If you are convinced that Marketing Contribution to Revenue (MCtR) is a metric that CMOs should be wary of, then how is marketing expected to show its work contributes to sales? The answer lies in two key metrics. The first is the Expected Revenue metric and the second is a program revenue (PR). This posting will tackle ER, next post will tackle PR.
Expected revenue is calculated by simply taking the total number of opportunities created by sales and multiplying by the average selling price and multiplying again by the close rate of the sales team.
ER (expected revenue) = # Sales Qualified Leads (# opportunities) x Opportunity Close Rate x ASP (average selling price)
This provides a good indication of how much revenue marketing should be expected to help drive. By simply using the opportunity close rate (OCR%) and ASP (Average Selling Price), it is an acknowledgment that marketing’s job is “done” (not really due to sales support) once an opportunity is created. Returning back to the factory analogy, as the parts supplier to sales, one of the CMOs goal is to deliver to sales x number of leads that convert to opportunities at an agreed to rate. If marketing hits this goal, then they have accomplished at least part of their mission. Expecting marketing to be able to control the downstream opportunity closing could skew the assessment of marketing.
By using ER as the metric, it enables the marketing and sales leadership to get a ballpark idea of how much revenue marketing theoretically is contributing and can also be used for annual ROI analysis. Using this statistic also focuses the marketing and sales team to look at ASP and opportunity close rate % frequently. If OCR% is dipping, what can marketing do to correct this with either different leads or better sales training. If ASP is changing up or down, how does that impact marketing’s strategy and spend? If the anticipated ASP is $100K and the actual ASP is coming in at $50K, that is a critical piece of information to know. Marketing may be operating very effectively, but operating under the wrong assumption of ASP and hence go to market strategy.
ER is a great metric for getting back of the envelope expected marketing revenue contribution. Next we will talk about program level revenue tracking.