2 20792 definitive-guide-to-marketing-metrics-marketing-analytics (1)

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2. Definitive Guide to Marketing Metrics and AnalyticsContentsWhy Should I Read the Definitive Guide Part 5: Program Measurement 37to Marketing Metrics and Analytics? 3 Why Measuring Marketing Programs is Difficult 38 Method One: Single Attribution (First Touch / Last Touch) 40Part 1: Measurement Builds Respect and Accountability 4 Method Two: Single Attribution withWhy Now Is The Time For Marketing Metrics 7 Revenue Cycle Projections 41 Method Three: Attribute across Multiple ProgramsPart 2: Planning for Marketing ROI 9 and People 44Step One: Establish Goals and ROI Estimates Up-Front 11 Method Four: Test and Control Groups 46Step Two: Design Programs to Be Measurable 15 Method Five: Full Market Mix Modeling 48Step Three: Focus on the Decisions Program specific metrics what you shouldthat Improve Marketing 16 measure and track 49 Conclusion: Program Measurement Applied 50Part 3: A Framework for Measurement 17Where Metrics Go Wrong 19 Part 6: Marketing Forecasting 51The Right Metrics 21 Part 7: Dashboards 55Part 4: Revenue Analytics 23Define the Revenue Cycle 24 Part 8: Implementation People, Process,Revenue Cycle Metrics That Matter 29 and Technology 59Revenue Performance Management Metrics 33 People and Culture 60 Process 62 Technology 64 Conclusion 65 Key Lessons to Improve your Performance, Profitability, and Credibility with Marketing Metrics and Analytics 66 2011 Marketo, Inc. All rights reserved. 2

3. Definitive Guide to Marketing Metrics and AnalyticsWhy Should I Read the Definitive Guideto Marketing Metrics and Analytics?Do you know what profits a 10% increase This guide will help you do just that. Wein your marketing budget would generate? will help you answer key questions like:According to the Lenskold Groups 2010 B2B hat are the most important marketing W 5 QUESTIONS TO GUIDE YOURLead Generation Marketing ROI Study, the metrics for me to use? MEASUREMENT INSIGHTmost common answer to this question is 1. hat are your specific objectives for marketing W ow can I measure my various marketing HI Dont Know. investment and how will you connect your programs impact on revenue and profit?Forty-four percent (44%) of qualified investments to incremental revenue and profit? ow can I best communicate marketing Hmarketers have no idea what a 10% budget 2. hat impact would a 10% change in your W results with my executive team and board?increase could do for their companies. marketing budget (up or down) have on your hich personnel, procedural, and W profits and margins over the next year?If you fit into this 44%, you will experience cultural changes need to occur within my The next three years? Five?difficulty protecting your budget. In fact, youll organization so I can implement marketinglikely find yourself asking the question the other 3. ompared to relevant benchmarks (historical, C measurement?way around: What will happen now that my competitive, marketplace), how effective are youbudget has been decreased by 10%? And many more at converting marketing investment into revenueYou cant expect your organization to place value and profit growth? The bottom line of any business is the topon something youre unable to quantify. line: revenue and faster growth! 4. hich are appropriate targets for improving W revenue leverage (defined as dollars of profit So lets get started. over dollars of marketing and sales spend) over the next few years? Which initiatives will get you there? 5. hat questions do you still need to answer W with regard to your knowledge of the return on marketing investments? What are you going to do to answer them? (Source: MarketingNPV) 2011 Marketo, Inc. All rights reserved. 3

5. Definitive Guide to Marketing Metrics and AnalyticsPart 1: Measurement Builds Respectand AccountabilityMarketing suffers from a crisis of credibility. ow much profit was made last quarter HTypically, executives outside the marketing versus this quarter?department perceive that marketing exists ow much revenue and profit do you H CUT PROGRAMS TO BUILD CREDIBILITYsolely to support sales, or that it is an arts and forecast for the next quarter? According to Marketo CEO Phil Fernandez, the #1crafts function that throws parties and churnsout color brochures. Either way, marketing hy are you confident in the above answers? W thing a marketer can to do to build credibility withoften does not command the respect it the CEO is to offer some cuts to marketing programs.deserves. Soft metrics like brand awareness, GRP, Show that you are de-funding things you impressions, organic search rankings and previously did that either A) didnt work; B) werentWhat can marketers do so they are seen reach are important but only to the extent aligned with evolving company goals; or C) seemas part of a machine that drives revenue that they quantifiably connect to hard less important now than other initiatives. This helpsand profits? How can marketers take more metrics like pipeline, revenue, and profit. demonstrate a strong sense that you are managing acontrol over the revenue process, build the portfolio of investments, and that you are willing torespect of their organizational peers, and Of course, marketers must track and measure the impact of all key marketing activities, make hard choices with company money.earn a seat at the revenue table? both hard and soft. But keep all but the most critical metrics internal to marketing.Use metrics that matter to By speaking the same quantitative languagethe CEO and CFO as the CEOs and CFOs, marketers will betterIts no secret that CEOs and boards dont communicate marketings value and impact tocare about the open rate of your last email the executive suite. Seventy-six percent (76%) of B2B marketing professionals agreecampaign or your last press releases numberof views. See Part 4 for more on how to measure or strongly agree that their ability to track marketing ROI givesIn todays economy, CEOs and CFOs the right revenue metrics. marketing more respect. Source: Forrester Researchcare about growing revenue and profits: ow much faster are we growing now H versus last quarter? Last year? 2011 Marketo, Inc. All rights reserved. 5

