By now most technology marketers realize that activities should produce a return, however, I think in many cases company leadership is not good at valuing marketing assets.
So let’s say you are a business owner and you hire someone so sell a new line of business. You hire a person to make sales and this person generates all the leads by outbound calls and emails. I will assume here that they are selling into a new market to keep it simple. Your thinking might be:
Cost better be <= value created
So you take the cost of the activity and measure it against the sales made in the period.
The problem with this approach is that you are not counting other assets that may have been created.
So for example let’s say that you had the following activities:
3,000 outbound contacts made
800 people added to house email list
50 face-to-face visits
12 trials
1 deal signed
Using traditional logic you might look at the single signed deal and say that is not enough.
In this case the cost of the activity was $30,000 and the deal was worth $25,000
Cost = 30k vs. value created of 25k
There has been value created in addition to the sales made. So how do you value those assets?
I would argue that the value of each asset is directly proportional to its correlation to the final sale. OK this is a mouthful but what I mean by this is:
If a deal is worth $25,000
And 10% of (a certain type of) lead converts to deals
Then those leads are worth $2,500
Using the same logic a proposal might be worth $12,500 (50% will convert to a deal so it is worth half a deal)
Maybe a member of your house email list is worth $7. (Deal value generated by list divided by list size and discounted for time)
Let’s say you created a whitepaper that increases your conversions by 3%, the whitepaper is worth $75,000 if it will be part of 100 deals.
So when you run a marketing activity, my belief is that you should look at increases in all assets generated by the activity to get a better idea of the real value created.
So in our example here:
800 people added to house list = $5,600
50 face-to face visits = $10,000
12 trials = $30,000
1 deal closed = $25,000
If you add all this up the total value created far exceeds the cost of the activity of 25k. So now it is a worthwhile pursuit vs. not being worthwhile if you only look at deals closed.
Important note: Please note a few assumptions that allow this all to be true:
- This assumes that the activity will be ongoing. If you will terminate the activity then the values will drop to zero because you will not reap the value in the assets you created.
- Also please note that the assets will degrade over time. Anything more than a few months and you should start discounting asset values.
Let me know if I missed something, let me know if this helps and let me know what you think!
Sincerely,
Rajiv
