When you look at your software company’s marketing department, how do you view it? Is it a cost center or a revenue-driving machine — an assembly line where a controlled amount of raw materials (marketing investment) predictably yields a certain amount of product (revenue)?
If you chose the former, you’re in the majority, says Nadim Hossain, the founder and CEO of predictive analytics company BrightFunnel, a startup backed by a who’s who of advisors and investors, including HootSuite CEO Ryan Holmes and ExactTarget CMO Tim Kopp. If, however, you selected the latter, congratulations — you’ve undergone a shift in mindset that is redefining how businesses leverage their marketing teams to drive revenue.
“Five years ago, it was much more difficult to determine the impact that specific marketing campaigns or channels had on revenue because the technology to track end-to-end conversion was immature or non-existent,” explains Hossain, who has served in various marketing positions at companies like Amazon, McAfee, Salesforce.com, and Bazaarvoice. “Now, with Salesforce.com, Marketo, Eloqua, and myriad other automation and production tools, it’s become much easier to monitor a marketing program’s performance.”
That doesn’t mean, however, that every business is leveraging that capability. And even those that are measuring performance often can’t tie it directly to revenue results.
“There’s still a mindset barrier that’s keeping some CMOs and CEOs from using those tools to tie marketing to revenue,” Hossain says.
“While the best organizations understand that marketing is more than just a lead generation function, there are many CEOs who still believe that marketing’s only purpose is to contribute to the top end of the funnel.”
3 Simple Tweaks to Change Your Marketing Mindset
Consider this scenario for a moment: If you had $100,000 to invest in marketing and had to choose between a handful of channel options (webinars, Google AdWords, and eBooks, for example), how would you allocate that money?
BrightFunnel’s product is designed to make that decision easier by connecting the dots between marketing data silos to generate predictive, actionable revenue insights. But Hossain says that executive teams can also help themselves by making three simple changes to the way they view marketing performance:
- Look in the rearview mirror before you move forward. Generally, a fast-growth company often feels like it can’t afford to look back. But in order to influence future results, Hossain says it’s critically important to study past performance. “The activities and tactics you executed last quarter are what influences revenue this quarter,” explains Hossain. “So if you want to plan for the future, you have to learn from the past. Did those Q2 and Q3 leads turn into revenue in Q4? Why or why not?”
- Group marketing results into cohorts. As you evaluate performance from prior months or quarters, Hossain says you should be grouping data into cohorts that allow you to determine which campaigns or channels succeeded or failed, or which months or quarters have generated higher quality leads than others. Those cohorts could allow you to see, for example, which percentage of leads from webinars in Q1 converted into customers, and how that revenue conversion rate benchmarks against performance in previous quarters.
- Plan better by working backward. Instead of setting a marketing budget and then determining how to allocate your spending, Hossain suggests looking at your revenue targets and working backwards. By doing that, you should be able to determine how many new customers you need to hit that revenue number; how many leads you need to generate to acquire those customers; and where you need to spend your money to achieve that lead volume. And from there, you can use tools with predictive analytics and scenario planning capabilities (like the one BrightFunnel offers) to understand the future return you can expect on marketing investments.
Ultimately, Hossain says, it’s all about more intelligent asset allocation.
“If you want to retire at 65 with a portfolio that’s worth $10 million, you can’t just blindly throw money into a savings account or 401k and hope you hit your number,” Hossain explains. “You have to work backwards from that $10 million to determine the investments you need to make to progressively help you reach your goal. There are numerous financial planning websites, such as Wealthfront, that can help you make investment decisions by prescribing the right asset allocation. At BrightFunnel, we want to do something similar.”
Pairing Marketing Results with Bottom Line Context
Importantly, Hossain says that tying marketing to revenue generation isn’t about just identifying the most cost-effective lead sources, or simply relying on the channels that generate the highest volume of leads.
It’s also about understanding context.
When it comes to assessing your performance, are you using the right metrics?
In other words, if you pull lever ‘X’ and it generates revenue ‘Y,’ that’s great — but what does that really mean for the business in both the short- and long-term?
“Marketing’s relationship with revenue isn’t always about achieving the lowest cost-per-lead, or maximizing the amount of revenue generated per dollar of marketing spent,” Hossain explains. “It’s also about a variety of other factors, like the velocity of your return on investment.”
For example, let’s say one channel returns $5 on every dollar you spend, but it takes 6 months to achieve that return. On the other hand, maybe another channel yields $3 per dollar spent, but you see that return in just two months. Ultimately, Hossain says, companies need to decide which of those scenarios is better for your organization.
“A higher return isn’t necessarily better if it’s delayed,” Hossain says. “What if you go out of business if you miss your Q4 revenue targets? In that scenario, the $3 return per dollar spent makes much more sense, because it puts a premium on getting a faster return and keeping your business afloat.”
Hossain acknowledges that making that kind of evaluation isn’t easy and, without the right data and predictive analytics, scenario planning can be an imperfect science. But that’s exactly what his company’s software is designed to address.
“The problem our software solves is very complex, but our company’s mission is simple — to give marketers the revenue insight they need to make more intelligent investments,” Hossain says. “We’re trying to connect the dots between two things that have been historically disconnected, and move companies into a new era that fuses marketing’s activities with the bottom line goals of the business.”
Photo by: Thomas Claveirole