20 January 2020
Be careful when making future marketing spend decisions based on ROI analysis, your best source of sales leads may actually be your sign painted service vehicles driving around - but how would you know? Google Analytics can't measure that.
What does ROI (Return on investment) from inbound marketing really mean?
Can you measure all forms of promotional activity that cause potential customers to make contact with your organisation ("Sales Leads")?
The best practice is to measure sources of sales leads (whether arriving by email, telephone or even walking in the front door) so you can direct future spend to the most effective techniques.
But, most measurement systems are seriously flawed (if they exist at all) and the most convenient methods are all tied to online advertising.
Where digital lead generation meets inside sales
In B2b selling, the sales funnel doesn't stop after it leaves the digital world - it extends deep inside the organisation to where the real sales work is done.
Much has been written on the internet about how to measure ROI on digital lead generation campaigns and provide the tools to help you to achieve this. There is only one problem. They are built assuming at the end of the sales funnel is an e-commerce process (a shopping cart) that can instantly capture the event of a sale (a dollar amount) which can be fed back into the lead generation platform or analytics tool.
These systems work brilliantly, but particularly in B2B sales, except for online transaction sales (ordering parts, components, and equipment)...
Generating the lead is only the beginning; a lot of work is required to kick the sale over the line and may not happen for days, weeks, or months.
But wait, there's more.
What about other marketing activity? Can you really assume that having a strong reputation doesn't also generate sales leads? And what about attending exhibitions and trade shows? Business networking - isn't that all marketing?
The ROI illusion
The weakness of most ROI measurement is that it fails to take into account the complex synergistic interaction of all sales and marketing activity and that most nebulous (but important) of marketing concepts - brand equity. ROI is biased toward online systems.
Even if the lead-tracking information is fully accurate, it will only report on the most recent promotional technique that generated the phone call. This is still important and must be done, but it isn't the full picture and therefore can lead to poor decisions.
Sales tracking funnels that report on the lead generation journey and techniques such as lead attribution attempt to gain more insight into the online journey - however, it's only capable of reporting online interactions and says nothing about offline techniques (trade shows, past sales visits, traditional advertising, signage, sponsorship, word of mouth, site signage etc. the list is endless). The danger is, brand building is totally disregarded by bean counters obsessed with ROI concepts and valuable promotional techniques are cut from the budget because the effect can't be measured.
In simple terms, it works like this. I search for a product online and a bunch of ads pop up. Three brands I've never heard of and one that (I can't remember from where) but it sounds familiar - which one am I likely to click?
There is also the danger that online lead generation platforms collect and store huge amounts of statistics and generate lovely reports. But, just because they look impressive, doesn't mean they are providing a true picture. A deep understanding of the tools is required before meaningful conclusions can be drawn.
No officer, I wasn't speeding - I was only doing 2,800 RPM.
Also, just because it can't be measured doesn't mean it isn't working.
Applying ROI as a concept to marketing is also illusory because it's difficult (but not impossible) to truly identify both the full costs and the full financial outcomes of each marketing activity.
Some marketing activities require a lot of work to set up and run, even if they don't cost much in terms of direct expense.
To measure the ROI on attending a trade show where the company hires booth space and has numerous company salespeople and executives attending (often interstate or overseas) for several days must take into account not just display materials, booth space costs, freight, travel and accommodation but also the payroll expense of each person attending.
Then, how do you quantify the return?
Often the best that can be achieved is a measure of non-revenue results rather than using the accounting term ROI.
Having an effective CRM system is needed to log the arrival of a new sales enquiry. Many CRM's also have the facility to record the source of that lead.
This is where a disciplined approach is needed. If that information is not recorded or is recorded inaccurately - future analysis will be impaired.
An effective method for tracking the source of sales leads must be rigorous otherwise your decision making will be based on anecdotal evidence and will be wildly biased.
If you ask the sales team where the most leads come from, typically they will say...
- "It depends" - in other words, they have no concept of statistical measurement.
- They were referred to us by X - which might sometimes be true.
- They looked us up on the internet - the standard answer to everything (now that Yellow Pages has been usurped).
Finally, you need to track the lead through to the end.
In B2B selling, often sales leads have long sales cycles and enquiries can also remain dormant for long periods before they get serious. A lead generated (say) 12 months ago should still be tracked back to its original source.
