Projecting revenue contribution is a hot topic amongst the CMOs, especially with martech and other tools constantly 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. This will help to build a strong sales and marketing strategy and alignment.
You can download a lead generation calculator here to help you work backward to help you set an appropriate goal.
How Are You Benchmarked Against Your Industry?
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. Where do you sit? Do you think you are more like Company A, B, or C? SBI also created a Revenue Growth Diagnostic for companies to take to benchmark themselves against competitors.
All three companies have radically different results from building the same capability. Company A is an industrial manufacturer of capital equipment. The marketing investment was steady to grow the revenue contribution capability from scratch. They took a cautious path to validate results before expanding. Company B is a $500M business services company which transitioned to lead generation in 2010. Today 42% of their revenue originates as a lead from marketing. Company C is a rocketing SaaS company in the early years of growth. It’s not as simple as the industry. Let’s dig a little deeper.
The Million-Dollar Question Amongst You, Your Peers, and Other CMO’s
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 of high growth technology companies. Other limitations include companies with a dominant product or market advantages. Oracle is famously known for having a marketing contribution north of 60%.
For some CMOs, the number isn’t tracked today, and the capability must be built. Striving toward 25% contribution is a solid goal for CMO’s who need to develop the 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 CRM to sales. This same exact lead record must be converted to an opportunity and then a win 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.
Variables to Consider When Forecasting Numbers
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’ impact 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 context.
The exact marketing contribution to revenue number involves analysis of these variables:
- Level of marketing budget to execute (is it too low, or do you have investment funds?)
- What leads is your sales team going to produce on their own?
- Will your sales team increase their team capacity with more reps?
- What is the net new revenue number for new clients and cross-sell or up-sell?
- What is the natural growth rate of the market?
- Does sales have the capacity of selling time to handle more leads?
- Does your sales team rate marketing leads as high quality?
- What is the growth rate of your competitors?
- Does your product or service have real points of differentiation to capture share?
- Does your sales team have an excellent close rate? (win 25%+ of opportunities)
- Do you have lead development reps to nurture leads early in the buying process?
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. Click here to download the lead generation calculator to help get you started.
As companies start their annual planning this fall, SBI hosts studio sessions with sales and marketing leaders to help correctly set goals and map out how to achieve them. You and your team can schedule a visit here.