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. It involves not only the face-to-face account rep but sales engineers, inside salespeople and others who help get all the buyers’ questions answered, negotiate the terms, deliver, install and troubleshoot 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 the investment produced.
But in this lengthy, multiparty, multitouch 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 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 challenges. The first problem is connecting a particular lead to a particular piece of revenue, which means carefully tracking a lead over its multimonth process toward closure.
Further, 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 it’s none of the manufacturer’s business. So the marketer who generated the lead often has no visibility into the associated revenue. Even if the house rep closed the deal, 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 when marketing staffers come and go and may not even be on the job when the lead generated a while ago finally converts to a sale.
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, like:
- 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 help you source the data you need.
- If a distribution channel party is a roadblock to revenue visibility, conduct a “did you buy” survey into accounts to which you passed qualified leads.
- If you capture the account-based revenue 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.