ROI is a subject close to every budget holder’s heart. This applies across all facets of business, such as investment in plant, machinery or vehicles.
Sales and Marketing ROI however, is often more difficult to measure, because often the benefit of winning new customers – takes a considerable time.
And even when a new customer is won, their true financial value to the business is delivered over a long period of time.
This provides a dichotomy, in that often results from Sales and Marketing, and Lead Generation in particular are measured over a relatively short time period.
Clearly, marketing investment needs to deliver ROI. But equally, you don’t want to throw the baby out with the bathwater by stop investing in marketing that will deliver value over time.
So how should you measure marketing ROI?
Customer Lifetime Value
The first principal that you need to understand is Customer Lifetime Value (CLV).
As a B2B business, it’s likely that winning new customers won’t be easy, but subsequently, you won’t lose many customers either.
So as an example, if a typical customer spends £25,000 with you in year 1, and you expect them to spend on average £12,000 a year for a further 4 years, the CLV is £73,000.
Cost of Acquisition
Most businesses will know how much it costs to win new customers; it can be calculated by the cost of your sales and marketing function, divided by the number of new customers you win.
However, knowing the CLV helps understand whether the cost of acquisition is viable of not.
And this is the salient point; spending £8k on sales and marketing to win a customer that spends £25k probably won’t give many businesses ROI.
But if the CLV is £73,000, an £8,000 investment looks far more attractive.
Build a Sales Pipeline
Keeping a Sales Pipeline is a fundamental element of business, yet too many businesses make decisions about sales and marketing based upon emotion, not numbers and probability.
In B2B markets, for many early stage opportunities, you may not know what the potential value is because a first meeting or discussion will often precede a quote or formal proposal by a considerable period of time. But in your pipeline forecast, you must give the opportunity a financial value.
Simply apply a weighting to the total CLV of each opportunity; 5% early stage, 25% initial proposal etc., against your estimated CLV.
Update your pipeline monthly as a minimum, and you should see growth in both the total value and weighted value.
Try to Be Realistic
This applies to what your likely ROI will be, and the time taken to achieve it.
If you’re investing in lead generation from a standing start, it’s a racing certainty that you will be in negative territory for several months, if not longer.
And by that, we don’t just mean contracted business with new customers, we mean the weighted value of your sales pipeline will take time to exceed your marketing spend. But over time, this will change.
There are some businesses that are fortunate enough to be in a market with high-growth. For most businesses however, there are high levels of competition chasing the same customers.
So, unless you’re doing something markedly different (i.e. your solution or price is fundamentally better than the rest) it’s unlikely that you will achieve exponential growth.
Often, the businesses that succeed in competitive markets are those that market themselves well (regardless of how good their service actually is).
Perhaps they’re also the businesses that have recognised that there are no shortcuts, and that there is a need for continual lead generation.
It may often seem that the cards are stacked in the favour of big businesses. Because they are well-known, their lead generation gets results.
But that’s because they’ve investing in many different forms of marketing; social media, telemarketing, email, events, direct mail to name just a few.
The effect they benefit from is ‘compounding’.
The greater brand awareness you create through marketing and lead nurturing, the more effective your lead generation.
The good news for SMEs is that you don’t need a six-figure marketing budget to make your lead generation effective.
Its about investing in the right marketing, that integrates with your lead generation, focusing on building brand awareness with the right Buyers, at the right companies. Your lead generation activity can then be highly targeted on the Buyers that are engaging with your marketing; leading to more leads, of a better quality.