Uncovering the Misunderstood Value of Marketing: A B2B SaaS Perspective

Myopic View of Marketing Performance Slows Down Business Growth

Marketing is often undervalued and misjudged for its contribution to business success. Therefore, I was pleasantly surprised when, a few weeks ago, a former colleague from the Uberall Sales team told me how much Marketing under my leadership had made selling easier for him. While this is flattering, it served as a reminder of how hard it is to accurately measure the intangible impact of marketing efforts.

Unfortunately, many marketing leaders today are facing cuts to their teams due to rather narrow assessments of marketing performance based solely on MQLs, SQLs, and customer numbers. In contrast, the broader responsibilities of marketing, such as developing a corporate narrative, product marketing, or launching a new website, are more difficult to measure and, thus, are often ignored.?

The root causes of this are likely over-inflated startup valuations and, consequently, unrealistic business plans that placed a heavy emphasis on marketing-driven revenue. This narrow perspective on marketing's direct revenue impact can lead to further cuts, creating a vicious cycle.

This article focuses on the B2B SaaS industry and explores three main drivers of ambiguity in assessing marketing performance.

Uncovering the Root Causes of Ambiguity in SaaS B2B Marketing Performance

While there has been underperformance in marketing, it's clear that there's a broader, underlying issue in accurately evaluating SaaS B2B marketing results. But with all the advancements in tracking and measurements, and a plethora of metrics available, should not evaluating marketing performance be easy and straightforward??

For sure, we cannot blame all this again on distortions caused by behavioral shifts caused due to pandemic, supply shock, inflation, recession, etc. Rather, I believe the root causes of this ambiguity go beyond aforementioned external factors. They have always been present, but would not be discussed as widely. It's simply easier to justify higher marketing budgets during periods of financial affluence, strong economic outlook and well running sales - even if marketing’s impact was not fully understood by business leaders.

In my experience working with SaaS startups, the most significant reasons for these challenges include:

1. Go to market misunderstandings: At the highest order, founders and revenue leaders have limited understanding of go to market (GTM) and the various ways marketing contributes to it;
2. Attribution misunderstandings: Many crucial top of funnel demand generation programs (video, social, PR, events, etc) evade today’s attribution technology and methodology, which then tends to overstate RoI of pure bottom of the funnel demand capture activities;
3. Contribution misunderstandings: Lastly, judging marketing purely on revenue performance, overlooks underlying funnel economics as well as other contributions by marketing.

In some cases, more than one of these factors can coexist, as I have seen in a recent consulting project where all three were present. I am breaking down each of these points in more detail below. By their very nature they are interconnected and thus overlap in some aspects.

Go To Market: 5 Common Challenges Block Its Full Potential

“A go-to-market (GTM) strategy is a plan that details how an organization can engage with customers to convince them to buy their product or service and to gain a competitive advantage. A GTM strategy includes tactics related to pricing, sales and channels, the buying journey, new product or service launches, product rebranding or product introduction to a new market.” (taken from Gartner)

As businesses evolve, so too should their GTM strategy. However, it's important to make changes in a thoughtful and strategic way. Every business needs to identify their unique ideal GTM approach, amongst perhaps a few viable GTM strategies, and it's crucial to carefully think through which strategy will best serve your needs - guided by profound hypotheses and frameworks.

To reiterate, GTM encompasses all aspects of getting your product to the customer, and each element plays a crucial role. For small and medium-sized businesses, marketing may be the primary driver of customer acquisition, while in larger enterprises, it may take the role of a wingman for sales and outbound teams,and encompass activities such as generating lead lists, defining your ideal customer profile, and creating compelling content to support your sales efforts.

Product is a key component of GTM

Product is a vital aspect of GTM, and its development plays a crucial role in the success of your strategy. It's great to have a well-planned and solid roadmap in place, but don't forget to take the time to think about ways to make your product shine and make life easier for your customer success, sales, and marketing teams.

At a recent C-suite meeting, one board member asked the puzzled product and engineering leaders for specific examples as to how they had been supporting the customer-facing teams in the previous quarter. These leaders responded with excitement, saying, "everything we do is for sales and marketing." This sentiment, however, was not shared by the sales and marketing teams. This wake up call ultimately led to productive discussions about quick wins on the product roadmap, such as improved sign-up processes, access to demo data for sales calls and trials, and tailored onboarding paths for different personas and industries. These are all important considerations that shouldn't be neglected when defining the product development roadmap.

