Instrumenting the B2B Sales Process

As a new CMO for a business to business software company that was driving a high velocity, inside sales model,  I spent the first six months trying to figure out how to make sense of the craziness that was around me each day.  Between the difficulties of measuring what was really happening on the website, what marketing programs were actually working, then tracking all this data through sales,  it was a confusing six months to say the least.  Add to this supposed “expert” advice from old school media companies promising guaranteed lead programs, outside pay per click consultants that had the “answers” and an ever changing landscape of tactics as social media and search strategies changed,  and the sense of an out of control operation was even greater.

I found myself reaching back to my early days as submarine office on the USS Sand Lance and as VP of Sales for SAAS company to construct an operations model where marketing became a real time, daily almost hourly operation. Instrumenting the B2B sales process was key.

To support this, we constructed a different type of marketing team that was real time focused, highly integrated and highly metrics driven. Gone were the functional silos and work process hand offs between teams that makes old school marketing teams look like disconnected dinosaurs from the twitter fed market conversations swirling around them.  Daily and hourly we were looking at traffic numbers and conversion numbers in our real time marketing operations center (MOC) to verify that what were expecting to happen each day was actually happening.  It was only through this deep dive of metrics and constant connection to the marketplace that we both learned what was actually happening and became more effective daily at marketing our products.

This blog is designed to highlight the many operating metrics we used to successfully build a high volume B2B marketing operation.  I believe the skillset needed to be a B2B CMO has fundamentally shifted to require this level of operational detail and knowledge.  So much is now measurable, that to not adjust your DNA to fundamentally drive a good piece of your marketing decisions from data derived at the lowest levels of your operations, risks failure.

Bryan Semple

@VK_Bryan

Measuring Expected Revenue (ER)

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.

Davis_to_Corse_EnvelopeBy 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.

Marketing is a Parts Supplier to Sales (#6)

Don’t agree yet with the past posts?   Here is the final, and hopefully best reason why CMOs should be wary of using Marketing Contribution to Revenue (MCtR) as a statistic.  Marketing is essentially a parts supplier to the big sales factory that creates revenue.  As a parts supplier, marketing has to hit supplier goals to keep the sales assembling line rolling.  Those parts are leads.  Marketing needs to deliver leads to sales at a defect rate (the opposite of the acceptance rate), that enables sales to create opportunities that come out of the factory and ultimately get closed.  Hence the request sales needs to make to marketing is that it needs x leads per week at an opportunity creation rate of y% to keep opportunity production going.  This is a measurable, attainable goal that marketing can strive for.   Each week, marketing must deliver, for example, 50 leads per telesales rep and these leads need to result in an opportunity 10% of the time. This metric of required volume and opportunity creation rate is a tangible goal marketing can push for and is a goal they can control assuming you have a properly trained sales team (also partially marketing’s job).

Thunderbird_assembly_lineWhat happens to these opportunities when they leave the factory is a completely different story and one outside of marketing’s control.  Is it a big opportunity? Small opportunity? Deep discounts? No discount?  Who knows.  The sales team will maximize revenue, but marketing has done its part in providing the parts required to build the opportunity. Now it is the sales team to take over and close the deal.  Using MCtR as a metric would be similar to asking a bumper supplier to “give me enough bumpers so I can sell $1M of cars”.  Hugh?  How do you figure that out?  You can’t.  Sales needs to place a parts order based on the leads they need to keep the opportunity assembly line going.  That order is a discrete order of leads that convert at a fixed percentage to opportunities.

Convinced?  I hope so.

Now that this is out of our heads, we can talk about how to measure the impact marketing should have on revenue in the next posting.

MCtR Skews Marketing Program Results (#5)

After the previous four postings, are you still not convinced that MCtR (marketing contribution to revenue) is a dicey metric for sales and marketing management?  Here comes reason #5 – Skewed Marketing Results.

Marketers love to show that their efforts generate revenue. In B2B marketing who wouldn’t?  The problem is that unlike consumer marketing where there is no sales team, in B2B sales there is a sales team that carries anywhere from a little to a lot of the burden of revenue generation. In all but the simplest cases, the sales team carries a lot of the burden in generating revenue.  So while it is nice to claim that a program generated revenue, the reality is that it did not. The program created the situation where a sales rep could start a sales cycle and close a deal.

skewedTherein lies the problem with MCtR – the sales rep and deal size quotient. If programs get evaluated on the revenue generated by the program,  a program’s success gets influenced by measures that could be beyond marketing’s control – namely deal size and sales team effectiveness.  Sales team effectiveness theoretically impacts all programs equally.  But deal size may not and is the more troublesome number in this scenario.   If a program cost $10,000, but generated an opportunity for $100,000 that closed, is the program successful?  Perhaps as a single program yes, since it generated revenue. But the program may not be repeatable if the response rate was .0001%.  In other words, for the $10,000 spending, you got only 10 leads, and one closed, these statistics are so low, that it is unlikely if you reran the program, you would get similar results. If there is such a thing, the marketer in this case got lucky.

