What CMOs think they look like when they put on their annual user conference
Welcome back to part 3 of our 5 parts series on Annual Planning.
If you’re late to the planning party, here’s a snapshot of our syllabus:
Part I: The Kickoff
Who’s involved in annual planning?
Bottoms up vs tops Down forecasting
Guiding questions and guardrails
Part II: Building sales capacity
Modeling out rep ramp time
Pod ratios: Business Development Reps, System Engineers, and Sales Managers
Quota deployment and over assignment (shhhh!)
Part III: Designing a marketing budget (This post!)
Modeling Pipeline Coverage and understanding the marketing funnel
Working with your CMO to develop a “GL pick list”
Programs vs People cost split
Part IV: Costing out the P&L
Modeling headcount as an input, and a driver
Forecasting non-people costs
Developing a mutually exclusive list of expense types
Part V: Bringing it all together (the week after next week)
Modeling P&L by cost type vs P&L by department
Checking your outputs: CAC Payback, ARR per head, cash runway
Five year plan tie in
This guide comes from thousands of hours on the job, designing annual plans for multi billion dollar tech companies. And it’s strongly influenced by the hundreds of hours spent with my entrepreneur friends who are building their very first budgets.
Today we’ll explore the nuances of building a marketing budget to ensure your sales team has enough pipeline to hit their goals.
Unlike our sales capacity model, which is built bottoms up, marketing targets are built in reverse (and then sanity checked tops down).
Let’s secure the bag pipeline.
Generating Pipeline Coverage
Pipeline Coverage Multiple: Working backwards based on assumed conversion rates, this is the multiple of sales quota you want your marketing team to generate in qualified opportunities.
For most SaaS companies, it’s assumed to be anywhere from 200% to 350% of your new ARR target, depending on the sales engine and geography.
For SMB deals that have shorter sales cycles and can be spun up faster than enterprise deals, you can assume a smaller ratio. I’ve seen high velocity companies that need less than 2x pipeline because they are so efficient.
For example, if you want to close $10M in SMB deals in Q2, at a 2x target pipeline ratio, you need to generate $20M opportunities across all your channels.
Over Assignment: The number of leads needs to be based on Quota, which is between 20% to 30% higher than Financial Plan if you’ve over assigned your sales number.
The Marketing targets need to align with the quota you’ve put on the street.
That means you can’t link it to the financial plan, as you’ll end up with a gap and set up your sales people to come up short.
Sales Generated Pipeline: Marketing is not responsible for all pipeline - much of it is sales generated. Sales people are marketers for the company, too (they just don’t like to admit it). It’s common for sales teams to take at least 20% of the burden associated with generating pipeline.
We reduce the required number of leads marketing is on the hook for supplying by an agreed upon percentage that sales kicks in.
The same thinking applies if you are a channel driven organization, or sell through a marketplace like AWS or Vendr. The associated pipeline contributed from these partners should reduce the marketing targets as well.
Product Driven Pipeline: If you are a Product Led Growth (PLG) org, the same thinking applies. The product should drive a certain number of registrations, which reduces the number of net new leads the marketing team is responsible for generating.
Often, though, Product Qualified Leads (PQL) coming from the PLG motion are embedded into the marketing number, so it’s less a reduction, but rather an inclusion, to the number the marketing team gets credit for.
The Funnel
Pipeline Sources: In my simple mind, there are five lead sources. Each contributes a percentage towards the Segment’s overall contribution.
PQL (Product qualified lead): Someone who’s experienced value from using your product as a result of a free trial
These are generally the highest quality leads
Website: Someone who’s registered for something on your website
This could be an eBook, or they fill in a contact form
Conference: Someone who’s given you their contact info at a conference
Business cards
Paid: Someone you are able to track down based on paid advertising
These are generally the lowest quality leads
Outbound / Account Based Marketing (ABM): Hyper-specific outbound
These are generally reserved for Enterprise, as it’s very targeted / personal, and more expensive to execute
Funnel Stages:
Top of the funnel: Anyone you are trying to attract and get to know better.