Avoid Common GTM Mistakes: Insights from a Revenue Leader on How to Succeed

As a revenue leader with years of experience, I have noticed a few common mistakes regularly made by founders in assessing their go-to-market (GTM) strategy. Instead of delving into the details of GTM, I'd like to share a brief list of these observations to help founders avoid these pitfalls.

• Demand Generation vs. Demand Capture: We'll delve into this topic further in the section on Attribution Misunderstandings. For now, it's important to note that there is a tendency to rely too heavily on past playbooks (such as SEO, Paid Search, and Inbound Marketing), i.e. to overemphasize bottom-of-the-funnel demand capture activities.
• Acquisition Channels: Key decision-makers often lack a profound understanding of how acquisition channels and subchannels work, leading to incorrect assumptions with regards to expected performance and resource needs. Most often, expectations regarding go-live timelines, customer cycles, conversion rates, lead quality, annual contract value, and workflows are incorrect. Additionally, I've noticed a tendency to favor new, untested channels over proven ones.
• The Broader Role of Marketing: As we'll discuss in the Attribution Misunderstandings section, marketing encompasses much more than just pipeline generation or customer acquisition. It also includes product marketing, brand marketing, and communications, among other aspects. Unfortunately, there is a tendency, particularly in Europe, to bring in marketing as a last resort. In consequence, impact can be realized only with significant delay - after all the required foundation has been put in place.
• Efforts, Lead Times, and Output Quality: Non-marketers often underestimate the complexity, timelines, and effort required for GTM initiatives, especially when it comes to marketing. With so many agencies vying for customers and promising quick results, it can be difficult for those without deep subject matter expertise to determine the true effort and value.
• Category Building: Many companies aim to create a new category and become its leader, but few are willing to invest the resources required. This pursuit is natural, but achieving it requires a significant investment of time and resources.

Conclusion: Today’s founders and CEOs must understand GTM

As a CEO or founder, it's essential to have a solid understanding of GTM. This isn't something you can delegate, and taking the time to understand the details of the engine will pay off in the long run.?

With a strong grasp of GTM, you'll be able to accurately measure and assess the performance of your business and its various parts. This in turn will allow you to make informed decisions, provide clear and consistent guidance to your teams, and ultimately help you become a more effective leader.?

So if you haven't already, it's time to dive into GTM and gain a deeper understanding of how it can benefit you and your organization.

Attribution Misunderstandings Praise the Wrong Channels

Attribution misunderstandings are a bucket which summarizes all issues surrounding performance attribution. And, yes - correct attribution is a complex issue. Specifically, certain - mostly bottom of the funnel - channels, campaigns, and teams tend to receive more credit than they deserve, while others, incorrectly and unfairly, are overlooked. Often this is anchored in decision makers confusing demand generation and demand capture, and not having a proper understanding of individual acquisition channels and their interplay.

Chris Walker from Refine Labs is likely the best-known expert in this domain (which is why I keep this chapter short). Basically, attribution models and software tend to give more credit to channels at the bottom of the funnel, like direct response, rather than channels at the top of the funnel, like generating awareness. Chris talks about a phenomenon called "dark social," which refers to the difficulty in measuring awareness through channels like podcasts, organic and paid video, events, press, word of mouth, and direct mail. In contrast, direct response is very easy to measure.

As a result, decision makers may underinvest in top-of-funnel efforts and overinvest in bottom-of-funnel efforts. This can lead them to have an oversimplified view of marketing, thinking that all they need to do is to pour resources into SEO, SEA, and content. In other words: “Marketers, what’s so complicated about your job"?

To overcome these challenges, it's important to have a deep understanding of the buyer's journey and how different personas in the buying center transition from an unaware state to happy customers. This can be achieved by talking to your target audience and learning about their experiences. Adding self-reported source questions to your customer acquisition process can provide valuable insights and help you better understand the channels that are driving your success. In my opinion, the best touch points for this question are lead capture forms and subsequently BDR/SDR and AE conversations.

Contribution Misunderstandings Overstate Marketing Unit Cost

Contribution Misunderstandings is a term I came up with to describe a concept similar to direct costing and contribution margin analysis in accounting - when applied to Marketing.

