I have recently received a number of emails from CMO’s on the topic of projecting revenue contribution. Never has the focus of CMO questions been so centered on revenue contribution. Many are leader CMO’s in year 2+ of building a revenue engine.
The diagram below shows how your company may compare to others. The revenue lifecycle of three varying companies is shown to provide insight to variability involved. Where do you sit? Do you think you are more like Company A, B or C?
The industry listed is only part of the story. Company A is an industrial manufacturer of capital equipment. The marketing investment was steady to build the revenue contribution capability from scratch. They took a cautious path to validate results before expanding. Company B is a 500M business services company who 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. All three companies have radically different results from building the same capability. It’s not as simple as the industry. Let’s dig deeper.
The million dollar question among CMO’s is this: 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 benchmark data shows 25-30% across industries with the exception of high growth technology. Other exceptions include companies with dominant product or market advantages. Oracle is famously known for having a marketing contribution north of 60%.
For some CMO’s 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 build the capability.
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 transitioned through the CRM to sales. This same exact lead record must be converted to an opportunity and then a win to count. The ridiculous practice of matching up sales wins with campaign responses doesn’t count.
Identifying the ideal number for your company requires analysis of several factors. Ideally this is done in the process of developing a Marketing Strategy. There are many variables involved with identifying the right % of revenue contribution. After all, the marketing % 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 appears 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 is sales going to produce on their own?
- Will the sales team increase their capacity? (More reps?)
- What is the net new revenue # for new clients and x-sell/up-sell?
- Natural growth rate of the market
- Does sales have the capacity of selling time to handle more leads?
- Growth rate of the competitors
- Does your product/service have real points of differentiation to capture share?
- Does your sales team have a good close rate? (win 25%+ of opportunities)
- Do you have lead development reps to nurture leads early in the buying process?
A Marketing and Sales Strategy provides answers to all these questions. Take all the factors above and use that as rational to come up with your goal. Assuming a competitive product, the percentage of growth should be higher than market growth. Make sure to tie aggressive growth to corresponding marketing budget.
Identifying the ideal Revenue Contribution percentage for your company requires a solid marketing strategy. Download our research report, “How to Increase Marketing’s Contribution to 2015 Revenue,” here. The report will outline the building blocks of marketing strategy.