6. Definitive Guide to Marketing Metrics and AnalyticsPart 1: Measurement Builds Respectand AccountabilityKnow the impact of each When you talk about marketing spending, arketing has always been a grueling and competitive sport not Mmarketing investment other executives think of costs and profit unlike running a marathon. With the changes in the buying process,If you cant confidently identify which parts of loss. When you talk about future results, in media and technology, and managing expectations, its likeyour marketing truly deliver financial returns, they think of revenue and growth. running a marathon as the ground shifts beneath your feet. Whatmarketings impact and influence will continueto be limited across your company. This will To formulate accurate forecasts, sales was already difficult is becoming increasingly difficult. If youre and marketing must sit together at the going to do it without measurement, its like running a marathon,not only hurt marketings influence and revenue table.credibility; it can also prevent your company in an earthquake, blindfolded. David Raab, Author, Winning thefrom making the right strategic investments to See Part 6 for more on Marketing Forecasting. Marketing Measurement Marathonimprove results over time.See Part 5 for more on measuring the impact Make hard business cases for spending With its forecast in place, marketing must thenof various marketing programs. make a hard business case for the resources it needs to deliver the results it has promised.Forecast results, not spending This requires knowing what it will take inForecasting is perhaps the single most money, time, and effort to acquire newimportant thing marketers can do to change qualified leads and nurture those leads untilthe perception that marketing is a cost center. they are ready to talk with sales.In the same way that you cant drive quickly Marketers who use this type of rigorousif you rely only on your rear-view mirror, you methodology are able to frame their budgetscant be an effective marketer if you only in terms of investments, not costs, and arereport what has happened in the past. The better able to justify and defend their budgets.best marketers forecast the results they expectin the future and quantify their forecasts interms of leads, pipeline, and revenue. 2011 Marketo, Inc. All rights reserved. 6

7. Definitive Guide to Marketing Metrics and AnalyticsPart 1: Measurement Builds Respectand Accountability As the function that owns the relationship CEOs Grade MarketingWHY NOW IS THE TIME FOR with these early stage prospects, Marketing 67% of CEOs give their marketing departments a B or CMARKETING METRICS 20% now is responsible for a much greater portion of the revenue cycle than ever before.The way that prospects research and buysolutions today has been forever transformed But with great power comes greatby the abundance of information available on responsibility. Not sure the marketing programswebsites and social networks, and this in turn made a dierence, but they probably Enter Marketing Metrics. had some impact even thoughfuels a significant change in the way marketing contribution wasnt measuredand sales teams must work and work CEO ratings of marketings performance 47%together to drive revenue. directly rise and fall with marketings ability to quantify how their campaigns and programsBecause they have ready access to deliver value in line with company revenueinformation, buyers resist engaging with sales objectives. It is more important than ever foruntil much later in the buying process. marketing to link the impact of its efforts and Marketing programs madeThis presents an incredible opportunity financial investments to revenue and profit, a dierence but contributionfor marketing to reinvent itself as a core and establish a true process for marketing ROI wasnt measuredpart of the companys revenue engine. in their companies. 35% 0% of the buying process is now complete 7 Marketing programs made an by the time a prospect is ready to engage with impact and marketing was able to sales. SiriusDecisions, Inc. document their contribution Source: VisionEdge Marketing & Marketo 2010 Marketing Performance Measurement and Management Survey of 423 executives 2011 Marketo, Inc. All rights reserved. 7

