Thursday, June 4, 2009

Analyzing B2B Marketing: Balance Sheet and Income Statement

Consistent in every discussion I have with B2B marketing execs is the topic of analysis. We're all very familiar with the tactical metrics on each marketing type; open rates and click through rates on emails, landing page conversion rates, cost per click metrics, traffic statistics, and so on. However, these metrics fall short when it comes to understanding marketing's overall contribution to the performance of the business.

Much recent writing has focused on a campaign-up view of the world, with analysis focused around an attempt to determine the return on investment for each campaign. These ROI or ROMI analysis frameworks tend to run into challenges in a B2B marketing environment as the buying cycle is often of significant length, and influenced by many touch-points.

An alternative, and much more actionable framework, is a top down view that uses a "balance sheet" and "income statement" view of the marketing world to understand marketing's overall effect on top-of-funnel activity. Within this top-down view, marketing actions and campaigns can facilitate buyers moving from one stage in their buying process to another, but the complexity of each campaign's individual influence is smoothly aggregated into an overall view that shows the current view of the top of the funnel, and the transitions that have been made over the last period of time.

The first step in looking at this view of the B2B marketing world is to map the buyers' buying process. Each step from education and awareness through to vendor discovery and validation should be understood and mapped, as these are phases that are influenced by marketing, and thus highly relevant in an overall marketing analysis picture.

In order to understand which buyers are at which phase of their buying process, the techniques of lead scoring can be used in order to map each prospective buyer to their individual stage of the buying process by looking at their digital body language.

With this in place, it is possible to build a "balance sheet" view of the B2B marketing funnel. This is a moment-in-time view of where leads are in the funnel, much as a financial balance sheet is a moment-in-time view of where dollars are in an organization at the end of a reporting period.

To have this view relevant and accurate, it is of course necessary to ensure that lead scores degrade over time. Buying interest is, in most cases, a transient phenomenon, and if a lead has not turned into a sales qualified opportunity (SQO) within a certain amount of time, it likely will not, so ensuring a time-based decrease in score is key.

With a balance sheet view in place, it is then possible to begin looking at the motion in the funnel over a period of time, such as a quarter. As buyers progress through their individual buying processes, the transitions in the funnel can be viewed and analyzed, showing where in the funnel there is growth, and where in the funnel there is shrinkage.

If a large number of leads have been passed to sales as Marketing Qualified Leads (MQLs) and accepted as Sales Accepted Leads (SALs), this may be viewed as a very productive quarter, but if the top of the funnel has been neglected and there is a decrease in awareness and a lower number of inquires than normal, this is a warning sign for future funnel trouble.

With the funnel understood in these terms, our ability as marketers to assess the buyers toolkit becomes very valuable as we can understand what resources are contributing to transitions at each stage of the funnel. If there is a gap in funnel motion at a certain stage, and investment in the buyer's toolkit at that stage can be made.

Presenting a marketing funnel in a "balance sheet" and "income statement" view allows marketing to clearly demonstrate their relevance to the business, justify investments in top-of-funnel activities, and make meaningful contributions to revenue forecasting. Whereas approaching marketing analysis from a bottom-up ROI perspective runs into significant challenges as the complexities of the B2B buying cycle come into play, approaching it from a top-down perspective brings clarity and consistency to the task.

As marketing teams begin to present this "balance sheet" and "income statement" view of the marketing funnel, the ability for the business, and the board to objectively understand marketing's contribution increases. With that shift, the well known tenure challenges of today's CMOs and the compensation imbalances between marketing and sales may begin to slowly disappear.

Many of the topics on this blog are discussed in more detail in my book Digital Body Language
In my day job, I am with Eloqua, the marketing automation software used by the worlds best marketers
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mwebb said...

This is a great message, Steve.

Companies have long accepted the idea that they could track the flow of raw material, work-in-process, and finished goods in a factory, and translate this activity into financial terms, i.e., balance sheet (capital deployed) and income statement (flow of profit).

They should do the same thing in sales and marketing too! After all, you spend money on it, it is supposed to be a value added process, right?

Here is a slightly different take you might enjoy:

"Why Your Sales Process Cost Matters, and What You Need to Know to Get It Right"

To me, the point of BOTH sales and marketing is to move customers through the stages of their journey. Companies can get a lot better at applying the quality and productivity sciences to improve their results.

Recognizing that your idea of examining the funnel from a balance sheet/income statement perspective is an important step!

Michael Webb

Steven Woods said...

Thanks Michael - yes the view of the entire funnel from that perspective really changes how you approach investments. Regardless of whether you are in sales or marketing leadership, knowing the shape, size, and velocity of the overall funnel is key to managing it.