ROI, Sales Pipeline and Marketing Funnels
What does ROI mean?
ROI stands for Return on Investment. In technical terms, it means the ratio between net profit (over a period of time) and the cost of the investment (be that time, money or resource). It’s used to evaluate the efficiency of an investment (such as marketing or advertising spend as an example).
The higher the ROI, the better, as this indicates a more significant return for your investment, or simply put you have earned back your investment sooner, therefore anything after this is profit.
What's your sales pipeline and marketing funnel?
A sales pipeline is a set of stages that a prospective customer moves through, as they progress from a new lead to an actual customer. This pipeline process can vary depending on the company, the audience types or the product/service you sell. It often includes four main stages:
- Qualification – How you ensure the prospect has the need, the budget and authority to buy. It’s important to quantify what the timeline is for the purchase. If they pass this stage they move on to…
- Meeting – How to engage with the lead/prospect, to highlight the product/services solutions to their issues/needs and overcome their objections. If they progress passed this stage they move on to
- Proposal – Creating a detailed proposal confirming the product/service, benefits, what will be provided, costs, delivery times etc. to send on to the customer. If they progress passed this stage they move on to
- Closing – The final negotiations and agreement of contracts and purchases – this is the conversion from the prospect or lead becoming an actual customer.
Often when marketing, we will work in collaboration with sales teams, who normally work through their own pipelines and create a marketing funnel which compliments these.
A marketing funnel will work with the sales pipeline to help move the prospective customer through each pipeline stage. Considering the marketing funnel, marketing strategies and measurements should be in place to help create conversions or the achievement of goals or events at each stage. These are often measured by the number of conversions made through each stage of the pipeline.
The word Funnel comes from the shape of the results at each stage, as it filters from a large amount to a narrower amount at the end of the process.
So for example:
| Pipeline Stage | Number of Funnel Leads/ Goals/ Events Achieved/ Conversions |
|---|---|
| Qualification | 500 (=100%) |
| Meeting/Engagement | 250 (=50% of above) |
| Proposal | 175 (=70% of above) |
| Closing | 100 (=57% of above) |
| End Result | 20% Win/Conversion |
Understanding and measuring each of these stages, helps to inform you, where you have your biggest issues in the sales pipeline, so therefore where you need to support more with your marketing campaigns or materials.
Why do I need to know and calculate my ROI for marketing?
The most asked questions in business are:
- How much should I spend on marketing?
- How do I know what to spend on marketing?
- How do I measure the effectiveness of my marketing?
Knowing what your return on your investment is for any marketing, helps you to learn if you are getting value for money from your marketing and also ensure you keep an eye on its effectiveness and success.
Why do I need to know and understand my sales pipeline and marketing funnels?
If you look at the example we used to explain marketing pipelines and sales funnels above, we could have a situation where we need to increase the rate of meetings achieved from the qualification stage, or alternatively we could have an objective of increasing the number of leads, entering the qualification stage. Both improvements would offer an increase in the number of wins/ conversions. However, if you could increase the performance at all stages, you could increase the overall win/conversion rate considerably.
The decisions made at any stage will affect how you manage or focus your marketing efforts and messages. Without knowing where your current conversion processes are struggling or succeeding, you cannot ensure you are investing in your marketing for the right reasons, or focusing it in the right places.
What benefits will my business get from understanding my sales pipeline and marketing funnel?
With a good understanding of how your current sales pipeline and marketing funnel is working, you can identify the issues and successes you’re having. There for you can learn, why some bits are not working and work to correct them internally with your team, as well as support better conversions with strongly focused marketing.
If you identify you’re loosing many people at the qualification stage, maybe you need to do more marketing which helps ensure better lead generation with those who are more likely to fit your qualification criteria. For example, making it clearer in your marketing who your product/service is aimed at. This could reduce your overall leads but could increase the percentage that move through to the meeting and proposal stage. If you find you are losing more at the proposal stage, make it easier for them to recieve an instant quote and highlight this to your prospects in your marketing. Again, this could help increase the conversion to the closing stage.
How do I work out ROI, and ROI for marketing?
