Editor’s Note: This article first appeared on Forbes here.
Getting sales and marketing to effectively team is the lament of just about every CEO. Achieving alignment goes beyond just getting these two groups to get along; growth depends on them working productively together. If sales and marketing are at odds it impacts the whole business, most notably revenue, customer satisfaction and company productivity. Add to that the reality that discord between these two groups damages the company’s culture, it’s easy to see why alignment is on the top of every CEO’s agenda.
But why is alignment such a persistent challenge? Part of the reason lies with the CEO. While they are experts in measuring the effectiveness of sales, these same leaders are at a disadvantage with it comes to evaluating alignment. Most are unclear as to what the right questions are to ask in order to understand how well marketing and sales are aligned. Without that knowledge, it is hard to know which metrics are the right ones to focus on or how to isolate the root cause of misalignment. With this backdrop, it’s easy to see why measuring sales and marketing alignment can be an overwhelming task – and why CEOs fall back to the pipeline and lead generation metrics they’ve relied on in the past.
Moving to Metrics
What CEOs really want is visibility into, and confidence, in revenue cycle data. They want to understand the productivity of each stage, status of key activities, and the emerging issues they need to worry about. In managing the revenue cycle, and by default sales and marketing alignment, visibility is critical to helping them temper their instinctive response to the deluge of daily email, phone calls and meetings.
The best way to gain that visibility is with tools the CEO and Board are already familiar with, namely KPIs. With the right set of metrics, CEOs can better understand marketing’s effectiveness as well as the impact alignment has on the top- and bottom-line. While there are literally hundreds of sales and marketing metrics that can be used; it comes down to three that measure alignment and frame that all-too critical joint conversation with sales and marketing about what’s working and what isn’t. Done right, metrics-based management can move a company toward alignment as well as help institutionalize cross-organizational transparency.
There are three key metrics that CEOs should start using to achieve this:
- End-to-End Conversion
- Revenue Diversity
- Outcome Profitability
End-to-End Conversion Metric measures the conversion ratio for the full revenue cycle well as for each of the major stages – from market attraction through sales close and customer lifetime value. Benchmarked over time this metric highlights leakages and inefficiencies between stages, sales and marketing, and enables more accurate forecasting and target performance setting. Aligned organizations tend to have stable conversion ratios and use this metric to discuss how to improve the ratios between the stages and overall. A significant change up or down in conversion from one stage to another is a flag that warrants investigation.
Revenue Diversity Metric measures the productivity of lead generation. There are hundreds of lead sources like the web, direct mail, physical and virtual events, email, cold calls, eCommerce, other distribution channels, etc. This metric provides visibility into how broadly and efficiently marketing reaches target prospects, which lead sources are most productive and how effective sales converts them into revenue. Aligned organizations manage their revenue sources using portfolio management techniques to balance the diversity of lead channels. The key is to invest eighty percent of resources into high productive lead generation sources. The remaining twenty percent should be consistently invested in a wide and ever changing range of new channels.
Outcome Profitability Metric is applicable to companies that sell complex products or solutions. Since not every sale can have four walls and a roof where the buyer only cares about comparing product features; complex solutions need to link the buyer’s desired outcome, which is often role-based. Used in conjunction with customer-centric methodologies, this metric measures profit attributable to each specific business problem or “outcome” sold to. While this approach is counter to how revenue is typically analyzed, which is by product lines, it gives the CEO great visibility into how well sales and marketing understand the buyers, their business problems and how effective they are in pursuing those opportunities. Aligned companies should see consistent profitability trends for a handful of role-based outcomes and see the profitability track the outcome’s maturity curve.
These three metrics are starting points for CEOs looking to gain visibility into how aligned their organizations are. Reporting on these metrics will require some heavy lifting by sales and marketing as they are not standard reports in Salesforce.com or Marketo. But that is part of the value because through the learning process to calculate these metrics, sales and marketing will have to work together and will jointly discover where gaps exist, systems aren’t integrated or conflict, and where they can no longer assume popular held beliefs.
The learning process is more often more valuable than the metrics themselves. It forces sales and marketing to the table and forces the CEO to get involved and pay attention. The metrics shed visibility into alignment and empower CEOs to ask the right questions and lead the company to the next stage of alignment.