Most CEOs and boards now expect that B2B marketing leaders accurately forecast their contribution to revenue. The multitude of marketing technology and analytics tools which are available help enable this by improving visibility into marketing spend. Projecting revenue contribution is a hot topic amongst CMOs, especially with the constant flow of solutions being introduced into the market. The key to success for appropriate contribution forecasting consists of understanding the variables that go into setting a goal for contribution. Doing so will help build a strong sales and marketing strategy.
The diagram below shows how your company may compare to others. The revenue lifecycle of three different companies is shown to provide insight into the variability involved. Identify the one that best resembles your organization.
All three companies have radically different results from building the same capability. Company A is an industrial manufacturer of capital equipment. Their marketing investment has remained steady, in order to grow the revenue contribution capability from scratch. They haven taken a cautious path to validate results before expanding. Company B is a $500M business services company which transitioned to lead generation in Year 1. Today, 42% of their revenue originates as a lead from marketing. Company C is a rocketing SaaS company in the early stages of growth.
Revenue contribution doesn't simply rely on a company's specific industry.
What Should My Goal Be for the Percentage of Revenue Contribution?
The answer for most companies is 25-30%. A quarter of total company revenue should be contributed by marketing. This is a reliable benchmark for established companies operating with best practice lead generation capabilities. SBI’s benchmark data shows 25-30% across industries with the exception being high growth technology companies. Other limitations include companies with dominant product or market advantages; for example, Oracle is famously known for having a marketing contribution north of 60%. For some CMOs, tracking of their metrics is not yet in place and needs to be established. Aiming for a 25% contribution is a solid target for those who are working to develop this capability.
Which Leads Count and Which Don’t?
Marketing’s contribution to revenue is defined as the percentage of revenue from marketing. Only revenue that originates as a lead in the funnel should be counted. The lead must come from marketing and transition through the customer relationship management (CRM) platform to sales. This same exact lead record must be converted to an opportunity, and then into a win in order to count. The practice of matching up sales wins with campaign responses do not count.
Identifying the ideal number for your company requires an analysis of several factors. Ideally, this is done in the process of developing a marketing strategy.
There are many variables involved in identifying the right amount of revenue contribution. After all, the marketing amount is in context with the sales number. You can experience a false positive if the sales team crushes their number with a stellar year. Marketing’s contribution as a percentage goes down as a result. Without context, it would appear marketing’s performance was lower than reality. Likewise, if the sales team misses the number significantly, then the reverse is true. Marketing’s performance seems better than reality. It’s all in the context.
The exact marketing contribution to revenue number involves analysis of these variables:
A strong marketing and sales strategy provides answers to all these questions. Take all the factors above and use that as a rationale to come up with your goal. Assuming there is a competitive product, the percentage of growth should be higher than market growth. Lastly, ensure to tie aggressive growth projections to the corresponding marketing budget for realistic and attainable forecasting.