whenever a prospect takes an action that indicates interest in your products or services. A sophisticated engagement score might measure a prospect’s web visits to your site, calls to your office, participation in online communities, mentions of your company in social media, interaction with an electronic product demo, content downloads, online video consumption, and email communication. If they stop interacting, the score would automatically decline.

For most companies, propensity and engagement scores are discrete and mutually beneficial. A prospect that is high engagement / low propensity may be eager to talk but unlikely to buy. A prospect that is high propensity / low engagement will be hard to reach and unready to engage with sales. Propensity scores tend to be relatively static while engagement scores should be continually changing.

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The Perishable Lead: Why Don’t Good Leads Ever Get Recycled?

31 May

At this point in my career, my marketing teams have generated hundreds of thousands of leads that never received a call. If sales and marketing alignment had been perfect, these leads could have generated billions of dollars of pipeline and many hundreds of millions of dollars in revenue. In addition, these teams have generated more than 100,000 leads that have been followed-up just one time, often with a single email, voice mail, or phone conversation.

For most organizations, recent leads are an incredibly valuable asset that is inevitably underutilized.Why?  The fact is that most B2B organizations do not have sophisticated enough lead scoring and routing processes to recycle great leads that, for one reason or another, never turned into sales opportunities.

So what does it take to effectively recycle leads?

  • A sophisticated scoring process: To effectively recycle leads, companies need to score the lead at least two times. The first score is based on the initial inquiry and the successive score is based on time-based degradation as well as subsequent prospect engagement. Unfortunately, this is very difficult to get right. According to Sirius Decisions, “Best-in-class companies define and execute targeted nurture efforts specific to disqualification reasons, product interests, industry and buyer role. An emerging best practice is to score disqualification reasons and weight responses to nurture-specific offers distinctly from non-nurture actions to recognize progress along a prescribed path designed specifically for reactivating recycled leads.”
  • A multi-pass lead routing process: To effectively recycle leads, you need the ability to present aging leads back to sales for follow-up calls and conversations. To get this right, organizations need to be able to granularly track the initial disposition of the lead and then to re-present the lead to sales at the appropriate time based on prospect activities or time-based follow-up best practices.
  • Strong Lead Generation Analysis Capabilities: In most organizations, sales follow-up capability is limited. Smart organizations are able to dynamically prioritize sales follow-up by balancing the quality of the lead, the level of prospect engagement, and the degradation of the opportunity resulting from the passage of time. According to Sirius Decisions, “Best practice organizations perform deal reviews on recycled leads that progress into active opportunities to determine common attributes. When observable events are identified (e.g. contract expiration with a competitor), marketers can incorporate them into recycle-specific scoring models.”

For many organizations, the first step to lead recycling is to drive second or third contact attempts to recent leads that have never been reached. Beyond that, organizations typically focus on nurture marketing programs to recent leads with the hope of driving prospect re-engagement. As CRM and marketing automation tools continue to improve, smart companies will figure out how to value and prioritize aging leads and to target sales efforts towards the highest value prospects.

 

Beware the 4 Unintended Consequences of the “DGR” Sales Role

31 May

With the meteoric growth of electronic B2B demand generation over the last decade, many organizations have restructured their sales organizations to optimize the division of labor.

Now, there is often a dedicated “demand generation representative” (DGR) that calls and qualifies sales leads. They are typically paid a bonus for each qualified lead accepted by sales and sometimes they also receive a percentage of the eventual sale. They are often put in place to provide leverage to the core sales team: they allow the primary sales reps to focus on active opportunities and offload lead qualification to a lower cost dedicated lead follow-up specialist.

Is this a good idea? Sometimes it is — but the additional of a demand generation rep role often creates bigger problems than it solves. Here are the top 4 risks of multi-tier lead follow-up structure:

(1) DGR models are often designed for the benefit of the core sales rep and not for the customer: If you staff this position with lower paid, lower skilled “junior” sales reps, then you risk creating a subpar customer experience. A better approach is to make sure that the best leads receive a call from a  highly skilled expert who can immediately add value to the prospect and who will be likely to answer initial questions.

(2) The addition of a DGR can create inefficient sales handoffs: Sales is a relationship business, and a change in ownership often means a reset in the sales relationship. By definition, multi-tier lead follow-up structures require sales handoffs. With each handoff, you’ll lose good prospects and add time and complexity to the sales process. You’ll also likely ask prospects for the same information multiple times, creating a subpar customer experience.

(3) The best prospects will not go through a multi-stage qualification process: In the rare chance that a senior executive comes in as a lead, you will typically have one chance to get the message right and move the sales cycle forward. If the first call is focused on qualification and doesn’t add enough value to the buyer, the sales process will quickly end.

