Sales and Marketing 2.0: Should marketing be measured by the corporate revenue goal?

Hi Craig,

This has been debated for a long time, and no doubt will go on long afterward. The short answer is marketing doesn't want to be measured that way, and marketing does have some reasons why it shouldn't be. Chiefly, they don't control the sales people or sales process so how can they be measured on revenue?

Perhaps revenue goals could be the bonus part of the measurement eg. Reach xxx million for 2010, and marketing get yyy bonus/budget increase/kudos. Give marketing a reason and they just might not fear it anymore.

I'm pretty sure it was Peter Drucker who said the purpose of business is to create and keep customers. I believe his point was that customers are part of a long-term relationship, and you might sometimes need to sacrifice short term revenue or profits to maintain those relationships and thereby maximize long-term value.

That's very relevant point to this discussion, because whether marketing should be compensated on revenue really depends on how you're measuring revenue. Salespeople can generally focus on immediate revenue -- that is, meeting this quarter's quota -- because that's what they mostly affect. But many marketing programs impact long-term future revenue (and other value metrics such as profit contribution). You certainly want to factor those future results into any measurement scheme.

If we could meaningfully project the future impact of marketing programs on revenue, it would be a great metric. But marketing is more like a capital investment in a new plant or machinery: the company expects to make more money as a result, but won't know for a long time whether it made the right choice. That's why you don't reward managers until you see how the investments pan out. Tying management compensation to long-term results is a challenge that corporate governance experts had wrestled with for years, with no real solution.

The best we can do is to measure short-term results. Some short-term metrics are immediately relevant: if I can bring in the same number and quality of leads at a lower cost, then I've certainly contributed to future profits. This is analogous to rewarding the manufacturing team for reducing waste and rework. Other short-term metrics only make sense because we think they'll correlate with long-term performance, such as the number and quality of leads.

We also do need to measure the long-term performance, just as companies revisit the actual profitability of capital investments. This lets us see whether the results were as expected. The answers come too late to change the past, but do allow us to make better predictions about future investments.

Incidentally, this logic applies equally to "soft" programs like brand building and social media. The purpose of those programs is still to generate long term profits, and money spent on them should still yield a higher long-term return than alternative programs. The only difference is it's even harder to estimate the long-term impact of those programs than of more conventional programs that generate or nurture leads. But that simply means our proxy metrics will be different and even less reliable; it doesn't mean we shouldn't at least try to understand the relationship between those programs and profits.

What a great question. The first answer is that, in the broadest sense, everyone in the company is ALREADY compensated on revenue. That is to say, as revenue increases or decreases, and assuming a predictable amount of that revenue drops through to the bottom line (see below for more on this), there is more or less compensation to go around.

How and to whom that compensation is distributed is a separate question. But it is sometimes helpful to remind people -- especially those who are neither business-owners nor salespeople by training -- that revenue growth is a significant factor of their compensation.

That being said, revenue as a driving factor for variable comp in the marketing department is a sticky wicket for at least two reasons:

1) Revenue can't come at any cost -- Marketing might spend way beyond a company's allowable cost of acquisition targets in pursuit of a revenue goal. In a given fiscal period, this might be warranted. But in the long run, buying $20 bills at $22 apiece is unsustainable. Exhibit A: the U.S. Government.

2) Objectivity -- most sales comp plans are pretty objective. Sure territories and other factors come into play, but the value creation and transfer mechanisms are pretty clean. Percent of quota achieved usually translates into percent of total potential compensation. In the marketing department, it's harder to be objective. How do you objectively value to contributions of a copywriter vs. a designer vs. a marcom manager vs. a CMO? You really can't. It's inherently subjective. But I don't think this is really a problem until you start linking comp to revenue. Once you do that, people see the exact contours of a monetary "pie" and start making a judgment about how big their slice should be, based on the how they see their work contributing to that result. But the real pool of money from which the marketing team (and really any team other than sales) drinks is not the revenue pool. It's the profit pool.

A better reference point for comp'ing the marketing department is growth in EBITDA - the closest proxy to cash. Also, it's preferable, from the management perspective at least, if the formula for how any bonus/profit pools are created and distributed is NOT disclosed. Management needs to have the discretion in how to allocate success-based compensation. I may have to dodge some airborne rotten tomatoes for saying that, but in my experience, trying to make fair something that is inherently UN-fair (compensation) is paving the proverbial road to Hell with good intentions. This is perhaps why so few raised their hands when asked if marketers were comp'd on revenue.

Craig,

Absolutely!!! The only real obhjective of a marketing program is whether it prpduced a true return on investment. Not leads, not opportunities, not contacts, not clicks, not impressions.

