Now that Netflix can stream movies to computers and through the Wii, my kids are taking full advantage by watching some of the shows and movies I watched as a kid.  At any given time in our home this summer, I have been serenaded by the eloquent dialogue of Hannibal from "The A-Team" and even the hysterics of "Mystery Science Theater 3000."

A few weeks ago at the request of my kids, we watched "Karate Kid II."  This not only brought me back to the days when Peter Cetera (singer of the group Chicago) was blazing the music scene with his singles career, but it also made me realize that as B2B marketers we sometimes put too much “weight” in the wrong numbers and can easily be blindsided. Let me explain.

For those of you who aren’t familiar with the movie, Daniel and Mr. Miyagi go back to Okinawa due to the poor health of Miyagi’s father.  While there, Miyagi encounters his former best friend turned long time foe, Sato, and his band of thugs led by Sato’s nephew.

In one scene, we see Sato’s nephew running a market where he purchases produce from local farmers.  Within the market is a scale he uses to weigh the produce and “pay” the farmers what they are due.  Through a series of events, Daniel accidentally breaks one of the weights, revealing that the weight is fake --the jig is up.  The villagers were being cheated, and the scam is exposed.  The numbers (or in this case, the weights) were false.

Unfortunately, many B2B organizations are similar to the villagers.   Just as the villagers had come to rely on skewed weights, B2B marketers are relying on skewed metrics.

The Typical ROI Model

The typical measurement for a marketing campaign is to record the number of leads generated, as well as the amount of revenue that originated from that campaign.  Take for example this scenario from a mid-sized organization:

Campaign Spend: $50,000
Number of Leads/Responses Generated: 1,000
Number of qualified or sales-ready leads routed to sales (30%): 300
Number of deals based on sales close rate of 25%: 75 closed deals
Average Sales Price (ASP): $50,000
Total Revenue Produced: $3,750,000

Campaign Return (revenue---campaign spend): $3,700,000



I doubt many organizations would complain about spending $50,000 to make $3,700,000.  It certainly has a nice “and they lived happily ever after” ring to it.  But, that’s not the whole story.

What about the other 700 leads generated from the campaign?  Given that the campaign made more than $3 million, many companies are content to just let those leads go and do nothing more with them.  However, further analysis reveals the true cost of ignoring them.

First, let’s determine the cost of the ignored leads

Campaign Spend: $50,000
Number of Leads Generated: 1,000Cost Per Lead Generated: $50
Number of qualified or sales-ready leads routed to sales (30%): 300
Number of “non-sales ready” leads
left to decay or drop out of the sales funnel due to lack of nurturing: 700

Lead Abandonment/Decay Cost
(700 x $50/lead): $35,000

Now, $35,000 seems like nothing compared to the $3.7 million you just made on the campaign.  However, $35,000 only represents what it cost to generate those lost leads.  We still need to determine how much revenue was lost because those 700 leads were not nurtured.

Number of leads left to decay in the system due to lack of nurturing: 700
Number of those leads that will buy the product or service your company sells in the next 12 months:
(*45% X 700): 315
Number of closed deals(sales close rate of 25% x 315 qualified leads): 79
Lost Revenue (79 potential closed deals x $50,000 ASP): $3,950,000

Total Loss
(Lost revenue + lead abandonment/decay cost): $3,985,000

So, although the campaign generated $3,700,000 in revenue, it also lost $3,985,000 in potential revenue for a net loss of $285,000.  We refer to this number as the Lost Return on Investment (LROI).  And it all happens because of the absence of process and lead nurturing.

Going through and computing the LROI of your campaigns can be a very integral exercise in building a business case for transforming your lead-management process and developing lead nurturing campaigns.  Not only will it help you to get your peers on board, but it will also make it easier to convince sales and management that process implementation needs to occur. After all, the LROI is based on the one thing that is nearest and dearest to their hearts---revenue.

Developing a lead-management process, including lead nurturing and measurement, will enable you improve the revenue on your marketing campaigns and show a clear and accurate picture of your marketing spend. As Mr. Miyagi said, “Lies only become truth if other person chooses to believe them!”

*45% of the “non-sales ready” leads will buy the product or service.
Source:  Gartner