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Why Funnel Metrics Are Essential To Marketing Operations

Bonnie Corp PictureBy Bonnie Crater, CEO, Full Circle CRM

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 three 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.


Bonnie Corp PictureBy Bonnie Crater, CEO, Full Circle CRM

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 three 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.

Volume

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 $10,000 and you need to generate $100,000 in revenue this month, you need to close 10 deals. If your sales cycle is two 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

Conversion rates tell you how your marketing is performing through the entire sales cycle. We are fans of SiriusDecisions 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 1,000 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 one in 50, or 2%, or 1 in 1,000, 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.

Velocity

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 six months or six 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 six months, whatever you are working on now, doesn’t have much of a chance of affecting revenue for a period as long as six 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?

Volume. Conversion. Velocity. These are the three elements that can tell you a lot about your B2B marketing and sales operations.

Bonnie Crater is a five-time VP of Marketing at Genesys, Netscape, Oracle (Network Computer Inc.), Stratify and VoiceObjects. While valuing the creative side of marketing, Crater's real love is marketing operations — measuring marketing investments and determining investment optimization. As CEO of Full Circle CRM, Crater is working to help fellow marketers get the data needed to succeed. In 2000, Crater was named one of the “Top 20 Female Executives in Silicon Valley” by San Jose Magazine. She holds a B.A. in biology from Princeton University.