How does marketing best function in an organization?
Marketing works for sales. Marketing works to generate revenue. Marketing is part of the sales engine.
The primary role for marketers is to coordinate with revenue-generators on the required plans, tactics and activities to successfully identify buyers, build pipelines of opportunities, accelerate conversion of new customers and grow existing business.
Marketing must work hand-in-hand with those that have the responsibility for generating revenue to grow and sustain a business. As head of both sales and marketing in my career, I can definitely affirm that success only happens when the two work as one!
Marketing is not a silo and should not operate as one. Marketing must have a symbiotic relationship with those responsible for selling. Unless a business takes on debt to fund operations, there is no revenue in which to function until something is actually sold. The more that is sold, the more operating cash there is to flow into marketing programs and initiatives. If marketing requires a bigger budget, it must facilitate more sales.
Sales is also not a silo and should not be looked upon as a single functional group within an organization. Sales must inform and coordinate with marketing to make this relationship achieve maximum success. The fact is everyone in the company is in sales. Every employee has influence and everyone should directly or indirectly support the selling of an organization’s products and services.
One of the most important steps for sales and marketing leadership, along with the CEO, is to agree upon how the organization will communicate and measure success. The organization needs a common language that everyone understands.
A CMO or head of marketing must ensure the entire marketing function is equally accountable for revenue based on these terms, as are those working in a sales role. Everyone in the marketing organization must be knowledgeable and operating daily to achieve and/or improve upon the identified business performance metrics. The marketing benchmarks must also align to how the entire organization articulates business goals and measures success.
Key Business Metrics for Sales and Marketing
Revenue – Revenue is the amount of money a company takes in over a specific time. It includes deductions and discounts. Most companies will reference this in a P&L as top line and measure it over time as top line growth. Sales and marketing share responsibility in generating revenue for a business.
Customer Acquisition Costs (CAC) – This is the price paid to acquire a new customer. It is the combination of sales, marketing, research, and product or service related expenses used to bring in a buyer. Businesses can utilize this important value to set budgets for sales and marketing. CAC management ensures the business is putting enough capital toward winning the number of customers it needs each year to achieve the revenue goals. CAC should also be used as a barometer for efficiency and effectiveness, along with a benchmark on how the company performs related to their competition.
Customer Retention Rates – Customer retention rates are the percentage of acquired buyers (customers) who continue to buy services over a certain time period. You will often hear that it costs seven times more to find a new customer than retain an existing one. Retention is an important metric. Existing customers are also a gateway to value-add services. Retention should also be analyzed over time and value.
Customer Attrition Rates (CARs) – Opposite of the retention rate is rate of attrition, also commonly called “churn.” Customer attrition rates is the percentage of customers lost over a defined time period. This metric is also usually a leading indicator for customer satisfaction, efficiency in delivery, product use and product or service value. Sales and marketing strategies to reduce CARs are as important to acquiring new customers.
Lifetime Value (LTV) – This is also sometimes called lifetime customer value (LTCV). It is revenue (value) of a customer over the life of the relationship (time). LTV helps sales and marketers understand the potential impact of growing the value and extending the timeline as a customer. This important data point also helps businesses understand the costs of losing a customer. LTV can be used to measure brand equity.
Overhead – Overhead is all non-labor related costs used to operate the business. It is considered fixed expenses regardless of the number of customers or revenue generated by the business. Overhead is often seen as controlled costs and a topic of discussion during budget reviews. Sales and marketing should combine efforts in overhead management to ensure processes, technology and people are not overlapping or creating extra costs. For example, sales automation and marketing technology should be evaluated together to ensure the business maximizes value and works unilaterally to combine all data inputs and resources to effectively manage the customer journey.
Fixed and Variable Costs – These are the monthly expenses used to operate the business. Variable costs align to the amount of goods or services produced and these will increase or decrease based on the volume of production. Fixed costs are not associated to production volume and include costs such as office space, equipment, advertising and insurance. Businesses will utilize costs as a metric on how much is invested into sales and marketing for production.
