How we measure marketing ROI inside our growth organization
As of writing this, I work for Tuxera, a growth company that builds software for self-driving cars and is based in Finland 🇫🇮, Northern Europe. My main job as the Head of Marketing is to lead their marketing strategy to support the fast growth in the coming years (i.e., keep above 30% YoY).
Last year, I had one of the rarest work situations as a manager. We had just hired our new communications manager who, after only six weeks of trial, decided to leave the company. Completely shocked, I had a debriefing session with him to learn what we could improve for the future. His feedback → “you’re a great company with a great product, but your way of measuring marketing success is too much oriented towards revenue growth, and that’s not how marketing should be done”. Fair enough, I believe he got one thing very right: he was not meant for a growth company.
According to Harvard Business School, Stanford, and about 7,475 other business universities around the world, the ultimate goal of every business should be to maximize the shareholders’ value. Otherwise, it is not a business in itself. And by extension, the goal of every business function (yes, including marketing) is to drive revenue growth.
Unfortunately, there seems to be a big group of people working in today’s marketing landscape who seem to have forgotten where the money to pay their salaries and iPhones is coming from.
So how do you measure the impact of marketing and the return on investment (ROI) in you team? I’ll tell you how we do it in my team, but first let’s talk about revenue funnels.
A sales funnel (also known as revenue funnel or sales process) refers to the buying process that companies lead customers through when purchasing products or services. A sales funnel is divided into several steps, which differ depending on the particular sales model. Source: http://bfy.tw/9ndk
To put the funnel into context, it is important to understand the three business critical functions of marketing:
- Enable the organization with knowledge to build products that sell
- Make the offering unique and valuable through brand positioning
- Help the organization capture revenue from the offering’s value
Basically, the funnel is just a tool that links marketing to sales. Its function: to make the two work together to convert the target audience of the offering, i.e., prospects, to paying customers. This is exactly the same as what happens in early-stage startups → you need to find paying customers to validate your business model. In the case of growth companies, you need to keep finding paying customers or else your business model will become invalid and your company will stop capturing revenue.
The funnel is specially important when it comes to marketing because, through brand awareness and product-market fit, it can help the organization convert a larger number of opportunities into paying customers. In other words, marketing is fundamental for attracting new customers and supporting the organization’s growth, and the funnel keeps the marketing function laser-focused through business critical metrics.
What to Measure
Just having a funnel in place or paying thousands of dollars per month for a fancy CRM software won’t make your organization grow. The funnel provides you with a visualization of how your business is performing. And with performance comes the most important question: WHAT TO MEASURE?
Without going into sales processes, I’ll give an example of how we measure marketing impact and ROI inside our organization. For the sake of simplicity, we have a high-level abstraction of the entire sales funnel and we call it internally (surprise, surprise) marketing funnel. Our marketing funnel has five stages and it looks like this:
This marketing funnel has four measurable stages:
- Visitor: anyone who has seen our content somewhere (be it inbound or outbound). And here content can be one of our landing pages, as well as a video in a trade show. Anything.
- Lead: anyone who is interested in buying one of our products (can come from Visitor stage or directly from outbound — through business development).
- Customer: a company or a user who is already paying for one of our products.
- Ambassador: a very happy customer or user who is spreading the word of your brand on her own will.
This way of visualizing the funnel allows us to measure both marketing-originated growth and ROI (for marketing investment justification). Moreover, this setup of the marketing funnel enables us to measure four super important metrics:
- Volume: number of newly generated unique visitors.
- Conversion rate: number of leads / number of visitors (%).
- Velocity: speed at which each stage is converted to the next one (in days).
- Value: size of the opportunity ($$$).
The ultimate goal of every business is to maximize the value for the shareholders. The ultimate goal of marketing is to help the organization maximize its revenue. To serve this purpose, the marketing function must understand and measure how much it supports the business goal (a.k.a. revenue growth).
Why measure? Because measuring helps you understand how you perform and tells you where to improve.
If you don’t measure it, you can’t improve it.
Marketing is not abstract art or hipster magic. Marketing is a very business critical function inside every organization and, like any other business function, it is highly measurable. With the help of simple tools, such as the funnel I described above, and the right metrics, you can easily measure what’s the actual impact of your marketing strategy for your organization.