Too often we run marketing programs based on gut feeling, because we *think* it might reach a target audience with a targeted message. In reality what we think is wrong more often than not.

Only when we start measuring our marketing programs on revenue can we answer the question of whether a program actually worked. Any excuse against this is just that - an excuse.

Old school answer is yes. New school answer is no.

Marketing is becoming more about relationship management and aligning the brand promise with the brand promise delivery system: the company.

The new role of the marketing department is "chief listening function" of the organization, and the measures for the success in that role are migrating toward both sales cycle and engagement metrics.

The question of measurement by the corporate revenue goal is one for the organization as a whole, in synergy with specific organizational objectives. Marketing should be measured on the success of moving the needles on a dashboard of specific, mission-critical metrics derived from those objectives. If the marketing department, as one function within the entire "brand promise delivery system" can move those needles, the revenue will follow.

As a final word, about the old school of outbound marketing; in a web 2.0 world, companies can no longer expect to spin a story about a product that was made up by the marketing department and expect sales to follow. The outbound marketing model is overdrawn and the inbound marketing strategies that are coming online now require the approach of a conversation, not a monologue. The network effect of new technologies will continue to change the way customers and companies find one another. If companies adopt the principle of reciprocity in that process, and provide an effective value exchange, they will stay on a growth curve. Lastly, marketing requires transparency. Authentic brands and companies are easier to find and are the ones that are in perpetual beta, which equates to a large amount of listening, and then doing the right things to move the right objectives in the right direction.

This question harks back to the days when there were few ways to directly, objectively evaluate marketing effectiveness other than revenue, but that is not the case anymore. The direct results of almost everything that marketing spends money on can be measured, and, the effectiveness of the marketing work flow overall can also be charted, so there is no reason not to measure and compensate marketing on the basis of first-order data.

Marketing can't make up for weaknesses in engineering, manufacturing, sales, or distribution and shouldn't be penalized for them. Furthermore, marketing is responsible for many things that are only indirectly related to sales, and generally in the long run.

Name recognition, brand equity, crisis management, customer satisfaction, etc., all cost marketing money and have little or nothing to do with leads, conversions, closes, and referrals. But with the research and analytics available today, all those things can be evaluated in terms of how much was spent to move the needle how much, and how quickly.

Manufacturing, logistics, engineering, and many other parts of the company have been compensated in this way for a long time and we would all find it pretty strange to ding manufacturing for down sales, rather than rework, production and returns data. Marketing will soon be the same way.

Craig, that's a great question!
I agree with all of you - yes Marketing should be compensated based on performance. But I think that Tom Scearce makes some excellent points. EBITDA is a better measure than gross revenue for a company that has a fairly simple capital structure. Gross margin is another tool to use for compensation metrics. Tom also makes an excellent observation of the challenges of actually implementing a bonus structure given the varied roles and contributions of a marketing team. But I don't think that is a good reason to abandon the idea of some kind of profit sharing comp structure.

Most marketers are not accustomed to being held accountable for the financial effectiveness of their programs, so there will always be push back in this area. It's frightening when someone is asked to effectively share some of the financial risk associated with their decisions.

Candyce Edelen
PropelGrowth
www.propelgrowth.com

Always a hot topic, especially as budget planning kicks into high gear. Marketing goals must be tied to revenue. This should be based on the % of the sales pipeline that is driven directly by marketing vs. generated by sales or partners.

Otherwise, we end up perpetuating the quantity vs quality game that has plagued sales and marketing organizations for years. When marketing's comp and incentives are tied to revenue goals they ensure that marketing spend and resources are focused on targeting the best prospects who are actually buying. The probably vs the possible. It ensures that marketing does not waste valuable time and program dollars chasing suspect industries or poor performing sales reps.

Henry Bruce
@hebruce

Absolutely yes. Corporate revenue goals certainly shouldn't determine ALL of Marketing's compensation, but it should be part of their plan. This is one of the best ways to reinforce alignment with Sales.

One of the problems of marketing is that it has always been seen as unaccountable. That's why it was left out of company-wide IT like ERP, Business Intelligence and CRM.

Simply judging it by spend v sales undervalues its efforts as all campaigns contribute to awareness and visibility of one campaign may lead to a sale at another time or via another method. Sales loves to claim all sales for themselves, but often what made the sale possible is awareness generated through marketing.

In large companies this is often addressed by using surveys. In little ones it is more often gut feel.

This can be solved, however, using a good second generation marketing automation program. This can measure everyone who has shown an interest in the product or company. It can then track them through nurturing to sale. Given knowledge of the value of the sale you can assign a value to each stage of the pipeline. It also allows you to compare campaigns and ROI between quite different campaigns - e.g. social media v email.