8. Definitive Guide to Marketing Metrics and AnalyticsPart 1: Measurement Builds Respectand AccountabilityTHE 5 STAGES OF MARKETING ACCOUNTABILITY1. Denial 3. Confusion Inevitably, this will reinforce the perceptionMarketing is an art, not a science. It cant be I know I should measure marketing results, that marketing is a cost center, not a revenue-measured. The results will come; trust me! but I just dont know how. producing asset.At first, the CMO may deny the need to be The CMO knows that marketing accountabilityaccountable for results. Being stuck in this is inevitable, but the path to achieve it 5. Accountabilitystage often leads to marketings isolation from remains hidden. Basic metrics such as lead Revenue starts with marketing.other departments and executives. source tracking and cost-per-lead are put in At this stage, marketing truly finds its place place, but there is no holistic understanding in front of the revenue pipeline where2. Fear of how marketing activities are impacting key marketing stops being a cost center andWhat if my marketing activities dont impact bottom line metrics. starts justifying marketing expenditures asthe bottom line? Will I lose my job? investments in revenue and growth. This isTaking on accountability can be scary, 4. Self-Promotion when the CMO can act, and talk, like a trueespecially when you dont yet know how Hey, come look at all these charts C-level executive, measuring and forecastingwell (or poorly) your department is doing. and graphs! marketings impact on metrics that matter toMarketing accountability is a double-edged the CEO and CFO. This is when marketing truly In a desperate attempt to appear accountable,sword, shining a bright light on weak earns a seat at the revenue table. marketing measures everything that can beperformance as well as good performance. (easily) measured from website page views Getting to this final stage of marketingSome CMOs may be tempted to avoid to press release downloads to search engine accountability is difficult for any organization.accountability just to avoid facing which rankings. These CMOs proudly display their It requires top-level commitment, discipline,category they are really in. results and claim marketing accountability. and investment in the right systems and tools. However, important as these metrics may It can also require a rethinking of marketing be, they lack an explicit connection to hard incentives and compensation. The journey metrics like pipeline, revenue, and profit. The may not be easy, but the resultsin terms result is a focus on soft marketing KPIs instead of peer respect and impact on profitsare of hard revenue growth, on short-term ROI clearly worth it for any marketing team. over long-term marketing accountability. 2011 Marketo, Inc. All rights reserved. 8

10. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROIMany marketers think of marketing ROI as The fastest-growing companies measure Marketing ROI Management Processreporting on the outcome of their programs, ROI to find not just what works, but whatoften in the form of a set of reports they have works better. They focus on improving ROI, 1 Best Assumptionsto deliver monthly. But the best companies not just proving ROI. Process begins with ROIrecognize that reporting for reportings sake scenarios early in the Planning for marketing ROI involves planning cycle to shapeis less important than the decisions those three main activities: objectives, strategies ROI Scenariosreports enable to improve profits. and tactics. 1. stablishing targets and ROI EThis is the difference between backwards- estimates up-frontlooking measurement and decision-focusedmanagement. 2.Designing programs to be measurable 2a Objectives Strategy Tactical Plan Impact & Measurements are ContributionIts important to plan your programs with ROI 3. ocusing on the decisions that will F prioritized rst andin mind from the outset. When you quantify improve marketing then planned concurrentthe outcome you expect from each marketing to campaign plans, so tests Measurement Plan Only with discipline, planning, and a and variations can be Test Variations in Planinvestment, you can then determine exactly incorporated tohow you will measure the program against closed-loop process will you be able to improve precision.those goals and position yourself to achieve improve your marketing ROI. Measurementsthem. 2b Measurements capture lift, diagnose weaknesses, and generate insight to improve eectiveness. 3 ROI Measurement ROI results guide changes to strategies and tactics in the next cycle of marketing, based on which have the History to Guide higher ROI potential. Next Campaign (Source: Lenskold Group) 2011 Marketo, Inc. All rights reserved. 10

11. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP ONEESTABLISH GOALS AND Benefits of ROI goals With ROI goals in place, the CFO will see notROI ESTIMATES UP-FRONT only the cost that goes out the door, but also SHOULD MARKETING HAVE exactly what benefit is expected to come from TO JUSTIFY ITSELF?When planning any marketing investment, that cost. As a result, he or she will be muchyour first step is to quantify your expected more likely to support the investment. According to consultancy MarketingNPV, the twooutcomes. All too often, marketers plan most common questions asked by non-marketingprograms and commit their budgets without Dont worry too much about the fact that executives are:establishing a solid set of expectations about you are making estimates. As long as they arewhat impact they expect the program to clearly labeled, the CFO will understand that 1. Does our marketing generate any value for have. This is a terrible habit, and is one of any plan requires numerous assumptions. shareholders?the underlying reasons why other executives, Just the fact that the marketer is walking 2. How do we know that marketing really works?especially CFOs, question marketing in the door with a spreadsheet of numbers establishes that marketing is speaking the Unfortunately, these questions immediately putinvestments. CFOs language. That in itself is highly effective marketing on the defensive and inevitably causeThe solution is to assign up-front goals, for building credibility. marketers to conduct time-consuming and expensivebenchmarks and KPIs for each marketing analysis to justify their business function. This resultsprogram. Modeling your ROI goals will also help you to: in a significant insight opportunity cost since all the resources that could have been directed towardsThe first step of any program plan should be to dentify the key profit drivers that most I the pursuit of true insight are instead diverted todefine your objectives and then pick measurable affect the model and ultimately your profits. proving that marketing works.metrics to support those goals. Imagine if each reate what if scenarios to see how CPO came with an ROI plan with best case, worst changing parameters may vary the results Most companies will find that profits increase whencase, and expected case scenario outcomes and impact profitability. constrained analytics resources are focused on thethat answered the basic (but critical) question of key decisions that will improve profits rather thanwhat do we expect will happen in exchange for stablish the targets you will use to compare E justifying marketings existence.this money we want to spend? actual results. 2011 Marketo, Inc. All rights reserved. 11

12. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP ONEHow to build models for ROI goals Heres an example ROI calculation, courtesyNot every program will have a complete ROI of Lenskold Group. Note how it captures allcalculation. Some programs will have softer expenses including all variable costs on thegoals, such as number of attendees at an left, and focused on incremental gross marginevent, but as always, the closer you can get to on the right.measuring profits and ROI, the better you willjustify the investment. Basic ROI CalculationEven the simplest ROI goals should include: MARKETING EXPENSES (EXCLUDING OFFER COSTS) MARKETING IMPACT QUANTITY How many incremental sales are generated Campaign Development $25,000 Target Reached 27,000 ow much revenue each sale produces H Mass Media $100,000 % Convert to Sale 2.2% he gross margin percentage T he total marketing and sales investment T Direct Marketing $40,000 Incremental Sales 594 Total Marketing Budget $165,000 Net Present Value per New Sale $875 MARKETING STAFF EXPENSE Incremental Revenue $519,750 Number of Staff Days 6.25 Average Daily Rate $450 Average Gross Margin % 38.0% Total Staff Expense $2,813 Profit from Incremental Sales $197,505 Total Marketing Investment $167,813 Incremental Gross Margin $197,505 Gross Margin Marketing Investment Return (i.e., Net Profit) $29,693 Return / Marketing Investment ROI 17.7% (Source: Lenskold Group) 2011 Marketo, Inc. All rights reserved. 12

13. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP ONELenskold Group provides excellent toolsfor managing marketing ROI, including anonline Lead Generation ROI planning tool.This and other tools are available for freefrom the Lenskold Group website (http://www.lenskold.com/tools/LeadGenTool.html). (Source: Lenskold Group CMO Guide to Marketing) 2011 Marketo, Inc. All rights reserved. 13

14. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP ONEUnderstand Best Case, Worst Case,and Risks ScenariosThe best plans show a range of targets, INCORPORATE ALLincluding expected case, best case, and worst RELEVANT EXPENSEScase scenarios. This lets you protect yourcredibility in case things go sour, and shows Often, marketing ROI models show ridiculously highan understanding of how changes to various returns because they dont incorporate all relevantassumptions might impact the results. variable and semi-variable costs. Examples include:It also shows that you understand the possible taff costs within marketing Srisks that would hurt your programs ROI. Its ravel expenses Toften a good idea to run your assumptions and he cost of sales time spent following up on leads Ttargets by the most skeptical and pessimisticmember of your team. Let them find all the Take, for example, a program that generates a lotways the program could fail and then, where of leads but does not include the cost of the timepossible, put in place contingencies to manage sales wastes on pursuing leads that dont convert.the risks. This may include things directly Its quite possible that a program that at first appearsrelated to the program, but it can also include profitable will show a negative ROI once thesebroad changes to the business environment expenses are included.and economy. By proactively identifyingand managing risks up-front, you lessen thelikelihood that other executives will shootbullets at your feet later on. 2011 Marketo, Inc. All rights reserved. 14

15. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP TWODESIGN PROGRAMS TO BE Data Collection A key part of planning for measurement isMEASURABLE simply tracking the appropriate attributes MEASUREMENT COSTS MONEY for all your marketing programs (and their SO SPEND WISELYThe best marketing programs have variants). This can include target audience,intentional measurement strategies planned message, channel, offer, investment level, and Exercise discernment.in advance. So as part of planning any any other relevant attributes. While its possible to measure just about anythingprogram, you need to answer these three in marketing, it is impossible (and unprofitable!) toquestions: Most companies do not begin this process measure everything. early enough in their lifecycle, and they pay What will you measure? for it later. Even if you dont use the data Begin with the end in mind. When will you measure? right away, it will become invaluable down As Jim Lenskold says, Prioritize when and How will you measure? the road when you attempt any of the more what to measure based on the answers you need sophisticated approaches towards measuring to make decisions that will improve your profits.In almost every case, you will need to program effectiveness. These attributes can Invest in Marketing R&D.take specific steps to make your marketing be stored in anything from your marketing This is a term used by consultant Jim Sterneprograms measurable. This often includes automation system to a simple spreadsheet (@jimsterne). Just like the overall corporation investssetting up test and control groups or varying hosted on a share drive what matters the in R&D to generate future profits, marketing shouldyour spending levels across markets to most is that you start to build the history as do the same to generate similar insights to optimizemeasure relative impact. Without variance early as possible. future profits. In other words, sometimes it is OK toin your marketing, you may not be able to run a marketing program where the primary goal isuse modeling to tease apart the incremental to learn whether something works, or how to makeimpact of your marketing programs and it work better. A good rule of thumb is that allocatingimprove your marketing precision and mix. It is more important to periodically capture 10% of your budget to testing and experimentationSee Section 5 for more on measuring ROI potentially high-impact insights than to frequently is usually a wise investment.using test and control groups. measure less important outcomes simply for reporting purposes. Jim Lenskold, Lenskold Group 2011 Marketo, Inc. All rights reserved. 15

