Understanding the Role of Benchmarks in Planning

September always brings a set of new beginnings. Another year of school has started. Football season has kicked off. Many of our clients are beginning (and finalizing) marketing plans and budgets for 2017.One major trend that continues to grow is for marketing organizations to own a quota for marketing sourced revenue. To drive this revenue, marketers use tools like the SiriusDecisions Reverse Waterfall Tool to determine the number of new inquiries (and metrics at other stages) required for them to reach their revenue goal. With volumes defined, marketers can then align their programs and budgets to support these goals.

As an example, one client has a marketing-sourced revenue goal of $40 million, with an average deal size of $150,000. Based on the organization’s current conversion rates, marketing needs to source 267 deals and approximately 24,000 inquiries. Next, marketing can look at its current cost per inquiry to determine the acquisition budget, and the expected costs and outcomes of programs to align its marketing plan with revenue goals.

Sounds simple, right? What can go wrong?

Actually, while the math is simple, there's plenty that can go wrong. Frequently, issues in reverse Demand Waterfall models and analysis result from using the wrong SiriusDecisions Demand Waterfall® conversion rates to drive the model. Clients often use external benchmarks as the basis for their reverse Demand Waterfall calculations. Building budgets and plans based purely on external benchmarks often leads to significant performance gaps. While benchmarks can be very useful for establishing aspirational goals for Demand Waterfall performance, your budget and plan also need to be grounded in reality.

In addition, building a plan based strictly on current performance doesn't account for the impact of planned process improvements, and calculating Demand Waterfall requirements based on actual performance often results in gaps between the number of inquiries needed and the number of inquiries the budget will support.

What's a marketer to do? Here's a six-step process that allows you to build marketing plans and budgets based on a realistic set of conversion data that accounts for both the current reality and a realistic future state:

• Start with reality. The starting point to determine the conversion data set for your model is to utilize your actual Demand Waterfall conversion rates. This data set should represent a historical view of Demand Waterfall performance for a time period aligned to your average sales cycle. Additionally, you may want to filter conversion data for different Demand Waterfall contexts (e.g. enterprise vs. SMB), and then build plans for each context. Build an initial model leveraging your current conversion rates to determine the initial number of inquiries required if process performance remained the same. Apply your average cost per inquiry to determine the budget needed for inquiry acquisition. Often, the challenge is that the budget required is higher than the available budget. The solution is to improve Demand Waterfall performance. 

• Refer to external benchmarks. External benchmarks can be valuable for helping to define the aspirational goals for your Demand Waterfall performance. However, as discussed in my previous blog post "The Myth of the Best-in-Class Benchmark," it's critical that the benchmark you are referencing is based on similar Demand Waterfall contexts (e.g. similar deal size, customer types, demand types). Be very wary of any broad-based benchmark labeled "best-in-class."

• Diagnose to identify possible improvements.Every marketing organization wants to drive improvements in Demand Waterfall performance. The big question is, where and how can you improve? The SiriusDecisions Waterfall Diagnostics methodology can be used to compare current performance against benchmarks throughout the Demand Waterfall to identify specific areas of underperformance, and then identify the likely causes of this underperformance. Examples include improving service-level agreements (SLAs) to improve automation qualified lead (AQL) to teleprospecting qualified lead (TQL) conversion, or launching nurture programs to improve inquiry (INQ) to AQL conversion.

• Adjust your conversion rates. Now that we've defined the areas of Demand Waterfall improvement, the next step is to estimate the change in conversion rates realized from these changes. For example, adding predictive modeling will result in significant changes in both the INQ to AQL and AQL to TQL conversion rates. Lead nurture improvement will affect INQ to AQL conversion. Improving SLAs also has an impact. The SiriusDecisions research team can help you estimate the impact of a process change to your Demand Waterfall conversion. 

• Build a revised model.Now that we have a new targeted conversion data set, we can rerun the Reverse Waterfall tool with the new data. In our client example, the expected increase in Demand Waterfall efficiency reduced the required volume of INQs from 24,000 to 19,500. From a budget perspective, the acquisition budget was reduced by 18 percent. To support the process improvement, a portion of the acquisition budget savings was reallocated to fund new nurtures and support SLA implementation. 

• Check and adjust. Revenue-centric demand planning is often an iterative process that analyzes the relationship between available budgets, revenue goals, Demand Waterfall stage conversion efficiency and the resulting Demand Waterfall volume requirements. It's common to evaluate multiple scenarios with different budget allocations for both inquiry acquisition and funding of process improvement initiatives. Each iteration moves you closer to the optimal strategy for the target conversion rates, Demand Waterfall volumes and process improvement investments that meet your revenue and budget needs. 

To summarize, demand planning based on Demand Waterfall conversion rates is a powerful tool to align marketing budgets and plans with revenue goals. To achieve success, the Demand Waterfall conversion rates used to drive this model need to be aspirational but achievable. Don't bet your plan exclusively on external benchmarks. Base your Demand Waterfall conversion goals on a blend of current state, external reference benchmarks and identified process improvement impact to create a plan that makes 2017 a successful year.