Why revenue is the wrong marketing metric
If I’m ever asked about my ‘favourite marketing metrics’ (it happens when you live the B2B thug life), I usually start with a stock phrase, “Well, revenue is the mother of all metrics, but short of that, I like…”
But, even as I say it, I know in my heart that it’s wrong. (Then why do you say it, jerk?)
Revenue is not the end goal of all marketing.
Revenue is itself a leading indicator of the most important metric in business.
The most important metric in business is profit.
Businesses exist to make profit. They do it by generating margin-bearing revenue.
You can go out of business – many have – by growing the wrong kind of revenue, the low-margin, no-margin or negative-margin kind.
There are no prizes for the top line. Investors only reward the bottom one.
As the creative snowflakes of the business world, marketers don’t tend to worry our pretty little heads over this distinction.
But we should.
Because a strategy that chases any revenue will be far less effective than one that chases high-margin revenue.
Part of the problem is that we’re allowed to define ‘effective’ for ourselves, and we tend to stop at revenue — after all, it’s hard enough. Let the salespeople and finance folks worry about maximizing profit, our job is to herd every sucker with a budget into the hopper.
But if we change that mindset our marketing will not only make a bigger impact on the bottom line, it will also have a better chance of lifting all the metrics along the way, from traffic and likes and shares to time-on-page and pages-per visit to MQLs and ‘pipeline’.
Say you have two products, a licensed software product and a cloud version of the same thing. Turns out, the cloud version costs less (generates lower revenue) but is way more profitable – the margin is higher from the first month of the subscription and gets even better over the lifetime of the relationship (among other things, it’s way cheaper to maintain and support the single cloud version than the nine licensed versions).
Marketing that chases revenue would be different. It would just promote the core benefits of the software and create content programs and nurture flows all around bringing in people who want that functionality. Then you’d let them choose their own path to cloud or licensed version.
The ‘pipeline’ would look great (I always put the word ‘pipeline’ in finger-quotes because I’ve seen the rates at which they tend to convert). The ultimate topline revenue would look impressive too. Prizes, pizzas and promotions all around.
But if you decided to chase profits instead of revenues, your whole program would change.
The first thing you’d do is to try to isolate the audience segments most likely to go cloud.
To understand everything you could about them.
To analyze every existing cloud customer to see how they differ from your on-premise* software customers.
You’d run some predictive analytics to spot cloud-likely prospects as early as possible, then treat them differently so you could turn their absent-minded purchase ramble into a lubricated water-flume of love.
If you succeed in this kind of marketing (and you will. I can just tell), you will make a lot more money for your company. Not revenue. Money.
But here’s the thing:
In optimizing around profit, you’re also optmizing around your ideal prospects instead of around your average prospects.
The cloud-bound instead of the licensed laggards.
Ideal prospects are those who most value most of the things you offer.
They’re the folks most in sync with your business. They love your strengths way more than most people and don’t mind your weaknesses at all.
That’s why they’re high margin.
People pay more for things they value more. (Not always up-front but over time, you extract more value from ideal prospects than average ones). (It’s kind of a tautology).
Ideal prospects also buy faster, are easier to support and more likely to say nice things about you on Twitter.
(BTW, Bob Apollo of Inflexion Point (the sales performance consultants), has a terrific workbook on identifying your ideal customers. There’s a form but it’s worth it: Bob’s spam is better than most people’s top-shelf content).
When you orient your marketing around these people, you start to resonate more with them.
You speak their language, not the language of the average prospect.
You make content designed to attract and help them instead of the run-of-press stuff fit for the broadest prospect base.
And, over time, you fulfill your destiny. The reason God made you Head of Demand Gen, EMEA.
The result may not be more revenue than the other Head of Demand Gen, EMEA in the control group (she raked in the topline, got a standing O at the ‘pipeline’ part of the Dashboard Scrum and won the trip to Vegas… but her company went bust).
What’s weird is that a lot of marketers don’t even know which of their products are the most profitable and which are low- or no-margin.
It’s not a conversation we’re used to having. (We’re too busy cutting out shapes and colouring them in.)
So these are the Action Points for this blog post (what’s a blog post without Action Points?):
- If you don’t already know, go find out which of your company’s products are the most profitable. (If you do know… sorry I doubted you).
- Sketch out what a profit-driven marketing strategy would look like instead of a revenue-driven one.
- Go ask for a massive budget to execute that strategy.
- Find a B2B content marketing agency that gets this stuff to blow that budget in one fell swoop [Editor: Surely, ‘Invest that budget in one, long-term, considered and measurable ROI strategy.’].
- If that B2B content marketing agency just happened to be the Content Marketing Institute’s Agency of the Year 2016 (Under 100 staff), well, hey: win-win.
TLDR: Screw ‘Pipeline’, chase Profit.
(Dare you to tweet that).
* As Brian Madden spotted back in 2014, we lost the grammar war on ‘on-premise’ vs ‘on-premises’. Get over it. I had to.
Photo source: christinap on dollar art on funkyjunk.com (cool, huh?)