16. Definitive Guide to Marketing Metrics and AnalyticsPart 2: Planning for Marketing ROI STEP THREEFOCUS ON THE DECISIONS Your highest-ROI decisions will often flow from strategic questions about offers,THAT IMPROVE MARKETING messages, target segments and geographies MARKETING REPORTING: JUST BECAUSEYoull deliver the best ROI and reap the not simply pass/fail assessments of specific YOU CAN DOESNT MEAN YOU SHOULD programs or tactics. You can always evolvehighest corollary benefits when you move past your mix of tactics, but even the best tacticsbackward-looking measurement to forward- Perhaps youve heard the adage that you can applied across the wrong strategies wontlooking decisions. torture the data until it confesses? What this means produce a fraction of your desired results. is its important not to measure just what you can,This is the difference between marketing In other words, marketers should focus but what you can ACT on. Think about where youmeasurement and marketing management. beyond what is and start measuring want to end up before you begin, and strategize fromIt is the difference between data, intelligence, what if. there. Ask yourself, What question am I trying toand knowledge. answer, and what would I do if the answer were Each measurement should seek to augment X or Y?An integral part of your planning process your understanding of how to make theis identifying up-front what decisions you program better and align it with yourneed to make to drive company profits, and companys strategic objectives. This way,then building your measurements to capture even if you dont meet all of your programinformation that facilitates these decisions. goals, you can still figure out why and how toThis means you must measure things not just improve the program. This is almost alwaysbecause they are measurable but because better than launching a new program youthey will guide you towards the decisions dont yet know anything about.you need to make to improve companyprofitability.Isnt it time to swap your over-the-shoulderstance, which prevents you from movingforward efficiently, for strategic, objective-driven momentum? 2011 Marketo, Inc. All rights reserved. 16

18. Definitive Guide to Marketing Metrics and AnalyticsPart 3: A Framework for MeasurementCEOs and boards dont care about 99% of There are many other areas of marketingthe metrics that marketers track but they metrics that are not addressed directly in thisdo care about revenue and profit growth. Guide. These include: CUSTOMER SATISFACTION AND NET PROMOTER SCORESThere are two primary categories of financial Customer Profitability: Lifetime value of an For many companies, a key metric is their Net Promoter Score (NPS),metrics that directly affect revenue and profits: incremental customer a customer loyalty metric based on customer answers to the question, evenue Metrics: Marketings aggregate R W eb Analytics: Measures Web visibility to how likely are you to refer us to friend or colleague? According to impact on company revenue target audiences against potential audiences, answers on a 0-to-10 rating scale, customers are grouped into three and compares against industry and competitor categories: arketing Program Performance Metrics: M benchmarks Promoters (9-10) The incremental contribution of individual marketing programs Public Relations: Measures views and impact Enthusiastic customers who will fuel growth with repeat and referral of corporate communications initiatives business. Passives (7-8) Product Performance: Comparatively Current customers susceptible to competitor offerings and thus have a measures the total sales and margins of neutral brand impact. individual products Detractors (0-6) Brand Preference and Health: Assesses Customers who voiced dissatisfaction and harm brand preference in relation to preference for the brand. competing brands To calculate a brands NPS, use the following equation: Sales Tool Usage: Measures which product NPS = [% of Promoters] [% of Detractors] marketing materials are being used the most A companys Net Promoter Score has been shown to have positive And many other areas correlations with faster growth and profits. Marketos own research This is not to imply that these metrics are not provides support for measuring customer satisfaction: high-growth important for marketers to track just that companies are more likely than low-growth companies to incorporate they are likely to be less relevant to financially- customer satisfaction into their marketing executives compensation. focused executives outside of marketing. 2011 Marketo, Inc. All rights reserved. 18