As mentioned before, many businesses underestimate the broader contributions of marketing to their business. This is quite natural considering that investors have coined the term growth funding, which primarily focuses on revenues through scalable marketing and sales. However, this often leads to leadership evaluating marketing based on full costing, which can be misleading. Full costing allocates all costs, fixed and variable, to each unit of output and does not provide a complete understanding of capacity reserves and limits.

Contribution Misunderstandings come in two flavors: Lead Generation Full Costing and Full Funnel Full Costing.

Type A: Lead Generation Full Costing

Lead Generation Full Costing

Lead Generation Full Costing involves a dedicated allocation of the majority, if not all, marketing expenses towards demand generation. This, of course, is in stark contrast to the wide range of marketing responsibilities, which encompasses aspects such as customer retention and growth, partnership acquisition and growth, product marketing, branding, and communications.

Although these additional responsibilities may not have a direct revenue impact, they play a crucial role in the success of marketing endeavors. To ensure accurate cost assessments, it is important to consider these responsibilities and avoid artificially inflating the unit cost of marketing by grouping them with demand generation.

Practical example

Let's say there's a startup with a small marketing team of 5 full-time employees: a digital marketer who focuses on paid search, a product marketer, a partner marketer, a designer, and a content marketer. Paid search brought in decent quality leads at a cost of 133 USD per marketing-qualified lead (MQL). Including the salary of the digital marketing manager, the unit cost of digital marketing was 250 USD per MQL. If we include a portion of the supporting product marketer and content marketer's salary in this calculation, the cost per MQL further increases.

However, the company leadership insisted on a full cost analysis, with all marketing costs divided among the paid search MQAs. They also made things worse by attributing all partner-marketing supported leads to the direct channel, considering it brand-driven organic and therefore not giving marketing any credit. As a result, the total calculated cost per MQL skyrocketed to 595 USD. Therefore, it was decided to reduce marketing investment as other channels appeared more promising.

[Note: A more thorough analysis should consider efficiency and payback metrics, but this is just an illustration.]

Potential pitfalls of Lead Generation Full Costing

The above example was presented in a simplified manner to help you gain a deeper understanding of the concept. It's important to note that this is a common issue, and there are two potential risks associated with Lead Generation Full Costing.

Incorrect Channel and Project Prioritization: The first risk is related to incorrect prioritization of channels and projects. When all marketing spend is solely attributed to customer acquisition, it can evoke unfavorable economics, ultimately leading to a cut in marketing spend and a shift towards other acquisition channels such as outbound. In the example, the management team compared the expected unit cost of a core outbound team with the unit cost per SQL (Sales Qualified Lead) for the entire marketing team, which led to an understated cost for outbound and an overstated cost for marketing. Needless to say that the expected savings in Marketing did not eventuate as part of the marketing HC had to be retained to fulfill business-critical tasks.

Increased Unit Costs with Downsizing Marketing: The second pitfall of full costing is that it can result in incorrect expansion and scale back decisions, as it does not distinguish direct vs indirect costs and does not consider capacity utilization. In the example, if the management team reduces their paid search budget in an attempt to reduce the cost per MQL, it may lead to a reduction in direct unit cost but ultimately result in an increase in the fully loaded acquisition cost. Marketing is a channel that works best at scale, so downsizing can have unexpected consequences.

How to deal with this correctly

(Conceptually) divide marketing into its components and separate acquisition marketing from marketing’s other responsibilities. Additionally, incorporate capacity utilization into any performance analysis. It's important to evaluate acquisition marketing based on its efficiency, payback periods, and RoI. Meanwhile, non-revenue driving marketing teams that support the wider business should be considered cost centers and evaluated based on their impact on other teams - similar to how we look at HR, Finance, and General Management.

For example, in a previous project with a CMO, we worked to justify their annual marketing budget. The business leadership wanted to focus on partnerships and outbound over marketing. But through collaboration, we showed that even if all acquisition marketing was to be discontinued, the company still allocate resources for “baseline marketing” (in this specific case Communications & Content, Customer Newsletter, Design, Product Mktg) , Outbound Support, PLG/Growth Product Management support, and Partnership support.?

The point was not to say that these roles must sit in Marketing, but to highlight that reducing the respective resources would impact the business's strategic agenda. While Marketing may be the most suitable team to support those activities at scale, the required resources would have to be made available somewhere. Once this had been established, business leadership got a clearer picture and the discussion shifted towards what the appropriate resource allocation for above responsibilities should be. At the same time, the marketing acquisition channel was liberated from unfair cost allocations, and it became clear that it was actually the most efficient lead and customer acquisition channel within the business.

