Why Funnel Metrics are Essential to Marketing Operations
- AUTHOR Bonnie Crater
- February 7, 2013
- 1 Comment
Funnels are a terrific tool for understanding how a sales and marketing operation works. In fact, when I would join a new company, getting the data and creating the funnel would be one of the first things I would do as the new VP of marketing. The reason funnels are so critical as a tool is that they provide 3 pieces of very valuable information which can help you understand where your business is and where you might make investments to improve: Volume, Conversion Rates, and Velocity.
The challenge with the funnel data was that I could never get complete and accurate metrics and of course, as a marketing scientist this annoyed me incredibly. And that’s why I’m so excited about Full Circle CRM. But I digress…. back to the main point.
Volume is an important B2B marketing metric to determine whether the raw marketing effort is enough. Here’s an example scenario. If your average deal size is 10K and you need to generate 100K in revenue this month, you need to close 10 deals. If your sales cycle is 2 weeks and your conversion from response to close is 1/100 how many responses do you need if half of the deals are sourced by marketing? That’s 10 deals x 100 responses for each deal x 50% sourced by marketing or 500 responses this month (actually in the first 2 weeks of the month).
So it’s pretty obvious that if you are only generating 100 responses in the month, your team needs to increase its program response volume and find another 400 responses for sales. Sometimes simply pointing this out to your team can result in program adjustments to get the volume significantly higher.
Conversion rates tell you how your marketing is performing through the entire sales cycle. We are fans of Sirius Decisions and their waterfall stages which has become a standard in many B2B sales and marketing operations but many companies have more customized stages and that’s ok too. As long as everyone in sales and marketing has a standard language to speak to, what you call the stages doesn’t really matter that much. (I’m sure Tony Jaros would disagree with me on that point.)
Conversion rates are measurements from stage to stage. If you generate 1000 responses and 100 convert to marketing qualified responses, your conversion rate is 10%. Typical baseline stages are Responses, Marketing Qualified Responses, Sales Accepted Responses, Sales Qualified Responses and Closed Deals. A useful conversion rate to know is the Response to Close conversion rate. Is it 1 in 50 or 2% or 1 in 1000 or 0.1%. The response to close conversion rate makes a big difference in how you market and your overall cost of sales. Your CEO will likely appreciate this number.
How long is the overall sales cycle? In other words, how long does it take for an initial response to turn into a deal? Overall it’s good to know that it takes 6 months or 6 days typically from the initial response to close. You can use this in your marketing planning of course. If you know the overall sales cycle is 6 months, whatever you are working on now, doesn’t have much of a chance of affecting revenue for a period as long as 6 months. Some programs may work in combination to shorten the sales cycle and speed velocity. It’s good to know that too. Sometimes you can observe that deals get stuck in a particular stage for a very long time. Is there a marketing program that can help accelerate sales?
To start, here are two reports that show a series of Campaigns and the days in each stage (top) and the conversion rates (bottom).
Volume. Conversion. Velocity. These are the 3 elements that can tell you a lot about your B2B marketing and sales operations.