ROI can help you with all of these questions. ROI can help you to measure the efficiency of your investment. ROI is normally shown as a percentage of the investment amount, and a very simple version of the calculation is below (but there are a few options dependent on the goal or application):
(Sales Growth (SG) – Marketing Cost (MC))/Marketing Cost (MC) x 100
= % ROI for Marketing on Sales Growth (if sales growth is your goal)
So for example:
£1000 (SG) – £100 (MC) = £900 / £100 (MC) x 100 = 900% ROI
Now this would be exceptional growth and doesn’t account for the other expenses and costs. But if you really want to know a bottom line affect of a campaign on the sales, you need to look, to add into the calculation an organic or proven established growth into that formula for example. So, say it is 5% month-on-month growth for the last 12 months (organically). Then any marketing campaign should raise the sales in excess of 5% to gain a good ROI on your investment. So this calculation would look like this:
(Sales Growth (SG) – Organic Sales Growth (OSG) – Marketing Cost (MC))/Marketing Cost (MC) x 100
= % ROI for Marketing on Sales Growth (if sales growth is your goal)
So for example:
£10,000 (SG) – £500 (OSG) – £5,000 (MC) = £4,500 / £5,000 (MC) x 100 = 90% ROI
Now these are exceptionally high returns, and you shouldn’t expect these types of returns for marketing necessarily, but be delighted if you do! However, this doesn’t include the costs for the production costs etc. So it is just a guide to your returns. Things to remember with Marketing ROI:
It can take time for marketing to impact sales, so calculating this over a longer period of time rather than just over a short period is a better measure.
The goal of the campaign will affect how to calculate the ROI – so decide what type of metric you need. This could be one of the three below options:
- a hard metric like sales, number of units sold
- a soft metric like brand awareness, reactions or shares on social media, visits to the website etc.
- a hybrid metric like campaigns that generate sales leads – these can be direct to sales teams, or capturing the lead to engage with the brand or marketing pipeline such as signing up with to a newsletter, or special email notification etc.
With all the metrics, you would want to see over time the impact on the bottom line figures. This is done through ensuring your marketing strategy is aligned and constructed with a sales pipeline processes to help convert awareness to engagement to conversion.
Marketing expenditure is often responsible for the intangible marketing assets:
- brand value/awareness
- customer equity/loyalty
These are not always easy to assess as directly impacting on the bottom line, as they are influencing factors in the conversion (pipeline) process. But arguably these intangible marketing assets are highly valuable and in some instances, more so than the tangible assets of property or equipment for example. These can be calculated using additional measurements such as increased market penetration or greater awareness satisfaction (derived from surveys) for example.
If you would like to discuss your ideas for marketing campaigns and how to measure your return on marketing investments, feel free to get in touch with us here for, some free of charge advice.
How do I work out my sales pipeline or marketing funnel?
Whether you have a sales team or not, you should know how many people contact you via phone, email, website or other communications for more information. You should then be able to measure how many people you have been able to push through the other stages and how many finally get to closing or purchase. Even if you sell through an online automated process, you will still be able to see how many people clicked on your product, how many read the full description and reviews, how many put it in their basket and how many actually checked it out. This is effectively your pipeline.
Many ecommerce sites will do all this analysis for you, often as part of their metrics. But sometimes it’s not clear how additional marketing support or changes to your campaigns could help affect this positively. If you don’t know how your pipeline is actually performing, you cannot make properly informed decisions on your marketing spend or help assess what the ROI on your marketing spend should be.
What else do I need to know?
It is always good to ensure you have considered how you’re going to measure the effectiveness of any campaign or marketing activity. This should include your return on investment and how this will provide and work with your pipeline, for leads and/or sales conversations. If you’re looking to market anything without understanding these two points, you probably shouldn’t do it, as otherwise how will you know whether it was successful and cost effective.
However, we say this with a note of caution, do not expect the impossible. Marketing is very effective if done right but it’s not a “Golden Bullet,” suddenly fixing everything in a business. If your marketing creates a 5-10% increase in your sales, and the investment was modest that is likely a successful campaign. Don’t spend more than you can recoup with the increase in sales, is our advice and if your investment doubles your return, that’s great work.
At Need to Know Marketing we love providing information for SME’s so they can grow. We also understand this work can be time consuming and difficult to begin with. To assist you, we provide a free of charge one hour consultation, where we have an open discussion about your business objectives and what you’re looking to achieve.
Following the consultation we will provide you with a marketing strategy, advising how we recommend meeting your business objectives through marketing. If you are interested in knowing the cost of our services, you can use our calculator as a guide.
“Of all of our inventions for mass communication, pictures still speak the most universally understood language.”
Walt Disney knew telling a story is always always easier with pictures. It crosses all barriers. The best story tellers are always the best at engaging their audience.