Continuing on this path going forward, we restructured team and budget requests along the lines of:

• Acquisition Marketing - everything directly related to generation of new business
• Go-To-market support - any activities indirectly supporting revenue, in particular retention, upsell, partnerships, etc)
• Product Marketing - important support layer to Marketing, Sales, Customer Success and Product Management, as well as a provider of strategic insights for the business leadership
• Brand & Communications - as a general support layer both to Marketing and the wider organization.

Type B: Full Funnel Full Costing

Full Funnel Full Costing

Full Funnel Full Costing is another approach frequently used to evaluate the performance of marketing efforts. In contrast to Lead Generation Full Costing, Full Funnel Full Costing takes a broader view and aims at analyzing the entire acquisition process to determine the cost per newly acquired customer and per newly acquired MRR dollar.?

Although this approach may seem more comprehensive, it relies on the assumption that the initial lead source is the primary factor affecting conversion rates and funnel capacity utilization, ignoring the multiple touchpoints throughout the customer journey. This is a problematic oversimplification and can lead to incorrect conclusions, particularly when capacity utilization and conversion rates at the various steps of the funnel are ignored or misunderstood.?

Despite this, Full Funnel Full Costing is still a popular approach in many businesses, often used to identify lead sources that may result in higher quality deals.

Practical Example

An analysis by Finance shows that the cost per marketing-sourced customer across the funnel was roughly 2,400 EUR, and the direct cost per MQL 500 EUR. The company aimed for an acceptable customer acquisition cost of 2,000 EUR. Based on the conversion rates, corporate leadership requested that marketing reduce their direct (= unloaded) cost per MQL, which resulted in a significant decrease in acquisition volume. To everybody’s surprise, though, the reduction in cost per MQL did not translate into the expected overall reduction in cost per new customer.

So, what was the missing piece? The answer is simple - the BDR and Sales teams were overstaffed, and thus were the primary drivers of the high overall customer acquisition cost. Reducing the direct cost per MQL was not the solution, as it would only further exacerbate the overcapacity issue in the middle and at the end of the funnel. Instead, Marketing should have increased their cost per MQL, as an increase in volume would have reduced the overall cost per customer. Alternatively, the BDR and Sales teams might have been downsized.

Potential Pitfalls

It's important to consider the drawbacks of using Full Funnel Full Costing. While it provides a comprehensive view of the costs involved in acquiring a customer, it can actually hinder efforts to optimize the overall cost of acquisition. Additionally, it can skew the comparison between different marketing channels and lead sources.

How to deal with this correctly

Dealing with this can be a breeze if you approach it with the right mindset! Instead of shying away from it, take it as an opportunity to learn and grow.

1. If you have a straightforward single or limited touch customer journey, for instance with low consideration self-buy products, then give Full Funnel Full Costing a shot! But if you're looking into more complex sales processes, don't hesitate to dig deeper into the customer journey.
2. Perform a thorough funnel analysis to gain a better understanding of lead times, conversion rates, capacity requirements, and interdependencies and each stage of the funnel. This will give you a solid foundation for making informed decisions.
3. Lastly, when it comes to revenue planning, why not try combining a top-down approach with bottom-up planning? Get a sense of how many Marketing Qualified Leads (MQLs) you can realistically deliver and see how it impacts capacity utilization throughout the funnel. By taking this integrated approach, you're setting yourself up for success!

Conclusion: Avoid These Analytics Pitfalls for Smarter Marketing Investments

Unlock the true potential of your marketing investment with smarter decisions! As a significant expense for most companies, it's essential to understand the full impact of marketing efforts on the overall business. No doubt there is saving potential. However, you must avoid the three common pitfalls: GTM misunderstandings, Attribution misunderstandings, and Contribution misunderstandings.?

Don't just blindly cut back on marketing. Instead, work together with business and marketing leaders, finance and revenue operations teams to thoroughly analyze and understand the impact of each marketing component. By doing so, you'll be on the path to profitable growth and driving demand with confidence.?

I invite you to start the conversation and share your thoughts on how you're navigating this challenge now! Comment and share your experiences with others who are striving for the same goal.