Wednesday, March 17, 2010

Calculating the Value of a B2B Marketing Campaign

It’s the ultimate question in marketing:

What effect did this campaign have on revenue?

In short buying cycles, where the buyer generally understands the category of the offering, and the transaction is quick and simple, this can be measured relatively easily. A marketing campaign results in a website visit, a product is added to the visitor’s shopping basket, and the transaction is completed. Tying the buying event to that marketing campaign is both easy and sensible. Various marketing campaigns can be analyzed to see what offer, and what creative, drive more revenue.

But in the longer buying cycles we see in B2B, this analysis is not so simple.

Buyers progress through a buying process at their own pace, facilitated by marketing messages and campaigns, but not necessarily driven by them. Some campaigns may generate broad awareness, some might educate on criteria to consider, and some might trigger buying actions directly. All are valuable, but measuring their value requires a different approach than in simple buying processes.

Understanding the Stages

The first key step is to understand where each person is in their buying process. Some may be just names in your database, either acquired names or names that have gone inactive. Some may be interested, but not ready for sales yet, and some might be ready to engage with sales. Lead scoring allows you to objectively define where each person is in their buying process.

As part of this process, it’s important to make sure that buyers are removed from stages if time passes and they don’t continue to show the buying behaviour indicated. As buying behaviour can be transient, with interest starting and stopping at various points, it’s key not to leave an individual marked as being at a certain stage if they are no longer as interested as they once were.

Associate Value with each Stage

With the buying stages defined, it’s now possible to look at historical conversion rates to understand the value of a lead at each stage. For example, if a deal is worth $10,000, and an MQL has a 10% conversion rate to a deal, it is worth $1,000. Similarly, if a lead at the “mild interest” stage has a 1% chance of converting, it is worth $100, and if a raw name that has not yet shown any interest has a 0.2% chance of turning into revenue, it is worth $20 per name.

It’s important to note that these values are based on the conversion rate of the stage through to close, rather than the conversion rate to the subsequent stage.

Campaigns, Transitions, and Value

Now, with this value per stage established, it is finally possible to see the value of a buyer’s movement through the funnel even if it does not directly translate to closed business or qualified leads being passed to sales. For example, if a buyer moves from “mildly interested” ($100/lead) to “marketing qualified lead” ($1000/lead), their value has increased by $900. Similarly, if a buyer moves from “inactive name” ($20/lead) to “mildly interested” ($100/lead), their value has increased by $80. If net new leads enter the funnel, and are deemed to be “mildly interested”, they are immediately worth $100.

If a marketing campaign triggered that transition to take place, the simplest way to look at the value of the marketing campaign is that it added that much value to your lead funnel. If a campaign costs $50,000 and causes 1000 leads to move from “inactive name” to “mildly interested” (1000x$80), pushes 10 leads from “mildly interested” to “marketing qualified lead” status (10X$900), and creates 200 new “mildly interested” leads that were not previously in the marketing database (200X$100), the value of the marketing campaign can be calculated as:

Cost of Campaign: $50,00

Value of Campaign:
1000 X $80 = $80,000
10 X $900 = $9,000
200 X $100 = $20,000
Total: $109,000

You can see that, if only the creation of qualified leads is looked at, the value of the campaign would appear to be very low, whereas it was a very successful and valuable campaign in that it triggered a lot of valuable early funnel re-engagement of inactive names, and generated new interest.

Campaign Value

Many campaigns that we run as marketers are targeted at top-of-funnel, or mid-funnel outcomes. Generating net new names, educating buyers, establishing evaluation criteria, and nurturing buyers are all very valuable activities to perform. However, they can be extremely difficult to measure unless there is a framework in place to assign value to each of the early stages in the buying process.

When the right marketing analysis framework is in place, and each stage of the buying process can be measured, valued, and analyzed, it becomes possible to associate a clear value to campaigns that are targeted at top-of-funnel activities. When we build the overall marketing dashboards for our organizations, we can then value these campaigns in the same way that we value campaigns that target moving mildly interested leads further down the funnel until they are ready for a conversation with sales.
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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Jared Bodnar said...

Very nice post, Steve. This is a really straightforward way of quantifying the value of different types of leads throughout the entire sales cycle.

Ben Bush said...

Good stuff. I can see us using exactly this kind of argument on future projects. In fact, I feel a spreadsheet coming on...

Steven Woods said...

