How do you measure a demand generation strategy?
Short answer: by revenue and the cost of getting it, not by lead counts. The nine numbers that matter are marketing sourced net-new revenue, contribution to total net-new revenue, qualified pipeline generated, cost per sales qualified opportunity, win rate, sales velocity, marketing CAC, CAC payback period and average revenue per account. If your report stops at leads and MQLs, nobody in the room can tell whether the programme paid for itself.
The nine metrics, and what each one tells you
| Metric | What it answers |
|---|---|
| Marketing sourced net-new revenue | Did marketing bring in new money? |
| Contribution to total net-new revenue | How much of the company’s growth is ours? |
| Qualified pipeline generated | Is there enough coming to hit the number? |
| Cost per sales qualified opportunity | What does one real conversation cost? |
| Win rate | Are we bringing in the right accounts? |
| Sales velocity | How fast does pipeline turn into revenue? |
| Marketing CAC | What does a customer cost us to acquire? |
| CAC payback period | How long until that customer pays us back? |
| Average revenue per account | Are we growing accounts or just adding them? |
Each one is explained below, with how to calculate it.
If you’re a B2B marketer, you should concentrate on Demand Generation Strategy and monitoring the Demand Generation KPIs.
Why?
You’ll acquire more credibility within your company and also explore the way your Demand Generation campaigns have contributed to the company’s growth.
When you have the right Demand Generation strategy, your business will grow. Quickly. You’ll end up with lots of inbound prospects who are ready to purchase. This sounds like it’s almost too good to be the truth.
Demand Gen goes beyond increasing interest and awareness. It’s about developing educating and informative content. One that changes people’s perception. Yeah, it involves a lot of hard work. And you have to think long-term.
But you’ll never plateau as with lead generation strategies. They’re too short-term. So they stop producing results after a while. They focus on stuff that doesn’t impact the company in the long run.
Why Good Demand Generation Strategy Always Defeats Lead Generation in Long-term
The majority of B2B marketers employ Lead Generation metrics in their KPI report. Clicks, sessions, opens, downloads, Marketing Qualified Leads (MQL). And where does this lead them?
Nowhere.
We aren’t saying that there’s something inherently wrong with these KPIs. But, these are only leading factors.
You should concentrate on tracking lagging indicators.
Leading KPI tracks performance before your company or process result begins to go toward a specific trend or pattern. You should use leading KPIs to forecast movement or change, as well as manage the performance of processes and systems.
On the other hand, lagging KPIs track performance after a processor company goes toward a particular trend or pattern. You should use them to validate long-term trends. Lagging indicators show you how well you manage a system or process.
How To Report on Demand Generation KPI
This is easy. However, sometimes acquiring finance and sales data is hard. When you’re a startup, this may be conversations with CEOs/Managing Directors. When it comes to larger corporations, you should bring bagels and coffee every morning.
We, marketers, like to talk about marketing metrics. However, this isn’t the case with other departments. VPS and c-level don’t care about website sessions. CFOs don’t have anything to do with ebook downloads. CROs don’t worry about the A/B results (pun intended).
For business leaders to support your initiative, you’ll need to start speaking in business metrics.
This way, they can take a look at how your marketing is doing — without having to understand every nuance. The following KPIs will help you explain how good your marketing is.
Marketing Sourced Net-new Revenue
Revenue is always the end metric. If we were to single out one Demand Gen metric you should add to your dashboard, it’s Net-new Revenue. It represents all new sources of revenue. In our case, revenue is sourced from marketing channels.
For instance, when an inbound lead from a company’s website becomes a paying client. Or the up-selling success of your email nurturing campaigns. These reports explain the impact of marketing on the company’s bottom line. It needs to include the entire amount of revenue marketing activities generated.
You can do this in Salesforce through the opportunity report. Just sum up the entire amount of opportunities that were closed-won. Include the filter for marketing sourced opportunities. Primary Campaign and Lead Source are the two fields that help you pinpoint your search.
This way, you’ll understand how much revenue marketing is bringing to the table.
Contribution to Total Net New Revenue
The majority of B2B companies got three main sources of new revenue:
- Marketing
- Sales
- Channel partners
Of course, different businesses in different maturity stages have different splits.
In Salesforce, make a new opportunity report. Narrow down to closed-won opportunities. Now group them with a customized field that splits the revenue based on the above sources. If you group them with Primary or Lead campaign sources, you’ll go way too deep.
Generated Qualified Pipeline
Keep in mind that Qualified Pipeline doesn’t represent:
- Marketing Qualified Leads (MQLs)
- Sales Qualified Leads (SQLs)
- Sales Accepted Leads (SALs)
- or even Sales Accepted Opportunity (SAOs).
You should go deeper than this. Sales Qualified Opportunities (SQOs) represent those with the largest chance to become new clients. Your Demand Generation KPIs should concentrate on newly generated SQOs. Particularly when you’re dealing with high-ticket B2B services or products.
