The New CMO: How to calculate your value

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In my last column, I outlined a simple but effective way for you, a new CMO or marketing executive, to audit your marketing resources and get a sense of the strengths and depth of both the internal and the agency resources available to help you deliver on your CEO’s expectations.

It is a best practice to complete this audit early in your tenure and before you commit to any performance targets. The CEO is likely to set some aggressive goals and your ability to execute a marketing strategy that supports those goals will be a function of your marketing resources.

If you see a gap between your execution capabilities and the goal, use a strategic marketing plan to set out your understanding of the role that marketing can play and the budget you will need to get the job done.

Plug in to the company goals

What is the job, exactly? What are you trying to accomplish? Some marketing executives will list standard marketing measurements like response rates, search ranking, and website traffic. These are valuable metrics but they have only an indirect and sometimes remote relationship to the company goal. The real marketing goal is something much larger and directly connected to the company’s goal.

Assuming yours is like most B2B companies, the CEO’s expectations begin (and may even end) with top-line revenue growth, and the strategy to achieve that revenue growth is to sell more products or services (as opposed to, say, acquiring a competitor). This is where your marketing goal must “plug in” to the corporate strategy.

If the company strategy is to sell more, your marketing goal has to be to bring in more potential buyers: more leads. Your strategic marketing plan should open with a kind of marketing mission statement about lead generation and it should put numbers on it. How many new leads will you generate and how much budget will you need to do it?

Inside the C-Suite

Most CEOs see marketing’s primary value-add as lead generation but not all CMOs go into the budget negotiations with this in mind. It’s an advantage you should seize. The negotiations are more likely to go your way when your CEO can see that your strategic marketing plan to generate leads is in perfect sync with the company’s goal. And you’ll make an instant friend of your CFO when you present a budget analysis that attaches real value to each lead.

For years, companies used an arbitrary percentage-of-revenue—usually somewhere between five and 10 percent—to set their marketing budgets. Many still do, but there is a problem with that approach—it requires a leap of faith on the part of your C-suite peers. You’re asking them to accept that a certain percentage is simply the right amount to spend on marketing.

Worse than that, the CMO who comes looking for a budget increase has to convince the C-Suite that the new number is somehow more right. That ask is getting more and more difficult.

And while it’s true that advanced marketing technologies make it possible to track the returns on spending in terms of the classic metrics, those are better suited to the management of day-to-day activities than to C-suite budget deliberations. Your CEO may not see the connection between website traffic and revenue performance.

Say it with value

Instead of the percentage-of-revenue ask and the marketing minutiae with no connection to revenue, consider using these two budget analyses as the set pieces in your strategic marketing plan: 1) value-per-lead (VPL), and 2) gross margin on marketing (GMM).

VPL is a unique twist on the more common cost-per-lead that online advertisers have been charging for years. Its power lies in the way it can change the perception of marketing from a cost center to a value center. A cost per lead is something a company pays out but VPL is what you’ll be bringing in to the company. To calculate the VPL, divide revenue by the number of leads generated (both over a defined period). If revenue was $1,000,000 and marketing generated 500 leads, the VPL was $2,000.

To determine GMM, divide the total marketing spend by the number of leads generated and subtract it from the VPL. If the total marketing spend was $50,000, marketing spend per lead was $100 and GMM per lead was $1,900 or about 95 percent.

You’ll have noticed that these examples are based on a marketing budget equal to 5 percent of revenue but also that you’re now talking in terms of the value of marketing, not the costs. You’re calculating your value.

Now when your CEO says the goal is to increase sales revenue by 20 percent, you know that with your GMM unchanged, you’ll need a 20 percent increase in budget to generate a corresponding increase in the number of leads you bring in.

But you’re the new CMO and you’re already planning the changes. Will you use new technology or partners to increase the number of leads at a lower cost? That will drive up the VPL. Will you invest in branding, awareness and targeted campaigns to improve the quality of the leads?

That will improve the lead-to-sales conversion rate, push up your GMM and, of course, the company’s top-line revenue. The C-suite will love it.

Be sure to also read my previous column on the best advice every CMO should learn.

Photo via Flickr, Creative Commons

 

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Rob Hyams

Rob Hyams

Rob Hyams is president of Ottawa-based B2B creative agency McMillan. He holds a B.Comm in marketing and has 20 years experience in brand- and go-to-market strategy development for global B2B enterprises, including Commvault, LexisNexis, Unify, and HUB International.
Rob Hyams

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