In B2B companies, so much rides on achieving an optimal sales funnel, that if there’s a point in that funnel that’s “broken”, it can have a massive impact on the bottom line. For some time now, I have felt that the handover between Marketing and Sales is precisely such a “broken” point, mainly due to a misalignment between the KPIs that each department is measured by. It’s a problem that I feel needs to be addressed, and the sooner the better.
Sales and Marketing departments at most B2B companies are more or less similar when it comes to managing their funnels: Marketing is in charge of inbound and outbound campaigns and for generating the initial interest of potential customers. They use measurement KPIs such as website visits, number of business cards collected at conferences, number of attendees in a Webinar, Twitter followers etc. – all of which eventually help to identify MQLs. This is usually where Sales takes over, to qualify the leads, turn them into SQLs (Sales Qualified Leads) or “opportunities” and eventually into closed deals, which happens at an average conversion of about 1:4.
I have sat in on countless board meetings, quarterly reviews and budget and planning meetings in the past few years, and I am becoming more and more convinced that the flaws of this system outnumber its advantages:
Problem #1: No single owner of the funnel
In most companies, the head of marketing and head of sales prepare their plans separately, taking into account certain assumptions like average deal size, conversion ratios etc., but these are often far from accurate, especially in early-stage companies where the changes in business model, customer adoption etc. change quite frequently. This often leads to two plans that are very hard to reconcile with each other, and it makes the question of “is our marketing producing enough leads?” a difficult one to answer.
Problem #2: Blurry definition of MQL
MQL, which is the ultimate KPI for the lead generation team within the marketing department, is actually a very vague term. While it does provide an initial indication of a potential customer’s interest, it doesn’t necessarily answer major questions such as “what is the dollar-value of the opportunity” and “what kind of sales cycle should be expected”, so even if the planned target of MQLs is reached, it’s often too vague to be considered a reliable measure.
Problem #3: Measuring the effectiveness of marketing campaigns
Since both the sales and marketing departments are usually run as separate organizations, often with separate systems in place, most early stage companies find it difficult to measure the effectiveness of marketing campaigns. In particular, it is difficult to ascertain which marketing channels are the ones responsible for ultimately converting leads into deals.
So what do we do about it?
Well obviously I don’t have all the answers, but here are some ideas we are starting to implement across our portfolio at Carmel, with some good results:
Suggestion #1: Marketing should be measured based on the dollar value of a pipeline
MQL can remain an internal metric for the lead-gen organization, but the marketing department as a whole should be measured by a new pipeline that’s measured in dollar value, and which converts into SQLs at a pre-agreed ratio (the industry average is about 10%). A deal’s dollar value should be the common denominator for both departments, and if it’s determined that certain marketing activities/channels are not converting into enough deals closed, then marketers should re-think those activities/channels.
Suggestion #2: Conduct a regression analysis on closed deals
The main comment I hear when proposing suggestion #1, is “how can we estimate the pipeline if we don’t know the size of the deals?” and that’s exactly my point: If we don’t know the size of the deals, how do we know that our MQLs cover what we need? Marketing and Sales need to work together to regularly review the closed deals by “backtracking” the process, constantly tweaking the parameters that affect the conversion down the funnel (like average deal size, sales cycles and others) and assign financial estimates to their leads.
Suggestion #3: Marketing channel segmentation
It turns out that the variance of pipeline conversion and deal size from various marketing channels is huge, and is often industry based. PPC campaigns generate different deals and different cycles than conferences or blogs. This requires very careful regression of the deals closed and assigning them to the right marketing channel where they originated. Yes, there are always attribution issues and it is sometimes hard to pinpoint the exact source of the leads, but often certain assumptions could be made that have a huge impact on the efficiency of the marketing department and its ability to forecast the pipeline.
I guess that this post may anger some marketing managers, but my intention is simply to point out the inefficiencies of the current system of ROI measurement and accountability, so that marketers can review their current processes and take steps to optimize their budget and areas of focus to help maximize their conversion rates (i.e. sales). And don’t worry, my next post will be about how Sales need to handle their pipeline. As terms like “top of the funnel” and “escape velocity” become of increasing concern to companies in their quest for continued growth, I believe it ought to stimulate a lively and open discussion in the industry.