19. Definitive Guide to Marketing Metrics and AnalyticsPart 3: A Framework for MeasurementWHERE METRICS GO WRONG Measuring what is easy Activity, not results When it is difficult to measure revenue and Marketing activity is easy to see and measureThere are literally hundreds of marketing profit, marketers often end up using metrics (costs going out the door), but marketingmetrics to choose from, and almost all that stand in for those numbers. This can results are hard to measure. In contrast, salesof them measure something of value. The be OK in some situations, but it raises the activity is hard to measure, but sales resultsproblem is that most of them relate very little question in the mind of fellow executives (revenue coming in) are easy to measure. Is itto the metrics that concern a CFO, CEO and whether those metrics accurately reflect the any wonder, then, that sales tends to get theboard member. financial metrics they really want to know credit for revenue, but marketing is perceived about. This forces the marketer to justify as a cost center?Of course, its okay to track some of these the relationship and can put a strain onmetrics internally within your department marketings credibility. Efficiency instead of effectivenessif they will help you make better marketing In a related point, Kathryn Roy of Precisiondecisions. But its best to avoid sharing them Focusing on quantity, not quality Thinking suggests paying attention to thewith other executives unless youve previously According to a 2010 Lenskold Group / emedia difference between effectiveness metricsestablished why they matter. Lead Generation Marketing ROI Study, the (doing the right things) and efficiency metrics number one metric used by lead generation (doing possibly the wrong things well).Vanity metrics marketers is lead quantity, whereas barely half For example, having a packed event is noToo often, marketers rely on feel good of marketers measure lead quality. Focusing good if its full of all the wrong people.measurements to justify their marketing on quantity without also measuring quality Effectiveness convinces sales, finance andspend. Instead of pursuing metrics that can lead to programs that look good initially senior management that marketing deliversmeasure business outcomes and improve but dont deliver profits. (To take this idea to quantifiable value. Efficiency metrics are likelymarketing performance and profitability, they the extreme, the phone book is an abundant to produce questions from the CFO and otheropt for metrics that sound good and impress source of leads if you only measure quantity, financially-oriented executives; they will be nopeople. Some common examples include not quality.) defense against efforts to prune your budgetpress release impressions, Facebook Likes, in difficult times.and names gathered at trade shows. 2011 Marketo, Inc. All rights reserved. 19

20. Definitive Guide to Marketing Metrics and AnalyticsPart 3: A Framework for MeasurementCost metrics What went wrong here? The marketerThe worst kinds of metrics to use are cost performed well, but he made the mistakemetrics because they frame marketing as of not connecting his marketing results to FINANCIAL OUTCOMES OVER ACTIVITYa cost center. If you only talk about cost and bottom-line metrics that mattered to the CEO.budgets, then no doubt others will associate Look at the following (sanitized) letter from a CFO to a CMO for an By framing his results in terms of costs, he illustration of why financial outcomes are more important than activity,your activities with cost, too. perpetuated the perception that marketing cost and quantity.Lets take a look at a real-life example: is a cost center. Within this context, its only natural that the CEO would reduce costs and We seem to be purchasing GRPs and click-thrus at a lower cost than Recently, a marketer improved his lead most other companies, but what value is a GRP to us? How do we reallocate the extra budget to a revenue quality and simultaneously reduced his know that GRPs have any value at all for us, separate from what others cost-per-lead to $10. Thrilled with his generating department such as sales. are willing to pay for them? How much more/less would we sell if we results, he went to the CEO to ask for purchased several hundred more/less GRPs? more money to spend on this highly I think we need to look beyond these efficiency metrics and find a successful program. way to compare all these options on the basis of effectiveness. We Did the marketer get his budget? need a way to reasonably relate our expenses to the actual impact No. The CEO decided the reduced lead cost MARKETING CHAMPIONS they have on the business, not just on the reach and frequency we create amongst prospective customers. Until we can do this, Im not meant marketing could deliver the same Marketers have to be clear about what marketing comfortable supporting further purchases of advertising exposure results with fewer dollars and so she cut produces. Sales sells, but what does marketing either online or offline the marketing budget and used the extra produce? You might answer brand awareness, funds to hire new sales people. It seems to me that, if we put some of our best minds on the challenge, leads, and sales tools. But these answers we could create a series of test markets using different levels of disempower the marketing function. The best advertising exposure (including none) in different markets which might answer is that marketing generates cash flow in actually give us some better sense of the payback on our marketing the short term and identifies sources for future expenditures. cash flow in the long term. My experience tells me that we are not approaching our marketing Roy Young and Allen Weiss, MarketingProfs programs with enough emphasis on learning how to increase the payback, and are at best just getting better at spending less to achieve the same results. (Source: MarketingNPV) 2011 Marketo, Inc. All rights reserved. 20

21. Definitive Guide to Marketing Metrics and AnalyticsPart 3: A Framework for MeasurementTHE RIGHT METRICS The Time Dimension Set Goals Lenskold Group points out that there are As discussed in Section 3, make sure you setIf activity, cost, and quantity arent the also different types of metrics in each goals for each of the key metrics you chooseright metrics to use, what are? Anything category, based on time: to track. Your goals will put your performancethat speaks to the CFOs areas of primary Past: How did we do? into context, and help you and your fellowconcern: revenue, margin, profit, cash flow, Present: How are we doing? executives see if your results are on par withROI, shareholder value in other words, your Future: How will we do? whats expected or better, or worse.companys ability to generate more profitsand faster growth than your competitors. These questions break into three corresponding metric categories:This is what Roy Young and Allen Weissof MarketingProfs call speaking the financial Business Performance These are the most common reporting metrics thatlanguage of business. Metrics & KPIs you share with fellow executives, often on a dashboard.Financial Metrics How did we do last week? Last month? They are mostly BACKWARDS looking metrics.Most B2B marketers should focus on two Last quarter?categories of financial metrics: Diagnostic Metrics These metrics deliver insight into your CURRENT What is working, and what can work better? performance, often by comparing against historical dataRevenue Metrics Marketings aggregate trends and competitor and marketplace benchmarks. impact on company revenue Leading Indicators These metrics help you look FORWARD and forecastMarketing Program The incremental How will we be doing in the future? future results. (See Section 6, Forecasting.)Performance Metrics contribution of individual marketing programs 2011 Marketo, Inc. All rights reserved. 21