This can be very powerful. If you have 100,000 people interested in your product and you have established that 1000 of these typically become buyers within 30 days, you can match interest with manufacturing and ramp up marketing to match demand or vice versa.

Current Marketing Automation does nothing for measurability as it doesn't measure all marketing methods consistently. But a second generation MA will deliver measurable marketing, good enough for budgeting. And it is within reach of small businesses too, at under $5,000pa.

Great panel discussion Craig. Eloqua's Marketing team is measured on the corporate revenue goal. We talk about it on our blog at http://blog.eloqua.com.

Jill Rowley
Eloqua
@jill_rowley

Craig:

Great question and absolutely marketers should be measured on revenue and this also requires a mind-shift for marketers on being revenue driven. This is not to say that marketers should not have other measurements, but the goal should be about revenue and this highlights the importance of defining the lead planning process which is only successful if done collaboratively with marketing and sales.

As for the mind shift on the marketing side, I put a link that I think should be a mind-set of the B2B Marketer

http://www.mpdailyfix.com/an-open-letter-to-b2b-sales/comment-page-1/#comment...

Carlos Hidalgo
The Annuitas Group
@cahidalgo

The entire organization (driven at the top but defined by sales & marketing) should be focused on driving revenue. For sales & marketing, that means having common expectations about sales output, common definitions of qualified leads and near-term sales opportunities, and ensuring everyone on both teams is focused and somehow compensated based on their contribution not to activity or leading events, but on opportunity creation and CLOSE.

The easiest way to do this in an organization is likely to rip off the band-aid, tell your marketing team they're being goaled & partially compensated based on sales results, and see how they react. If they have objections, address and resolve/remove them immediately. Everyone on the same page, everyone working together, will force the right activities on a daily/weekly basis to increase results.

Can't think of what else to compensate a marketer on these days...

My answer to this question is YES.

I lived this as a VP of marketing. Up to 35% of my goals (and bonus) was our overall revenue number. This cascaded to all of my marketing managers. In some cases, the percentage would change and could be product line specific (in which case the % was quite high, more than 50%). Also, all managers in the company (HR, Finance, IT, etc.) had some tie to overall revenue at 15% or so.

This was a B2B context so a big part of it was to bring sales and marketing closer ...and it worked. But I would also advocate this for a B2C world too.

Geoff Vincent
@bizcompare
http://www.bizcompare.com

Greg I am with you on this one. The Brand! This is what attracts customers, gives a wonderful feel to an organization so that people want to work with or for the company.

It is clear, that a large part of the Marketing dept. is about brand & brand development. How much money does this make? Well, it will likely sustain the companies future, allow the building blocks for the future and can be accounted for this year, and yet results may not show for a couple of years.... So only a % of the financial results can be paid on this premise, the rest maybe in the future when the brand is really recognized and welcomed by all.

Carole

I agree. Tracking revenue contribution is the right metric to use to measure marketing and campaign performance. From a marketers perspective, this can be attributed to pipeline contribution. We recommend companies focus on identifying opportunities within campaigns and building a lead management foundation that empowers them to track these opportunities through their lifecycle.

What is an opportunity?
If the purpose of your campaign is to introduce new products and services to an audience of customers, prospects and partners and to drive post-event sales, an opportunity is:
“Who left that event or campaign with a renewed interest and propensity to buy based upon the experience they had?”

We believe you need to identify these opportunities, document the size of them and track them until they close.

Yes, marketing should in part be goalled and compensated proportional to the organisation's current revenue (and profit) achievement.

But with good management systems and data, and when sales and marketing are properly aligned, they can and should also be compensated on their contribution to building the value of the qualified sales pipeline.

Marketing can and should be measured and compensated based upon outcomes, not activities. Here's how I would characterise the difference:

- Generating an unqualified lead, with no measure of its true value to the organisation, is just an activity - and often a purposeless one. Rewarding marketing for the number of leads generated is almost always a completely dysfunctional measure

- Helping to create a qualified opportunity that is accepted by sales and appears in the sales pipeline is a valuable outcome.

These sort of outcome-based metrics require an integrated approach to managing sales and marketing, but with so many highly and affordable capable systems out there, there's really no excuse for not doing this.

My conclusion - after having observed organisations that have put outcome-focused, contribution-to-the-revenue cycle based compensation plans in place - is that their marketing people make smarter decisions, feel more engaged in the sales process and - perhaps most important - contribute and earn more than with conventional approaches to marketing compensation. And they have more fun.

