When I first entered marketing, decisions were still driven by "gut feelings" and as digital came into the picture more analytics were being test. I say tested because it took some time before we (marketers) realized what we should measure and when. As a business, there are metrics you use, to see where you are and how you got here (i.e. amount of business closed... backward looking) and metrics you use, to see where you are going (i.e. amount of pipeline created... forward-looking).
Today marketers have gotten comfortable with tactical metrics on their campaigns, but there is still must work to do to become more analytical in our understanding of attribution and follow-up action of goal setting. I've written about attribution in a previous post. I'm no genius or suggesting this is the best way... I'm just hoping my many stumbles and learnings will help others. Since we are heading into a new year, let's talk about goal setting for the Business in this first part and quickly follow-up with a Part 2 about setting marketing goals. Don't forget to subscribe to the MarketingOptimized blog so you won't miss any updates.
The modelling starts once the business has set the closed business goals for the year and break them down by quarter. I've seen far too many marketers just take last year's numbers... Closed Business Goal and MQLs generated and take this year's Closed Business Goal and calculate the % difference and then apply that same % difference to MQLs and call it a day. This is fair to simple and full of issues. The pendulum could swing too far the other way, and we could spend months modelling to too fine a detail level that we can't hope to utilize. What is needed is something in the middle that gives enough detail for us to be able to see issues and know how/where to make adjustments.
Unfortunately this isn't a one model fits all situation... it depends on what is important to the business and that depends on where on the maturity curve the product and customer base is and if you are dealing with a mix on many products that are in turn, in varying states of maturity. I'll outline a framework for the decisions and actions that you can adjust for your needs.
Annual Goals for closed business
Working from the annual Closed Business Goal (let's take a round number of $100M), we need to translate this goal to Sales targets and Marketing targets. Sales and Marketing are a 2-person relay team and in between the teams is Pipeline that is generated by marketing and closed by sales. To figure out how much pipeline we need to know the ratio of (multiple)... How much pipeline was created to how much business was closed... using last year's data for an average.
Here is where you need to understand your business... do you have to worry about different ratios for different products, or an initiative to sell more of a certain product, or if you have multiple products with different levels of maturity, or do you have a significant amount of renewal business and that has a different conversion rate. You'll want to drill down at least one level deeper for your numbers.
Looking at the quarterly numbers, let's say last year we had a nice round 5X multiple needed for Pipeline to Bookings and our business is simple... we sell one product... no other product or services or renewals to worry about. That would seem to mean for our $100M Bookings we need $500M in pipeline. If you have a very long Average Sales Cycle (i.e. 1 quarter or greater) you many need to offset your calculations by you Average Sales Cycle. For our example let's assume out Average sales cycle is 30-45 days for simplicity so we don't have to offset our calculations with previous quarter's Pipeline to current quarters Bookings.
One should pay attention to the % difference between the new goal and the old goal. With all other things being equal we typically treat the multiple as being a linear relationship... but in reality this is seldom the case as goal get bigger they become harder to hit if everything else in the business has remained the same. If your growth target is aggressive (30%+) then you many need to go back and look at how your multiple changes based on your Close Business amount and project what it should be base on the new target.
Quarterly Pipeline Pacing
Most businesses don't have the annual target distributed evenly across the 4 quarters of the year. This is partially due to external factors (seasonality, marketing place conditions, legislation, etc.) and internal factors (quota structure and discounting rules, promos, etc.). Knowing the how much Pipeline we need for sales to work on is critical to identifying issues with the health of the funnel. In our case let's say looking at historical data and there are no major changes in external and internal factors, our quarterly goals will look like this:
Q1 - 20% - $100M Pipeline -> $20M Bookings
Q2 - 25% - $125M Pipeline -> $25M Bookings
Q3 - 25% - $125M Pipeline -> $25M Bookings
Q4 - 30% - $150M Pipeline -> $30M Bookings
Quarterly Pipeline Mix
An often overlooked aspect of the health of the funnel is the timing of the Pipeline amounts.
We create new Pipeline each quarter from marketing campaigns and sales outbound activities. We know we don't close out all Pipeline each quarter. Some converts to Bookings, some is closed lost and the rest is carried into the next quarter. Here we use our Avg Pipeline close rate (if you find your close rate changes from quarter to quarter you will need to account for that in your calculations) to figure out how much of the previous quarter's Pipeline will carry into the next quarter. The difference between that and the quarterly Pipeline target is the amount of new Pipeline Marketing needs to be generate.
If we close (won/loss) about 50% the Pipeline, then after Q1, we will carry $50M of pipeline into Q2 meaning we needs to generate $75M of new pipeline that quarter not a full $125M. In our example, if Q4 of this year we end with $125M in pipeline then we will carry $62.5M into Q1 and need to generate:
Q1 - $37.5M new pipeline
Q2 - $75M new pipeline
Q3 - $62.5M new pipeline
Q4 - $87.5M new pipeline
If you have a long sales cycle, the value of the deals can change throughout the quarter. You may need some rules on only including values after a certain deal / forecast stage if you find there is a stage at which they stabilize. And / or you fix point in the quarter at which you report on the pipeline values and how we are pacing to target. You should always have internal goals that are higher than external expectations. That way if you miss internal goal and not external goal you won't have to carry the amount you missed into the next quarters, so you can make up the annual target.
Part 2 will be posted in a few days. There we'll discuss:
Marketing targets
Influenced vs Sourced... Hybrid
Deal based funnel: Marketing Qualified Deal
Marketing Activity Goals
Share in the comments how you are planning your 2022 goals.
Don't forget to subscribe to the MarketingOptimized blog so you won't miss any updates.