(4) Multi-tier sales structures are setting-up your sales teams for a battle: It’s inevitable that a demand generation representative will uncover a great lead and pass it to sales only to have sales sit on the lead or screw-up the transition or botch the follow-up. When this happens, the demand generation rep doesn’t get paid. When a core sales person resigns or moves to a different role, the corresponding demand generation representative often loses 6 months of productivity and revenue.

So what is the alternative? One alternative is to rethink lead qualification (try this approach) and to send sales ready leads directly to the core sales teams. With this approach, demand generation representatives would focus on outbound calling campaigns and lower tier leads that still require development. I’ve successfully implemented this approach at companies ranging in size from 50 employees to 100,000+.

How can you design a DGR model that works? The starting point should be the customer experience and not sales opex optimization. If the DGR offers specialized expertise or focuses on prospects that wouldn’t otherwise get a call, then the addition of the role may offer real value to customers.

Lead Qualification: A Dirty Secret

29 May

I talk to many companies that take the same standard approach to lead qualification: they focus on budget, purchase timeline, and decision-making authority as key dimensions of lead qualification.

Typically, these requirements are pushed by sales to make sure that every lead meets their strict qualification criteria. The dirty sectre is that the result, however, is often very different: a constant battle between sales and marketing over whether or not each lead is really qualified. This is no way to run a business.

A more successful approach is to let the lead choose whether or not they want follow-up. Instead of asking a bunch of unwanted qualification questions, ask a prospect whether they would like a personal phone call from someone at the company. I’ve used this technique for years and it works.

Here is what I have found:

  1. Only serious leads want a call from sales
  2. You can ask fewer, more prospect-friendly questions on lead forms which dramatically improves lead form completion rates
  3. Sales & marketing alignment also gets better.  It’s hard to argue that sales shouldn’t call a prospect that is asking to speak with sales.
  4. This definition of a sales ready lead makes it very clear as to which propects are owned by sales and which are owned by marketing. For marketing, the goal then becomes to own and nurture leads that don’t yet want to talk to sales.
  5. Sales will be calling the right people. In most b2b sales environments, the competition has won by the time the project and budget are defined. Qualification schemes that require this for an initial call make it difficult for sales to get ahead of the competition and to influence engaged prospects early in the sales cycle.
  6. Sales is happier because they are only talking to people who want to talk to them.

So, if you are spending too much time arguing over which leads are qualified and which leads are not — think about letting the prospect decide whether or not they want a call from sales.

Beyond Lead Gen: Marketing-Driven B2B Calling Campaigns

29 May

Before electronic lead generation became the normal mode of operation for B2B companies, sales people dialed for dollars. Even today, the best sales people fill time between leads with outbound calls to the best names that they can find.

In my previous role managing demand generation for a 1,000+ person salesforce, we created parallel programs for lead generation and outbound calling. In any given quarter, the volume of leads was typically limited by the amount of budget allocation to lead generation. Our outbound calling campaigns, however, could cost-effectively reach many more prospects and as a result would generate 3x – 5x the pipeline of our lead generation efforts, albeit at a lower amount of pipeline per call.

Here are a few key best practices for running outbound calling campaigns:

– Keep leads (inbound) and targets (outbound) separate: a cold target is not a lead. Mixing terminology for the two creates confusion and devalues the high priority leads.

– Think of calling campaigns programatically: Start with a theme or play, use business intelligence to target the right lists, customers and prospects, develop talking points, and create marketing materials to support sales.

– Always call leads first: Inbound leads expect a quick response, dont’ keep them waiting. Calling canpaign targets don’t know that you will be calling, so they can always wait until all the leads have been covered.

– Use a tool to track campaign progress: You’ll need software to load targets, queue outbound calls, collect outcomes, and tie calls to pipeline.

– Train your sales teams on every campaign: You’ll want to make sure that your teams understand why the campaign is vbeing developed, what the desired outcome is, and the key things they will need to know tobe successful.

– Get the script or talking points right: The most effective calling campaigns make a crisp and compelling pitch to prospects. test campaigns before launching and quickly kill campaigns that aren’t driving significant conversion.

– Use an offer to drive conversion: A calling campaign is nothing more than an organized series of cold calls on a common theme to a defined set of targets. To improve cold call conversion, provide sales teams with one or more special offers that they can use to lure prospects into a valuable conversation.

– Make calling campaigns part of your holistic nurture efforts: Outbound calling campaigns are a great way to systematically follow-up on old leads and contacts or to nurture customers or prospects in a systematic, measurable way.

While your lead generation budgets will inevitably limited — outbound calling campiagns are a great way to drive incremental measurable pipeline and revenue while helping sales teams improve productivity and revenue / FTE.

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