Perfection is impossible
No enquiry source measurement system will be perfect, but that shouldn't stop you from having one. The pragmatic approach is to...
- Aim for consistency: It's far better to know that the chosen method is being applied consistently (even if it isn't perfect) otherwise you will introduce two errors, not just one.
- Understand the flaws: When it comes time to interpret the results, understanding why the chosen system isn't perfect will assist in interpreting the results. If you know your system only measures the source of leads generated online, will avoid cutting expenditure on other marketing activity.
- Beware of small sample size: Just as it is entirely possible to flip a coin 5 times and they all come up with "heads" - it is also possible to have an extended period where all sales leads were generated by one promotional technique. However, short term trends are unreliable.
How long do we keep attributing revenue to that source?
Inevitably, when quantifying the source of business the question of how long before a sales lead is defined as a customer arises. When attempting to answer the question "what is my best source of new business?" - it helps to make the distinction between EXISTING CUSTOMERS and SALES LEADS.
After all, if you have a customer for 20 years, you will include them in the category "Existing Customer." However, what time period needs to elapse before "Revenue Generated By Sales Lead" is re-categorised to an existing customer?
Some organisations choose to measure sales revenue based on the first order only. What happens if the first order is small, and then the customer starts buying up big?
One practical solution is to only include the first 12 months of revenue in the lead generation ROI process.
What is ROI really?
The concept of measuring ROI on your marketing spend is like all statistics, if you don't strictly understand the measuring technique (how the data is compiled) then any subsequent measurement will be flawed. And this is the problem with out of the box solutions - like connecting Google Analytics. Their definition of "Conversion" and promises of tracking Return on Investment are done in very specific ways that may not be a valid measurement.
Further, ROI requires defining not just the RETURN but also the INVESTMENT. What does it truly take to generate a lead? It isn't confined to just the cost of buying a CLICK THROUGH.
Defining selling expense
I once worked for a multi-national B2B organisation with North American origins. Each month when we walked through the P&L they had a dedicated line called "selling expense" - this was broken down further into two categories - Sales Team expenses and Marketing Expenses.
This included salaries, wages, bonuses and commissions, payroll expenses, motor vehicles, travel and entertainment, business cards, mobile phones, office floor space etc. for every person who had anything remotely to do with the sales function including clerical and secretarial staff. Same for marketing.
The question was routinely asked "what if we fired the whole sales department and pumped all of that money into advertising?" or "what if we stopped spending on advertising and hired more sales reps?" They never did of course, but the purpose was to illustrate that all of this money (Selling Expense) had one purpose; to drive the revenue line. Nothing was assumed or kept for sentimental, historical, or personal kingdom reasons.
It was a good business discipline because it forced the management team to adopt a value-for-money mindset.
Measuring lead volume
While the online world is mostly obsessed with measuring ROI, actually there is a much simpler and easier measurement - lead volume.
How many new leads are you capturing in any given time span?
Plot this information on a graph and apply some form of curve smoothing to take the distracting zig-zags out so you can more easily discern the trend.
If you see the lead volume increasing and it coincides with marketing activity, it's reasonable to assume it's doing something. Be careful though, some marketing activity is inherently slow to take effect. While not as pinpoint accurate as digital campaign analytics, it will detect the effect of all your marketing activity - not just the digital campaigns.
Combine this with the blunt "how did you hear about us" instrument, and you have the beginnings of a lead measurement system that with a bit of common sense will guide you where you should be spending your promotional dollars.
While not as gee-whizz as the digital analytics of the full-stack digital marketing system, you can set it up in a day for little cost.
Business owners can feel the pulse of their business simply by listening to the phone ringing.
How many inbound calls you are receiving is a forward indicator for sales over the next few months (depending on your average sales cycle). Inbound calls are either existing customers calling, new leads or a call centre in the Philippines trying to sell you printer cartridges.
However, fewer calls will mean less business activity.
With modern phone systems, the number of inbound calls you receive is reported on your phone bill. Capture this data and graph it. Overlay your monthly sales on the same graph and you will see a correlation. Interestingly, a peak in call volumes (say) three months before a peak in invoiced sales will give you a rough measure for your average sales cycle - sales lead to invoice.
There are many clever ways to measure ROI on your marketing spend - however, we have rarely seen an organisation that can say with certainty "we know exactly where we should be spending our marketing dollars."