Luck and hope are both not strategies.

Now take another example. What about the very same spending of $10,000, that generated $100,000 in closed deals, but did so with 100 deals at $1,000 each, that came from 1,000 leads that came from  a 10% response rate offer.  This scenario seems repeatable. And it is!

Just looking at the “ROI” on a spend can lead you down the wrong path.  It is one more reason why MCtR is not a great metric.

Still not convinced?  We have one more reason to cover.

Transformers (#4)

If you look to the far left of the funnel, marketing tends to focus on driving traffic – either foot or online – to their various marketing assets. It is this traffic that may ultimately convert to a prospect name that may, along with other names, or perhaps different names, convert to an opportunity that sales moves forward as a deal and ultimately closes. The form of what each group cares about changes as it progresses through the funnel.  On one end of the spectrum we start by worrying about traffic, on the other end of the cycle, it is the deal that we track.  Yet that traffic is what ultimately transforms itself into a deal.  B2B Marketing Contribution to Revenue is like tracking a Transformer.

transformerThis changing shape of what is important to those managing the sales process is precisely why trying to do Marketing Contribution to Revenue (MCtR) as a statistic is so difficult and not particularly meaningful.   In a future blog post, I will tie marketing back to revenue, but MCtR is not the way to do it.  This changing shape of tracking is a big part of the reason why this metric is so problematic. Sales reps closing deals talk about, track, and think in terms of the deal. They don’t think about nor track nor connect the clicks that ultimately created the lead that made the deal.  In fact, the clicks that marketing tracked may not even be associated with this deal either because as part of the opportunity development, a different prospect name was introduced through the sales cycle who sales is now working with, or the marketing systems never were able to attach the prospect clicks to the opportunity.

If sales were operating in the world of “I need to close the deal from that click”, you would have tight alignment all the way through the process.  But deals are composed of people, products, objections, different buyer roles, pricing, proposals, ROIs and politics.  Clicks just aren’t part of what sales is tracking.  No fault of sales.  But this changing structure of the deal makes it tough to align the organization on clicks to revenue for complex B2B selling.

There is way to make sure marketing is delivering an ROI, but we won’t discuss that until we are through the next two reasons why marketing contribution to revenue is not a great metric.

Hey New CMO – Stop! Don’t “Fix” That Website

I came across an interesting posting on HubSpot entitled 7 Ugly Truths Websites Can’t Hide. 

It should be required reading for any new to the job CMO or VP of Marketing.  I can’t tell you, or perhaps you already know, that going through the interview process how many times the CEO says “and the first thing you need to do is redo the website.”

Whats clear from this is perhaps the old nasty website got the old CMO fired, but that doesn’t mean its the first thing that will get the new CMO popular. In fact, giving in to the redesign bug before really understanding what is happening will just perpetuate opinion vs. data driven web site design.  Give in on your first assignment to this, and in 18 months when the new site “feels” old to everyone, it will be your time to do the redesign or end up on the street.

The fact of the matter is, before doing anything, read the blog posting on hubspot, then spend 30 – 60 days really diving into the site metrics to see how the site is actually working or not working.  Nuking those pages the CEO doesn’t like may actually cripple site traffic if you are not careful. Redesigning the home page to make the sales VP happy may drive up bounce rates, and that color orange everyone hates, may be good for form completions.

Sites get ugly, sites get old, but if you do it right, you can transform the appraisal of the site by everyone from “feelings” to a data driven approach.  That is the only way to win in the website redesign game.

Today’s image is from Lingscars in the UK. I found the site by Googling “Ugly web sites”. This made a top ten list.  I like it! At least until I can figure out how it works, then do some A/B test to see if I can improve it.  Dig the music too.

Image

Closed Deal Forensics are Notoriously Difficult to Understand (#3)

After reading the first two posts of the Six Reasons Marketing Contribution to Revenue (MCtR) is a dicey metric, if you still want to use this metric, perhaps this post will convince you otherwise.  The only true way to get an accurate number on marketing’s contribution to revenue is do forensic analysis on almost every deal.  You could rely on the sales team to attribute deals to marketing, but even the best trained sales rep has little incentive to spend the time to attribute a deal correctly. Theoretically, they would want to since it then helps everyone get more marketing dollars and focus on programs that work. But let’s be serious, if you are a sales rep, that is long term thinking and the last thing you want your sales team worrying about is marketing strategy. Close a deal, move on, find next deal, close it.  Try asking the VP of Sales for time during a sales meeting to walk through how to correctly attribute closed deals.  You may be able to get it done once, but with so many other pressing issues for sales to deal with, this is unlikely a process that will stick.

coronerNow there are automated ways to associate opportunities to programs.  Contacts get associated with marketing campaigns in salesforce.com, these contacts get associated with opportunities, and when the opportunity closes, the marketing program get’s credited with the closed deal. So theoretically, the closed deal forensics would work.