Jared, Ben,
Glad you found it valuable. The art in implementing it comes down to (a) defining the buying journey, and (b) measuring the stage each buyer is at. Can be done, but there's an art...

Arturo F Munoz said...

Excellent model for estimating the value of a campaign, Steve!

There is something to keep in mind, however, regarding these creative models. Will they be adopted?

It is possible to execute on the process of defining the buying journey. (I'm sure Eloqua does a beautiful job of it). But taking an organization down this trajectory can be a rocky road to travel.

What do you think?

Erin said...

Excellent explanation of the funnel. Few people are able to articulate, and illustrate, the funnel - especially as it pertains to business development (leads and sales) so well. Too few organizations are able to place a value on a lead, much less a value on that lead within each stage of the funnel, but doing so leads to more intelligently made business decisions throughout the marketing organization. Nice post!

G. David Dodd said...


I really like your conceptual approach to estimating the value of a marketing campaign. When buying cycles are long, it can be difficult to measure campaign value using conventional ROI methods.

I do, however, have one quibble with your method. I would contend that the "ultimate question" in marketing should be, "What effect did this campaign have on profit?" Using revenues to measure the value of a marketing campaign ignores the fact that most businesses will incur additional costs that are associated with the increased sales.

Your example uses a deal that is worth $10,000, and I'm assuming that you're referring to $10,000 of new revenues. Suppose that we're talking about a high-speed copier/printer that sells for $10,000. If the company must incur $3,000 of variable costs (raw materials, components, etc.) to manufacture the copier/printer, it will receive a net revenue benefit from the sale of $7,000. I suggest that this is the number that should be used to measure the value of a marketing campaign. So, in your example, if an MQL has a 10% conversion rate to a deal, it would be worth $700.

I believe that using profit (more specifically contribution margin) rather than revenues to measure campaign value will make marketers' estimates of value more credible to CFOs/CEOs.

Steven Woods said...

you're right, there is a lot of people and process elements to consider, regardless of what technology can do. Getting to this level of analysis is certainly possible, but requires good discipline, executive commitment, and lots of diligence.

thanks for the kind words, glad you found it a useful post! Agreed, measuring the value of a lead is a discipline that needs to evolve quite a bit. Lots of organizations are making some baby steps, but comprehensive measurement throughout the funnel is rare - so far.

Well, you make a fine point... I do agree that it's really profit that matters, especially if there is a lot of variability in prices or profitability between product lines. We're a long way from good measurement against revenue yet, but you're right, profit is the ultimate goal.

Thanks for commenting,

Anonymous said...

There’s a lot to consider when placing a non-quantifiable measurement on customer prospects and the buying process. But this post provides a solid foundation on the first steps needed to gauge ROI in an ongoing marketing campaign. Well done.

Paul Kemper said...

Hi Steve,

This is a great start to get people to actually measure their marketing effect on a more strategic level. In practice however, I find this hard to implement for several reasons:

1. The deal size is not a fixed value, neither is it easy to find an average value. Also, the conversion rates are only established at the end of the campaign, whenever that is.
2. In real life, marketing and sales jointly influence deals. The touchpoints are generally many and a single campaign cannot always be attributed to the end result of the deals. Many people are involved and many campaigns drive the buying decision.

As a next step I would suggest to still stick to your funnel idea. But over time, once you have mastered this, I would make the following adjustments:

1. Start thinking about a method to attribute deals to multiple campaigns; once you have picked a method, stick to it to make trending and comparing possible.
2. Instead of a marketing funnel with hand-off to sales through the MQL, think of the whole sales/marketing funnel as one single funnel, with marketing also influencing later buying stages and sales influencing earlier 'marketing' stages. This, at least, gets sales and marketing talking as a single team.

Paul Kemper
Tauros Marketing

Dave Greenwood said...

Coming across this a bit late I see, but a great post and exercise, Steve, and a good discussion that follows.

Agree with G. David that profit is the ultimate goal for every company. But if you're talking about the relative success of campaigns, revenue should do just fine and if you can start there you're probably ahead of the game.

Also I really like Paul K's second point - show the whole funnel! The sales portion of the funnel shouldn't be a black hole to the marketing team. Marketing can have a great deal of influence over these prospects and should get recognized for it.

Oshiaana said...

Very useful post. Convers all the aspects i was looking for at this time. Though implementing is an ART, marketing is & always be intangible. Thanks & Good Luck.