Marketing has shifted from relying on vague measures of success to a results-focused approach to lead generation. Instead of hazy assertions about brand awareness, marketers that want to truly understand marketing ROI begin with determining the percentage of total revenue that comes from marketing contribution.
However, calculating marketing contribution can be a challenging task. It requires evaluating different sources of revenue individually to accurately determine the impact of marketing efforts. This article provides marketing and sales leaders with a framework to define marketing contribution for their company and two simple steps to establish a clear understanding of its impact on revenue growth.
Step 1: Align Marketing and Sales
To truly understand marketing ROI, senior sales and marketing leaders must partner and establish a clear definition of "marketing contribution" for your business.
It is relatively easy to define net new customers. Marketing should also be directing significant resources towards existing customer opportunities for upsell and cross-sell. However, determining the true marketing contribution for these efforts can be challenging, especially when there are deep relationships between sales reps and existing customers. Sales leaders may feel annoyed when marketing claims credit for revenue generated from long-term cultivated customers, while marketing leaders may feel frustrated when they are excluded from the existing customer base.
To overcome these challenges, sales and marketing leadership must approach the issue with a partnering mindset. Since sales resources cannot cover every account, marketing plays a crucial role in driving awareness and early-stage interest. The most efficient lead generation efforts are often campaigns run with the existing customer base. By leveraging marketing, sales can increase the opportunities in the sales funnel.
To accurately determine marketing contribution, focus on identifying an "inactivity period" where a sales rep has not been actively engaged with a contact. Marketing efforts that activate a contact to engage should be credited as a contribution by marketing. The percentage of revenue derived from these activations should be carefully tracked and celebrated.
While sales leaders may sometimes question the effectiveness of marketing activations that would have likely happened regardless of marketing involvement, it is important to recognize the advantage of early engagement. Marketing efforts drive engagement early in the process, which, when combined with lead nurturing and timely sales involvement, increases close rates and keeps competitors at bay.
Document the agreed definition of marketing contribution and maintain an ongoing dialogue as marketing and sales review the bottom-line results of lead generation. Evaluate scenarios to validate the definition and focus on common occurrences in the field, rather than rare exceptions. Agree on a draft definition and plan to revisit it monthly, as tweaking and fine-tuning may be necessary as you track actual results with real-life examples.
Step 2: Determine the Marketing Contribution % of Revenue
Separate the sales revenue into three buckets: all revenue from net new customers, cross-sell and upsell revenue from existing customers, and the remaining re-occurring revenue from past sales efforts e.g., maintenance fees, service agreements, license upgrades, etc. It’s important to evaluate revenue from net new customers and revenue from existing customers differently since they are vastly different in the difficulty of acquisition and the expected percentage of contribution. Additionally, organizations with field marketing personnel have a greater capacity and therefore have higher contribution levels.
Use the Marketing Contribution % of Revenue Calculator to determine the total marketing contribution for your organization. Once you have segmented your revenue, determine the expected marketing contribution for each revenue type based on the agreed upon definition and the revenue contribution rate.
Net new customers - Marketing typically will have a contribution rate of 15-30%. The range depends on the level of maturity of marketing capabilities. A best-in-class demand generation team supported with experienced lead management staff will trend toward 30%.
Existing customers - Marketing contribution will range between 10-20%. This is significantly less than net new customers due to greater quantity of sales deals derived from existing customers. The percentage of contribution is lower, but total revenue is usually greater than net new revenue.
Re-occurring revenue - Because this is revenue attributed to past performance, this is typically 0%.
Figure 1. Example of marketing contribution factored using the contribution calculator.
In Summary
Encourage marketing and sales teams to use marketing contribution to sales revenue as a foundation to measure your marketing efforts. The expected contribution figures can serve as benchmarks for comparison. Once the baseline is set, the marketing team can strive to exceed their targets and achieve top-notch performance.