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  • Writer's pictureEd Locher

Let’s All Say Good-bye to Sourced Revenue…

Raise your hand if you have worked for a company that measures marketing and sales sourced revenue? By this I mean the company tracks and reports on the contribution percentage of new revenue that is ‘created’ by marketing vs that which is ‘created’ by sales? While I obviously can’t see you right now, I imagine that many of your mental hands went up. I know mine did.

As a quick follow-up, raise your hand if said company acted on this information in a meaningful way. Was your bonus tied to that percentage? Did the sales team get compensated a different way based on who sourced the opportunity? In this case, my hand did not go up.

Finally, show of hands of people that felt tension or conflict as a result of this measurement. Was there an internal competition to claim revenue? Was it a useful or healthy tension, where teams used it to improve overall performance? Or was it insidious, driving a wedge between marketing and sales? In my own experience, I have had both.

Regardless of whether or not marketing and sales found a way to collaborate successfully, measuring and reporting on sourced revenue requires a LOT of time and energy. Not only to reconcile the results, but to build the infrastructure that feeds this metric in the first place. This is time and energy that isn’t focused on generating revenue, but instead is used to ‘keep score’. Not really a value-added exercise, IMHO.

Not too long ago, I was having a conversation with the CMO of a B2B SaaS company. Marketing for this company generated well over 50% of the new logo revenue, including a sizeable chunk through their automated store-front, which led me to believe he would have embraced the marketing-sourced model. After all, he was doing it quite well. To my surprise, it was the opposite. He was adamant this was a huge waste of time and money and was on an internal crusade to kill the metric outright. I immediately became a huge fan!

Imagine a world where zero time and energy was spent keeping score of where the revenue came from; instead focusing on making sure there was enough of it. Sounds good, right? Turns out, there are several good reasons why this makes sense.

1. Marketing has a role to play in every stage of the sales funnel, not just the early ones.

2. Channel optimization can still be done without keeping score.

3. Marketing and Sales can be truly aligned around a common goal.

First of all, let’s recognize the obvious. Most people don’t buy anything new without first checking it out online. The same is true for people responsible for corporate purchases. Consequently, I think it’s safe to assume that a buying group will not make a significant purchase without visiting the vendor’s website at some point during the sales process. Hence, you could say with a straight face that marketing ‘influences’ every single win. Focusing only on the beginning of the process is near-sighted and inefficient. Increasing conversion rates throughout the funnel accelerates velocity and improves ROI simultaneously, particularly in later stages where all of the leverage is. The notion that marketing is only top of funnel and sales is only bottom funnel is limiting and doesn’t make a whole lot of sense.

This was the CMO’s point during our conversation. He chose to focus instead on Influence as the key metric. Here is where we diverged, but only a little. Because marketing is technically ‘influencing’ literally every deal, influence as a metric seems a bit too loose. My suggestion would be to use velocity as one of marketing’s barometers of success. Regardless of where the opportunity came from, is it getting across the finish line quicker? If yes, it seems like marketing is getting the job done.

Second, marketers can still measure full pipeline conversion rates for all types of sourced leads and opportunities. Armed with this information, the marketing team can optimize investment across those channels they control. It’s not a requirement to keep score in order to do this work. In fact, keeping score may actually get in the way. At best, there is an opportunity cost of the time and energy spent reconciling and reporting. At worst, investment decisions are skewed towards those that make the marketing team look good, as opposed to the organization at large.

As an example, marketing opportunities are oftentimes smaller in average size but make up for it in volume. However, if your model is fewer customers that spend a lot more money, volume alone may not be able to make up the difference. Marketing might be better served accelerating and helping increase the size of those fewer deals as opposed to trying to drum up their own opportunities. If you’re being measured on marketing contribution, the incentives are now mis-aligned which leads to waste.

Finally, and most importantly, is the elimination of the internal competition around revenue ownership. The positive impact of true alignment around a common goal can hardly be over-estimated. Marketing doesn’t ‘win’ if they hit their target but the company falls short of total revenue. Neither does sales. When you’re not keeping score, you don’t manufacture unnecessary tension by splitting hairs on where the money comes from. Winning in the market is hard enough. Trying to do it while constantly looking over your shoulder makes it that much harder.

As technology and processes continue to evolve, it’s becoming easier and easier to track who is responsible for sourcing revenue. The irony is, now that we can, we absolutely shouldn’t. Think of it as Enlightened Pipeline Management, where we join forces with our brothers and sisters in the sales department and together wave good-bye once and for all to the poison pill that is sourced revenue.

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