If Tina Turner was a B2B marketing or sales leader, she would have sung about the conflicting emotions we all have towards ROI. It’s amazing how three seemingly innocuous letters can create such a headache.
As modern marketers, we’re constantly under more pressure than ever to prove ROI. While most of us support the idea of data-driven decisions, there are still significant gaps between desire and execution. In fact, according to a MMA/Forrester/ANA study, “87% of senior marketers don’t feel confident in their ability to impact the sales forecast of their programs.”
The good news: You’re not alone when it comes to building an effective ROI framework!
The bad news: There is no silver bullet to slay the ROI monster.
So, before we even begin the journey to understanding how to measure and prove ROI, it’s important to discuss exactly what ROI means.
The first step is spelling out the acronym: ROI = Return on Investment. Already we have gone from three letters to 18 – we just 6x’d the length! Forrester then defines ROI as “a measure of a project’s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs.”
Putting Forrester’s definition into a mathematical equation looks like this:
(Profit on Incremental Sales + Reduced Costs) / (Total Cost of Ownership)
In theory, this is a simple formula and should be plug-and-play. Unfortunately, we know that’s not reality. Depending on the campaign or initiative, there could be a variety of factors to further complicate the equation.
To simplify the thought process, in the end it boils down to four distinct questions that need to be asked and answered when evaluating any tactic, point solution and platform that you use or are considering implementing:
- Will this increase sales and by how much?
- How much of the increase in sales is profit?
- Will this reduce costs, including time, to close deals and by how much?
- What does it cost, including time?
The four questions above deal with the first order or direct impact of the project. There are numerous second or third order impacts that become difficult, if not impossible to track. For example, a marketing initiative may not just help generate new deals, it may help with renewals for existing customers. Or it may even help current customers say good things about your company and its products, influencing the sales process for new customers. These types of benefits are notoriously difficult to measure and, as a finance guy, I would say that you should ignore them in your ROI analysis – you’re probably not going to get credit for them anyway, so don’t spin your wheels!
Here are some pointers on answering the four questions above so that you can calculate a ROI that is defensible and informative.
- When determining the impact on sales, find the link between your tactic and any point in the lower half of the demand funnel.
- For example, with a digital advertising campaign, don’t try and link it to revenue. We know how hard that can be. Instead, try and link it to an increase in MQLs or another metric you track further up the funnel.
- Then, to determine ROI, apply your conversion rates on MQLs and average deal size to determine the revenue impact. While you may not be able to specifically and definitively state that XYZ campaign led to PDQ deal, you can have a good estimate supported by real data.
- Determining the profit from your increased revenue number is easy – just ask you finance department!
- Ask them for a ‘contribution margin’ on incremental revenue and apply that number to your estimate from step one.
- Determining cost savings requires that you be disciplined in how you apply attribution.
- For example, we all know a good brand campaign helps close deals faster. However, if you try to specifically quantify this benefit for your ROI calculation or tie it back to actual sales, you can spend a ton of time generating dubious outputs.
- Instead, stick with one or two sources of ROI that are defensible. In the brand campaign example, the campaign should accelerate the first stage of a sales process where the sales team is educating the potential customer and looking to expand your reach into multiple members of the ‘demand unit’ or buying committee.
- Estimate the number of days a brand campaign can shorten this stage of the sales process and then ask finance how much cost you just took out – and there’s your savings for the ROI calculation.
- Figuring out the total cost of a tactic or platform usually falls into three buckets:
- The hard costs that show up on your invoice.
- The implementation costs you can see such as a third-party implementation fees and the time spent by your team.
- The time spent by folks in other divisions within your company.
- For the resources outside of sales and marketing, just ask for a cost estimate. By recognizing that IT, for example, expended resources to get a new sales enablement tool up and running, you are not only being intellectually honest, but it demonstrates the rigor of the ROI analysis and helps others believe your ROI numbers are valid.
Finally, there is one more pointer to add – plan in advance! Setting up the ROI metrics in advance and then measuring results continuously will help generate accurate results in a timely manner. Said another way, a little effort upfront saves a ton of time in the end.
ROI in B2B is not going away. In fact, determining ROI is getting increasingly important by the day and we all know it. As Tina Turner might have said, “we might as well face it, we’re addicted to ROI.”
Forrester has built their own framework for calculating ROI: Total Economic Impact reports. Their analysis illustrates the potential return companies may achieve when deploying specific vendors or technologies through an evaluation of benefits, costs, flexibility and risk.
6sense commissioned a TEI report conducted by Forrester and saw striking results from customers. Marketers were able to identify accounts in the market for a specific product or solution, pass leads onto sales and target media campaigns to these in-market accounts resulting in:
- Marketing qualified leads (MQLs) converting to opportunities at a 75% higher rate
- Opportunities converting to closed business at a 40% higher rate
- Average deal size jumping 50%
- Sales reps closing deals faster, with 20% less effort
Oh, and did I mention a 405% ROI?
To learn more about the ROI that our customers have achieved, download the Forrester Total Economic Impact Study. In the meantime, “Big wheel keep on turning…”