But the problem is that this system, while excellent for marketing to use to verify that their efforts are resulting in closed deals, is less than reliable for using as an absolute measure of marketing contribution to revenue (MCtR) unless it is used very loosely.  Typically, these MCtR metrics have strict parameters over when a marketing interaction “counts” for the deal to be attributed to marketing.  Campaign attachment to a deal could occur for a variety of reasons in a variety of sequences.  Salesforce.com doesn’t know if someone who just downloaded a white paper did so because Pete in sales cold called them.  So this accounting, unless it is very loose won’t work either to satisfy sale’s requirement for MCtR if they are purists.

Hence, the only really way to do this is dissect each deal and really figure out who, what, where, when and how a deal closed.  Salesforce.com may show you that someone downloaded a white paper, but you need to understand why that white paper download started, when it started and when the “real” sales interaction started.

You could do this for every deal.  But just like trying to get sales time to get attribution codes is tough, try getting sales time to figure out who gets “credit” for a deal.  It is hard enough getting win/loss reports.  And, like I tell my sales reps, when asked “how did you get that deal?” by the CEO, the answer is always “I cold called the CEO of the company at 6:00am on his cell phone that I got by sweat talking his admin”.

You can try to figure out who, what where and when a deal closed, but its not a great use of time.  Automated attribution can work, but only if the team allows a very lax definition of MCtR.

Still not convinced? You will need to read the next blog posting then.

IMAGE HINT – Swiss metal band that would do forensic work.

B2B Sales Cycles Have Many Touch Points (#2)

Measuring marketing contribution to revenue (MCtR) is a dicey proposition for a variety of reasons.   Last post we talked marketing’s work in so many other areas that drives revenue, that to focus purely on lead generation to revenue contribution really under reports marketing’s contribution.

In this post, we look at the complexity and number of touch points in a B2B sales cycle making it difficult to even track MCtR.  Look at a typical B2B cycle.  A prospect may search for a solution online to a problem, she clicks on an adwords, arrives at your site, then bounces and leaves for whatever reason. Next week, she shows up at a tradeshow, wanders by your booth, remembers the ad, and when approached by a sales rep, starts talking.  A follow on email and phone call from the inside sales team yields nothing.

crowdTwo weeks later, someone else from the company phones in to sales and the deal closes three weeks later.  The systems will report out 0% contribution to marketing for the deal.

Take perhaps a more plausible scenario.  Take the same sales cycle, but this time, after the trade show nothing happens.  Marketing then sends emails every three weeks to the prospect.  Eight months later, a sales rep calls into the prospect as part of  a tickler program to old contacts.  The prospect engages, and a deal closes three weeks later.  Depending on how the system reports out marketing contribution, this deal may or may not be marketing contributed.  Some companies use time frames that say once a prospect hasn’t responded to marketing within x months, then any follow on activity from the prospect doesn’t count toward marketing. Other companies may count this deal towards marketing since there are some marketing activities associated with the prospect, but may only call the deal “influenced” not originated.

It is enough to make your head hurt.

Then there is the case of the sales cold call that goes nowhere, followed by the cold call target downloading a white paper and being passed by marketing back into sales.

You can spend more time in deal accounting and trying to make sure MCtR is accurate than actually marketing.

B2B sales cycles are complex. Trying to “credit” marketing to calculate MCtR just adds to the complexity without much benefit.

Marketing Does More than Lead Generation (#1)

The first problem with the “Marketing Contribution to Revenue” metric is that it somewhat ignores the other aspects of marketing’s role.  In most companies I have seen, in addition to demand generation, marketing is also tasked with brand development, product positioning, competitive analysis, sales training, support, and sales cycle support once sales has engaged a lead.

Even in the case of zero marketing lead generation, these activities contribute to overall corporate revenue. Take the case of a company where digital_marketing_transit_map_600there is no marketing driven lead generation.  In this case, assume all B2B efforts are done through cold calling.  Even in this scenario, marketing contributes to revenue.  To start a cold call, you need a trained sales rep (marketing trained).  For a prospect to engage, they are going to look at a marketing created and maintained website.  The prospect may also search for third party validation that marketing has obtained by working with press, analysts and other influencers.

Once a sales cycle has started, the sales rep will use marketing created scripts, white papers, ROI analysis and other material to move the prospect through the sales cycle.Finally, when it comes to close the deal, customer references and other key closing documents were probably created and maintained by the marketing team.

Measuring marketing contribution to revenue by the narrow definition of lead to opportunity closing, ignores significant value added activities done in marketing that support revenue generation.  Gartner’s transit map below gives a good indication of the complexity. You can decode the image above here.

Top Six Reasons CMOs Should Be Wary of Using Marketing Contribution to Revenue (MCtR) as a Metric

Many B2B organizations attempt to measure marketing on their contribution to overall revenue (MCtR). This metric is has many issues with its use.

In this metric, closed deals are traced back to marketing originated leads and marketing is “credited” with the deal.   While this metric has some value,  too much focus on this can completely misguide the company about marketing’s true contribution. Here are the top six reasons why this metric is not one that should be used when evaluating marketing’s success.

I will expand on each of these over the coming blog posts.