Mea culpa: it turns out that Ted Levitt did say "The purpose of business is to create and keep a customer." (The Marketing Imagination, 1983), even though many Web quotation sites attribute the statement to Drucker. (Don't believe everything you see on the Internet.)

The closest Drucker quote I could find with an actual source attached was "There is only one valid definition of a business purpose: to create a customer." (The Practice of Management, 1954).

Whether or not the sentiment originated with Drucker, it's still true that Levitt said it too. Sorry about that Kevin.

.

No worries David! What I hear reading all the responses above is:

* In general Yes, marketing should be measured on Revenue
* It is not necessarily the only, nor most important measure
* There are other "first-Order" measures that may be more effective
* If marketing were as wholly focused on revenue results as Sales then results in the current quarter could well overshadow long term strategic investments...not always good.

Great conversation. I generally come down on the side of the folks who say measure and reward marketing's performance based on corporate revenue, but I really think it depends on the culture of the organization and the purpose of measuring performance. I've seen examples where focusing on revenue backfired.

Generally, you measure performance to motivate and reward behavior. You want marketing to behave in a way that maximizes their value to the corporation. If they can see that their good work results in increased revenue and they're rewarded for it, they continue to behave accordingly. But if they think they're doing the best they can for the company (which is usually generating qualified leads) and that doesn't result in increased revenue for the company (the sales team stinks), then measuring based on overall revenue will actually demotivate marketing.

"...be measured by the corporate revenue goal" and as such it is a goal that all corporate functions are measured on and therefore the answer is yes - no brainer. A better question perhaps: Is revenue the primary measurement of marketing? It is for Sales, it is not for engineering for instance because, as one of your respondents points out, some departments have less influence on the outcome than others. In this case I believe that revenue absolutely MUST BE the primary measure of marketing, not brand equity, not product awards, not customer satisfaction metrics etc.

Because... In the words of Theodore Levitt the function of a business (Sales AND Marketing) is to create and keep customers and Revenue is the ultimate measure of that and Marketing has as much influence on the revenue outcome as Sales. Any suggestion that marketing cannot influence that outcome as much as sales is a surrender of the power they can bring to bear on the outcome. "Marketing is much too important to be left to the marketing department"...Y'all know who said that...right?

Marketing should not be measured by the corporate revenue goal - it should be setting it.

Before a product is designed, research determines the need. As part of evaluating that need, the target market is defined and the price is researched. So you should know how many people you are marketing to and how much profit per sale.

The next stage is creating the buzz - the demand. That can be hit and miss but happens early on in the product's life. Once the demand is there, you can use past successes to work out the follow-through rate - how much demand you can convert into how many sales.

With modern measurable marketing you can also ramp up lead generation to hit targets for web visits, social media hits and telephone enquiries. or, of course, ramp it down if your sales channel is going to blow a fuse or the product can't keep up.

Then it is a simple matter of measurable losses in the nurturing pipeline. Again this should be predictable from previous campaigns. And it can be ramped up or down.

So you should be able to look at the number of web and SM visits at the front end and predict how much product you will need in 30, 60, 90 days and even where in the country you will need it. You can ramp up manufacturing - or dampen down demand by cutting marketing, varying price or through the sales team concentrating on only the most profitable customers. You can show retailers or middlemen the figures weeks ahead of time and stock them up accordingly. So every product should have a measurable ROI which can be monitored throughout its life. Visibility of the marketing results is key.

Marketing is now more measurable than sales. And it should be the driver for corporate results.

[What you need to make all this happen is Lead Generation software like LeadFormix which quantifies all touches on your website and social media pages as they act as the gateway for first touch measurement. Most Marketing Automation software can't do this, however - they only measure engagements - people who have volunteered email addresses. They also often don't integrate email, search and social media results. Garbage in, garbage out rules thereafter as the system doesn't have the full picture.]

I'd say yes, but only because there is no other way. As Fred Yee sayed, marketers do not have control on sales people, therefore they should not be measured by the corporate revenue.

Well the answer goes deeper than that. Much deeper in such a way that robs the corporate marketer of his or her compensation. The answer goes all the way down to the human soul where all the ugly spirits of fear, doubt and negativity are crouched up.

Corporate marketing is almost always wrong because they follow the Madison Ave. mentality that no longer really works because it is not targeted enough and so millions of dollars are gone right out the window.

It all starts with the "generosity of thought and speech" and here's an excellent article about it: http://homebasedbusinesses.biz/generosity-of-thought-and-speech

Great answers by all and I agree completely. The only metric that matter is revenue.

Jeff Ogden, the Fearless Competitor
Find New Customers "Lead Generation Made Simple"
@fearlesscomp on Twitter
http://www.findnewcustomers.com