Profit Margin – Profit margin is the percentage of revenue above the cost of the product and/or service. Think of it as the mark-up. Profit margin can be evaluated by the overall business revenue, as well as by product and service lines to determine the health and ROI on costs related to sales and marketing. Gross margin is the percentage of difference between revenue and cost of goods sold (COGS), divided by revenue. Net margin is the percentage of revenue after operating expenses, interest, taxes and preferred stock dividends. If you are operating in the black, your profit margin is positive and if you are operating in the red, your costs and expenses are greater than the revenue coming into the company. Profit margins can also be utilized to evaluate the health and sustainability of individual customers or segmented customer profiles. It is an important metric for sales and marketing in strategic account management.
Pipeline – Pipeline is a defined series of steps and stages between starting and completion the sales process. It is often valued by the total dollar amount of all identified sales opportunities. The process can be defined as a variety of sales and marketing actions, most commonly prospecting and buyer identification, qualification, meeting, proposal, close and retention. For evaluation, each step or stage will often be assigned a weighted dollar value (percentage) based on the likelihood to close (win). This calculation is often used in forecasting and predicting sales run-rates.
Pipeline Growth – This is the percentage of growth of the associated dollar value of the sales pipeline over a period of time. Pipeline growth can also be measured by numerous variables such as number of prospect opportunities (deals) in the pipeline, types of opportunities, product or service lines, or by territory. Most organizations evaluate pipeline growth monthly. It is important for sales and marketing to analyze growth over different intervals to determine any seasonal or buying cycle variables that will impact sales. Pipeline is a critical metric to determine the future health of the business. Sales and marketing activities are directly connected throughout the pipeline journey and coordination is critical for supporting growth, conversion and retention.
Sales Forecast – This is an estimate of future sales. Forecast accuracy is often a hot topic within a business, as it enables a business to make operational and investment decisions based on predictive future revenues. The sales forecast, often prepared by sales reps and weighted based on analytics and accuracy, informs the business leadership on how to manage daily cash flow and resources. Ideally, forecasts should be visible to the entire organization in real-time through shared sales automation tools and online pipeline reporting. It helps inform employees how the business is predicting performance. Transparency keeps people accountable.
Conversion Rates – Conversion rates can be applied to multiple marketing and sales tactics within the sales pipeline. It is calculated as a percentage of specific actions. Marketers often use this in the early stages of the sales cycle, as defined by a call-to-actions. It is measuring the rate a person converts to the next stage by taking all types of actions. These can be measured as response rates, volume of calls, incoming emails, online comments, web visits, clicks and purchases. Sales often measures conversion as a percentage of win/loss on proposals or quotes and purchases. This is a valuable metric and it should be combined with the length of the buying cycle to determine where sales and marketing can invest resources to accelerate conversion rates.
Customer Satisfaction – Most businesses utilize a customer satisfaction rating or ranking to measure the health of the customer relationship at a given point in time. A common metric for measuring customer satisfaction is Net Promoter Score®, or NPS®. The NPS rating is derived from participants that are surveyed based on one question, “How likely is it that you would recommend [brand] to a friend or colleague?” Those that provide a rating of 9-10 are considered promoters and 0-6 are detractors. NPS is calculated from the percentage of detractors minus the percentage of promoters. Those that score 7-8 are considered passive. Influence is a strong category for marketing initiatives. NPS can help an organization determine the best way to build a strong influencer campaign for existing business referrals and add-on sales, as well as utilize to increase LCV and retention.
One of the common pitfalls that occurs when businesses align sales and marketing metrics is to try to give single credit to one function. Obviously, this happens inherently through commission programs. However, visibility and communication can be universal in a business. It is a shared responsibility that does not have to be solely recognized through compensation. The common language for defining success is the starting place!
Let it be known, when a company surpasses revenue targets, everyone wins. If a company misses their revenue target, everyone is accountable for the performance. That means everyone must answer to the identified measurements the company puts in place to track performance and results.
The purpose of a Chief Marketing Officer (CMO) is to empower the organization to achieve the business goals through a series of strategies and tactics. Marketing is reliant on the sales function to convert identified opportunities into actual dollars. If we all work united in the pursuit of revenue and customers, then together everyone achieves more! Go TEAM!
President + CMO at Artful Thinkers, a sales and marketing consulting company.