Have a talk with your sales leadership, and get to know their sales playbook. You should comprehend the criteria for opportunities that let you progress to the next stage.
Cost of Sales Qualified Opportunities
This is the first metric that truly separates Demand Generation from Lead Generation KPIs.
Here, Cost Per Impression (CPM) and Cost Per Metric (CPM) are your leading metrics. Employ them for guiding your tactical decisions. But not for lagging performance indicators. It’s much better when you know how much you pay to generate an SQO.
If you didn’t automate your marketing attribution model, great! Now you don’t have to waste time attributing SQOs to a specific lead source. Always understand that the B2B purchase process isn’t transactional. The client’s journey is much broader and meandering.
Ignore MarTech vendors telling you to know the ROI of every ad campaign. Those clicks wouldn’t happen if there wasn’t trust in the brand. Content and brand sway more customers than you actually know. To know how well you’re performing, explore the cost of an SQO against how much you pay for marketing.
Win Rate
Win rate aids you in tracking how successful your marketing activities are over time. If your marketing is developing the right kind of content, your win rates should go up. If they are declining, you’ll know you’re doing something wrong. Remember to compare the marketing sourced win rate against qualified opportunities.
Sales Velocity
Sales Velocity helps you track how quickly your company is bringing in new clients. It’s one thing to convert thousands of leads, but another if none of them become a client.
If your ACV is over 25 thousand, you’ll understand that these deals don’t close easily. The sales teams have to spend numberless hours working the opportunity until it closes. B2B opportunities take months to close. Sometimes, even years.
Yet, it’s always better if the prospects are better prepared. Again, demand gen is based on educating, informing, and changing people’s opinions. Those who have gained value from your content will always close faster. Way faster.
That’s why you should develop a relationship with them. Starting from the top of the funnel. Don’t just introduce yourself when they’re deciding between vendors. It’s already late then.
Marketing Customer Acquisition Cost (Marketing CAC)
Don’t grow at any cost. Yes, we all want more clients. But you need to ensure your biz is profitable in the long game. The majority of companies will watch out for their Customer Acquisition Costs (CAC).
CAC = (Cost of Sales + Cost of Marketing) ÷ New Customers Acquired.
So, you’ll take a look at Marketing CAC. The entire cost of marketing is everything. Wages, events, tech stacks, vendors, ads, all adds up. Marketing CAC is quite a strong metric that helps you stay concentrated on creating demand.
Do we need more trade shows? What’s the cost of an ebook? No! Concentrate on long-term marketing activities that develop your content and brand.
Marketing CAC Payback Period
This metric helps you know how many months it takes to gain back Marketing CAC. It’s the perfect metric if you want to increase your next year’s budget. For example, most SaaS companies got a 12 month CAC payback period. However, this is when you add the cost of sales.
The industry average for marketing CAC payback period isn’t known. If you want to calculate yours, you should definitely keep in touch with your finance teams. How your business invoices your clients also have a part here. The equation below is for SaaS businesses that have monthly invoices. If you invoice over a long time or upfront, you’ll need a different equation.
Measure effectiveness. The majority of SaaS businesses got this kind of data. Take the charge and request it.
Average Revenue per Account (ARPA)
($) Total Monthly Recurring Revenue ÷ (#) Total Accounts = ($) APRA.
Conclusion
KPIs let you measure performance. Demand gen isn’t at all similar to Lead Gen. They go a lot deeper into the sales and finance worlds. They’re the business metrics that help you explain marketing to CEOs and leadership. Use them to build your and marketing’s credibility. It was about time we did that.
Marketing needs a makeover. It starts today.
FAQ: measuring demand generation
Are MQLs still useful?
As an internal working signal, sometimes. As the number you report to the board, no. An MQL count can go up while revenue goes down, which makes it a poor thing to steer by and a very easy thing to game.
How often should we report on these?
Pipeline and cost numbers monthly, revenue and payback quarterly. Anything shorter than your sales cycle will read as noise, and you will end up reacting to variance instead of to a trend.
What is a good CAC payback period for B2B SaaS?
Twelve months or under is healthy for most mid-market SaaS, and up to eighteen is workable for enterprise deals with strong retention. What matters more than the benchmark is the direction it has been moving over the last four quarters.
Who owns these numbers, marketing or finance?
Marketing reports them, finance agrees the definitions. Fix the definitions first. Most arguments about whether marketing is working turn out to be two teams calculating the same metric in two different ways.
Related reading: B2B SaaS metrics that matter, Building a strong demand generation strategy, How to accelerate sales velocity.
This article is from the Funky Marketing blog archive. The work continues at Funky Enterprises: positioning, demand generation and commercial systems for B2B companies.
If you want to look at your own commercial system, book a 30-minute needs assessment. New conversations with people who build revenue are on the Funky Enterprises Show.
