Getting to Initial Scale

Maybe It’s Time For Marketing to Make a Real Revenue Commit

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Jason Lemkin

So a while back on SaaStr, we did a couple of posts about how B2B and SaaS marketing needed to catch up.  That you needed your VP of Marketing to make a real lead commit, to have a true quota of some form.  Not just get you blue pens with your logo on it.

Even today, most “VP” of marketing candidates in SaaS I meet didn’t even really have a true lead commit at their last gig.  Not really.  Maybe they had a soft commit, or best efforts, or something.  But not a true lead commit.

So a lead commit is good.  It’s 100x better than no commit at all.

But I think we’ve moved past this now.

Screen-Shot-2016-01-20-at-1.41.43-PM

Many SaaS companies have already gone a bit past a lead commit to have their VP of Marketing make an “Opportunity Commit.”  I.e., not just send a quota’d number of leads to sales.  And not even having a commit around SQLs (sales-accepted/qualified leads).  But actually owning an Opportunity Commit, the creation of a clear amount of agreed-upon pipeline.  For many Directors and VPs of Marketing, an Opportunity Commit alone is kind of scary.  Because it seems out of their hands.  I can sign up for leads.  Maybe even sales-accepted leads.  But it’s up to Sales to make them Opportunities.

Well, true enough, but whatever.  We’re all on the same team.  If the sales team doesn’t convert your leads into Opportunities, then they are, by definition, worthless.

So in some cases, an Opportunity Commit for marketing, which is further down the funnel, can be an improvement over a lead commit.

But I’m going to propose going further.

For whatever segment of revenue marketing “owns” — I think it’s time for a true Revenue Commit.  And after all — this has been true in B2C for a decade.  If you are running a freemium business, marketing commits to revenue.  It spends $X to produce a multiple of that.  With no sales team at all.  No one running B2C programmatic marketing is allowed to sign up for squishy goals.  They are in charge of delivering revenue.

So let’s break it down.  In most SaaS companies today, there are three revenue streams, once you have enough customers for renewals and upsells to matter:

  • In.  In-bound.  Marketing needs to own this.
  • Out.  Out-bound.  Marketing needs to support this, but usually, not own this.  Sometimes, though.
  • Up.  Upsell.  Marketing can play a big role here, but rarely owns the number.

Now let’s assume this year you want to go from $3m to $8m in ARR.

  • Let’s assume with churn of $1m (just to keep things simple), you’ll need $6m of new “bookings” to get to $8m in ARR ($3m-$1m+$6m = $8m).
  • Now, let’s assume of the $6m:
    • $2m is projected to come from in-bound
    • $2m is projected to come from out-bound; and
    • $2m is projected from upsell.
  • Then, I say, marketing should have a core goal, and core ownership, of $2m in new ARR.  Period.  No excuses.

 

Screen Shot 2016-01-25 at 8.52.42 AM

In this scenario, your VP of Sales should be on the hook for either the whole $6m, or $4m if she doesn’t own upsells.  So there’s overlap in the sense that the VP of Sales owns a “superset” number.

But try this.  Or at least think about.  Hold the VP of Marketing accountable for $Xm in new ARR / annual bookings this year.  As her core metric and KPI.  As a sub-goal, there can be a lead commit of XYZ, an SQL goal, an Opportunity Commit if you want.  All good sub-goals on the way down the funnel.

But if your VP of Marketing signs up to deliver $Xm in revenue, and not just a few hundred or thousand leads — everything will change.

Published on January 25, 2016
  • Great post. I’ve found that the closer marketing gets to revenue, the better the sales and marketing organizations work together. This approach is even more reasonable if the VP Marketing also owns Product Marketing and can more directly influence sales win rates. The purity of In/Out/Up breaks down a bit if you tread into Account-Based Marketing (essentially outbound marketing.) In that case, it’s difficult trying to separate the effectiveness (and therefor ownership) of marketing vs. SDRs.

  • Great post. The LiquidPlanner team uses a reverse funnel. Marketing, sales development, sales operations and sales closely manage the optics of the top, middle and bottom of the reverse funnel. Marketing is in the hook every week for Prospects and SALs. SDRs are on the hook for SQLs. Sales Operations reports on opportunity creation and pipeline management. Sales reports on wins and losses. Every team must report on each part of the funnel and explain how they are addressing shortfalls. The weekly funnel management meeting drives accountability and performance.

  • Hi, Jason – This is a great article. What I love about it is that, at its core, B2B Marketers know that they are driving pipeline and revenue but don’t elevate the conversation of marketing contributions with their CEOs. Your point of making revenue as a marketing metric, turns the table around and in my view, provides an opportunity for marketers to focus on the right things. Say no, to things that don’t matter. One of the big reasons I believe account-based marketing is becoming hot in 2016 is B2B Marketers getting focused on their goals than just doing activities.

