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Wednesday, April 7, 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.

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