22. Definitive Guide to Marketing Metrics and AnalyticsPart 3: A Framework for MeasurementThe Right Metrics: Summary BUSINESS PERFORMANCE DIAGNOSTIC METRICS LEADING INDICATORS PAUL ALBRIGHT, MARKETOS CHIEF REVENUE METRICS & KPIS PRESENT: WHAT FUTURE: HOW WILL OFFICER, SHARES HIS SECRETS FOR PAST: HOW DID WE DO? IS WORKING? WE BE DOING? MEASUREMENT SUCCESS:Revenue Metrics Aggregate impact ead generation L onversion rate C ize of prospect S 1. hoose no more five key metrics. Its hard to C on company revenue versus targets versus trend or database size put organizational focus on more than that, so Cycle time benchmark arketing M choose wisely. contribution forecast 2. easure success versus goals for those metrics M for every campaign, every channel, every salesMarketing Program Incremental Investment Response rates xpected E rep/region, every product, etc.Performance Metrics contribution of Pipeline contribution ift over control L contribution forecast individual marketing rogram ROI P group 3. how trends for those metrics over time that S programs way you can immediately see where you are improving and where you are not.Profit Per Customer Lifetime value of an verage selling price A nvestment to I Retention rates 4. ut on a dashboard for everyone to see so there P incremental customer acquire roducts per P is always a succinct view of what marketing is a customer customer trying to achieve, and where you stand. arginal cost to M Net promoter scores serve 5. ave recognition systems tied to goals. Make H sure top contributors get recognition give them badges they can put on the desks or cube. 6. Rinse and repeat. The best performing companies track results weekly, monthly, and quarterly so they can improve just as often. 2011 Marketo, Inc. All rights reserved. 22

24. Definitive Guide to Marketing Metrics and AnalyticsPart 4: Revenue AnalyticsPerhaps the most important metrics for a prospects movement from one stage tobuilding marketings credibility are the the next, they create the foundation for ametrics that show marketings aggregate comprehensive set of robust revenue metrics. A NEW BREED: REVENUE MARKETERSimpact on revenue. Methodology To thrive in todays changing marketplace, marketingSome old-fashioned marketers say that Defining the stages of the revenue cycle must begin to operate and sound more like sales.marketing isnt responsible for revenue. We requires a new revenue methodology. As demand generation agency The Pedowitz Groupdisagree. In todays online and social world, says, marketers must manage a predictable, reliable Traditional sales methodologies such as SPINmarketing is responsible for up to 70% of funnel with a plan that ultimately produces higher Selling and Miller Heiman provide standardthe entire buying process which means value leads and maximizes revenue. benchmarks and best practices for the salesmarketing and sales need to rethink how function, and these sales methodologies form Todays successful marketer has evolved beyondthey work (and work together) to generate the basis for the best sales analytics. At their the language of traditional marketing. The Pedowitzrevenue. This new way of working requires core, these methodologies break the sales cycle Group coined the term Revenue Marketernew metrics and analytics. into stages and allow the sales executive to in 2007 to describe this new breed of marketer.We call this new measurement process track movement through the stages which in Debbie Qaqish, Chief Revenue Marketing OfficerRevenue Cycle Analytics, and this new turn lets them answer key questions such as of The Pedowitz Group, says that these Revenueway of working Revenue Performance how long is the sales cycle? and how much Marketers use the language of business to describeManagement. pipeline coverage will help me hit my targets their contributions with metrics that measure for this quarter? pipeline, opportunities, and revenue. They measure Traditionally, marketers have not applied what matters to a CxO and talk about these metricsDEFINE THE REVENUE CYCLE the same level of rigor to their portions of in terms their executive leadership can understand and evaluate. the revenue cycle. This is unfortunate, sinceThe first step in Revenue Cycle Analytics is it is the only way marketers will be able At any given moment, a Revenue Marketer knowsto define the stages of the revenue cycle, to understand how their activities move how their key metrics stack up against their targets,starting with potential buyer awareness and prospects forward. and what they plan to do to improve their results.moving through marketing and sales to closed That is why the foundation of Revenue Cyclebusiness and beyond. When marketing and Analytics rests in clearly defined stages andsales collaborate to formally define each stage, clear rules for how prospects move throughas well as the business rules that determine the stages over time. 2011 Marketo, Inc. All rights reserved. 24

