Our digital marketing agency, TopRank Marketing, works with some very smart client marketers who have invaluable insights and perspectives. I’m happy to share the following sage advice from Jon Miller, VP Marketing and co-founder of Marketo, and author of Modern B2B Marketing blog on something important to all marketers: keeping the CEO on track with your marketing budget for next year.
Now is the time when marketing executives everywhere are going through the annual dance of building and then cutting their marketing budgets for the year. The process typically looks like this:
- The CEO asks each department to come up with a proposed budget for the next year
- The CMO pulls together a budget based on his or her best calculation of what is actually needed to achieve next year’s goals
- The CEO takes pride in keeping a tight control on expenses and takes a scalpel to the budget and a result, marketing is forced “do more with less”
Tie Marketing Investment to Revenue
The problem with this situation is that the CEO thinks of marketing as a cost center, not a revenue driver. If the head of sales says he or she needs additional sales reps to drive the top line, the CEO doesn’t question it, but every dollar for the head of marketing is scrutinized.
The answer is to tie marketing investment to revenue impact. For example, I recently presented two different marketing budgets to my CEO. Plan “A” came in at the cost number my CEO asked me to hit, but I also presented a Plan “B” that was 22% higher in terms of investment but that generated 16% more pipeline and revenue. (There is often declining marginal return on incremental spend.) This netted out to a 77% ROI on the incremental marketing investment, making it a no brainer for my CEO to choose the higher plan.
How to Get Started
Of course, measuring and forecasting marketing’s impact on revenue is easier said than done. Marketing dollars spent today have an uncertain impact on revenue at an uncertain time in the future. And CMOs don’t typically have the tools to be able to make accurate marketing forecasts about how today’s investments return future revenue.
But there’s one thing marketing can do to get started, and that’s to define their revenue cycle and then begin to track how prospects and opportunities move through it over time. Most companies have a good understanding of their “sales cycle”, and there are numerous sales methodologies, such as SPIN Selling and Miller-Heiman, that provide standard benchmarks and best practices for the sales function. Whether it is “Situation”, “Problem”, “Implication” and “Payoff”, or any other defined process, the stages provide the sales team with a framework for making forecasts, e.g. Stage 1 is 10% likely to close, Stage 5 is 70% likely, etc. However, these sales methodologies do not provide a sufficient view of what is coming from the earlier stages of the revenue process; and that’s why it’s important to look at the entire revenue cycle.
That is why the first step in making a marketing forecast is defining the revenue stages a prospect can pass through. These can be as simple as “All Names”, “Marketing Qualified Lead”, “Sales Qualified Lead”, “Sales Accepted Lead”, etc., or you can add additional stages to model more complex movements through the buying process.
By formally defining each stage, as well as the business rules that determine when a prospect moves from one stage to the next, you can begin to understand the dynamics of how your prospects flow through the pipeline over time – and then use marketing analytics to start making forecasts about how they will flow in the future, and about how marketing investments today will drive pipeline and revenue tomorrow.
CMOs that use analytical rigor and a deep understanding of how prospects move through the revenue cycle to make accurate revenue forecasts are in a great position to demonstrate the impact marketing activities have on revenue, justify and protect their marketing budgets, and increase their personal power and credibility in the organization.