  • This is a great post. I’ve been trying to find marketing outsourced firms or in-house staff that are willing to be held accountable for revenue goals, and you’ll find that they don’t exist as far as I can tell. Marketing seems to think their responsibility ends when a marketing item is delivered to the outside world, or when MQL’s are added to your CRM. But the quality and quantity of conversions to SQL’s and more importantly paying customers is the only real metric that matters – if marketing isn’t delivering those your capital is inappropriately allocated. I find most marketers I talk to get distracted by non-revenue producing tasks easily – aligning their pay with revenue produced would change their focus to something that works very quickly.

  • Great article. I would add cost per lead or cost per opportunity to the core metrics. The VP of Marketing could meet their overall goal of X sales or X in new revenue, but if the cost of acquisition gets out of hand, then your CLV:CAC ratio may not look too good.

    I agree with your article, but it can certainly be challenging for the VP of Marketing when continuously increasing the marketing budget and finding/testing new lead channels. There just has to be enough budget / wiggle room provided to the VP for testing new channels that might not work out because they’ll still increase your overall cost per lead in the meantime.

  • Yearly commit? Maybe. I see the logic.

    But monthly? Quarterly? There’s so much lag, it loses it’s effectiveness as a KPI. By the time the revenue shows up (or doesn’t), it’s been 2 quarters and the 3rd quarter plan is half-said.

    I actually wrote about this last week: http://10stories.co/blog/when-not-to-care-about-revenue/

  • Nice post Jason and I am sure this will be of value to many marketers.
    I have been accountable for Sales & Marketing results for over 15 years in SaaS/Cloud companies so my opinions will be more direct. I believe that once something becomes a “trend”, such as sales enablement and S&M alignment, it’s late in the game for marketers in most SaaS companies. After all, us SaaS/Cloud types have been involved in disruptive technology to change status quo. If B2B marketers today are not involved or worse case they are avoiding being responsible for some key revenue metrics in sales (i.e. new account wins) they will be replaced soon. Marketing tool are commonplace today that measure MQLs to Revenue so my advice to B2B marketers is be proactive and start the process. Your CEO will embrace it and your career will prosper!

  • Dale W. Harrison

    DEAD ON!!! Very good piece…and a subject not talked about nearly enough.

    I’m also an advocate of unifying under a VP of Sales & Marketing…someone with full pipeline responsibility measured in top-line dollars. A few years ago, I entered a company via a merger where the sales team and marketing team where planets orbiting different stars, and it showed in the company’s stalled revenue growth. As part of the merger, I moved into a newly created VP of Sales & Marketing role to better unify the two teams.

    Part of that process was to tie the compensation of the marketing team to a combination of lead flow as well as booked revenue and also on hitting close-rate targets on the leads generated (marketing can always hit quantity targets at the cost of quality if not incentivized otherwise).

    It was remarkable how responsive marketing became to the needs of the sales team…and how our close rate on leads generated significantly improved.

  • AMEN! Marketing lead – Sales driven! More organizations need to step up to this mode of thinking and strategy.

  • Adam Gelles

    There are 3 numbers that at VP of Marketing or CMO should be willing to adhere to, be bonused on and mind his team against.
    1. Revenue
    2. Margin
    3. Brand Health

    If they aren’t willing to be work against this framework, they aren’t worth the hire.
    More here: http://www.marketing2marketers.com/3-ways-to-measure-the-cmo/

  • Jason, Marketing can be measured too, of-course not with the same lens as sales, but with similar yet different lens. I have put together an reference guide for CEOs of startup companies (online and offline) on how to structure their marketing department and also listed out metrics to measure and who should be accountable for different areas within marketing. Link here – http://visual.ly/3-pillars-marketing

    What are your views?

  • Chris Walsh

    Amen Jason. One valuable lesson I learned is that if marketing + sales aren’t aligned, you are more apt to fail, especially at the earlier stages. I’ve been responsible for the marketing function in a bunch of companies, and from the marketing pov, I get it. It is hard to be in a position where it can be difficult to prove the positive impact of your efforts. It can be fuzzy, especially when in front of the finance and sales people. My suggestion is to go back to the basics. Educate your colleagues about your different techniques used for awareness, interest, moving through the action funnel, etc. Then align the sales/marketing goals. I’ve participated in and seen too much wasted time trying to navigate the bickering between sales and marketing. In the end, everyone is in the same foxhole and without both functioning properly the growth engine won’t function.

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