25. Definitive Guide to Marketing Metrics and AnalyticsPart 4: Revenue AnalyticsExample: Marketos Revenue CycleDifferent companies will make different decisions about what AWARENESSdefinitions best suit their revenue cycles, but as a case studyexample, here are Marketos definitions. The methodologybehind these definitions is in part responsible for Marketoshighly efficient revenue engine and fast growth. All Names MarketingSTAGE DEFINITION EngagedAll Names This is the entry point for everyone. We have purposely called this stage Names because these individuals are not leads when they first enter the funnel. Prospect &Engaged This definition applies to those who show real engagement, such as attending Recycled a webinar, downloading content from our website, or clicking an email that we send. At this stage, we filter out the names that havent engaged with us as a brand, such as those who simply threw business cards into our bowl at Nurturing a trade show. Database MQL Lead SDRProspect This stage refers to qualified prospects that could buy one day, but arent yet ready for engagement with sales. Qualified denotes the right kind of person at the right kind of company, as determined by our fit scoring rules. This is Sales SAL Lead the first metric that we report to fellow executives and the board. Opportunity CustomerLead These marketing-qualified leads are prospects that show enough behavioral Sales engagement or buying intent that we want to call them. SQLSales Lead These leads have been qualified as sales-ready by a sales qualification rep.Opportunity The sales team has accepted these leads and added them to the pipeline as a deal they are actively working.Customer We have closed these deals and won new customer business. (These customers are then passed on to a new revenue cycle for upsell and retention.) 2011 Marketo, Inc. All rights reserved. 25

26. Definitive Guide to Marketing Metrics and AnalyticsPart 4: Revenue AnalyticsThree Categories of StagesYour company may use only a few revenuestages, or you may model something moresophisticated like Marketos model but nomatter which specific stages you choose, thereare only three categories of stages:CATEGORY DEFINITION / TIMELINE EXAMPLEInventory Stages An inventory stage is a holding pool where leads and Common examples of inventory stages include the prospect accounts can sit for an unlimited amount of time until theyre pool, where leads are nurtured until they are sales-ready; ready to move to another stage. active opportunities are not yet committed to a certain timeline.Gate Stages A gate stage is a simple qualification check with no time Assume your company only wants leads from companies of dimension. $100+ million in revenue. In the gate stage, a lead will move forward if his/her company has more than $100 million in revenue. If not, the lead is disqualified.SLA Stages SLA stands for service level agreement. These stages denote When a lead is deemed sales-ready, it can become a defined time period in which a lead must be evaluated a marketing-qualified lead. The appropriate sales before moving forward or be eliminated from the process. representative has 14 days to contact the lead and choose to accept the lead, disqualify it, or recycle it back for further nurturing. If a lead stays in this stage for over 14 days, it becomes stale, which can trigger a process that alerts sales management or even reassigns the lead to a different sales rep. 2011 Marketo, Inc. All rights reserved. 26

27. Definitive Guide to Marketing Metrics and AnalyticsPart 4: Revenue AnalyticsRevenue Stage Model Best Practices Detours DETOUR DISQUALIFIED INACTIVE RECYCLED LOSTA best-practice revenue stage model is based Of course, not all leads follow a linear STAGESon three fundamental principles: success path, so make sure your model also defines detour stages to captureSales resources are relatively expensive. To Definition Names Prospects Qualified Lost or leads that are not qualified, or that requireprovide the highest value, sales should not marked as who are non- leads in deferred a few rounds of nurturing before theyreengage with prospects until prospects are not-in-profile responsive need of more opportunities sales-ready.ready to engage with sales. Sales interactions over the last nurturing (ongoingshould start relatively late in the pipeline, Transition Rules 6 months nurturing)once leads are well qualified, and use lower As the final step in formulating your revenuecost channels such as marketing to develop stage model, you need to define the businessrelationships with everyone else. rules that govern how and when your prospects move from one stage to another.No lead left behind. Dont let potential This includes how your leads move from thecustomers end up in lead purgatory. traditional success path to various detourImplement SLA stages wherever possible stages and back again. For example:to ensure your leads either flow forward orare recycled back to marketing. Keep your 1. person may move from Engaged to Ainventory stages to a minimum perhaps just Prospect if their company reports annualone in marketing so prospective customers revenue above $10 million and belongs todont sit idle. one of your target industries.A prospects journey from initial awareness 2. Prospect may become a Lead when his/ Ato customer is often non-linear. Sometimes her Lead Score exceeds 100 points.leads originally deemed sales-ready are not. 3.A Prospect may become InactiveBecause no lead should ever remain stagnant if they dont respond to a campaign or visitin the system, these leads should be recycled your website in more than six months.back to marketing for nurturing. 4. n Inactive Lead may move back A to Prospect status if they respond to a new program. 2011 Marketo, Inc. All rights reserv

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