MQL (Marketing Qualified Lead): An individual or organization that has engaged with your marketing efforts and could become a customer with proper nurturing.
SAL (Sales Accepted Lead): A marketing-qualified lead (MQL) that has been reviewed and accepted by the sales team according to lead scoring criteria
The difference between an MQL and an SAL is usually the buyer’s intent - are they actually serious about buying, and do they actually have budget
Opportunities: SAL’s become Opps once the sales team decides to work them and can estimate a timeline to close.
Get this number right, and then work backwards
So when you model it out, mathematically it will flow as Opps, SAL, MQL, Top of Funnel
Grossing it all up
Working backwards: The lead funnel calc really works backwards, grossing up each step based on expected conversion rate. Before we go deeper, you can find a downloadable template below:
We know our required pipeline coverage at the bottom of the funnel, and we have the best command of our historical opportunity numbers.
This gives us a better foundation to build upon since our top of the funnel activity tomorrow is not as certain
It’s important to note, that you are working backwards to your Net New ARR target, which does not contemplate any expansion dollar targets in your plan.
It’s assumed that the sales team and customer success teams drive the expansion dollars, NOT marketing.
Once again! Marketing does not drive expansion dollars (at least in this exercise / on planet earth)!
Setting the pace: Marketing pipeline needs to front run the segment it’s supporting by whatever the average deal cycle is.
You will need to lag your pipeline so it’s generated before each of the segment’s sales goals each quarter.
Look at each Sales team’s goals and say “what do I need to generate by this date to be prepared for the quota retirement required”. For example:
SMB = 0 quarters
Midmarket = 1 quarter
Enterprise = 2 quarters
This means our ability to generate leads in Q3 will be important to know our capacity for Q1 of next year
Tracking costs
The Teams: Talk with your CMO as to whom on their team will be responsible for a subset of the marketing budget.
Each mini budget holder will be designated as a “team”
And each team will use the same mutually exclusive general ledger pick list to put costs against
Potential list of teams:
Demand Gen
Product Marketing
Events
Marketing Ops (MOPS)
The Pick List: At the start of the year, design a mutually exclusive list that the marketing team can use to categorize expenses within each of the teams above.
Note: the teams don’t have to use all the lines - for example - ABM might not have advertising spend. But you should lock down one list to lean upon.
Potential pick list:
Design
Online advertising
Offline advertising
Sponsorships
PR
Social Media
Channel / Partner
Events / Tradeshows
Collateral / Gifts
Incentives / Promos
Contractors
Consultants
Software / Tools
[Big annual conference]
Life Hack: For your big conferences, it’s best to give them their own line.
For example, if you have an annual user conference that spans multiple teams, park it in the Events team and charge everything there. That’s OK to do if you also park all the corresponding budget dollars there
Common Mistakes:
Accepting a Whacky Program vs People Split: Do you have enough people to actually spend the dollars?
A nascent marketing team will have more people costs than program costs
As it matures, the pendulum swings towards programs
In general, the split should never really go more than 60 / 40 in either direction
Ramping QoQ Pipeline too Fast: You can’t have a massive ramp in pipeline QoQ without deploying more spend
Measure the “net increases” to your pipeline and the corresponding increases in spend to support them
Not thinking at all about the year after this year: Yes, I said it. Even though this is a plan for this coming year, you need to think up to 18 months out
This is because if your Enterprise team needs nine months of pipeline ahead of time, you need to start building the following year’s Q1 in Q2 of this year. Wild, I know.
But don’t fret. Most planning teams check in with marketing to make sure they have enough coverage for the following year halfway through the current year they are planning for. This is why we do this stuff on a continuous, rolling basis. Just peg it in the meantime to the latest in-year quarter until you have more data mid year.
Over allocating pipeline to the channel: Your partners are incentive driven, just like your sales reps.
If you don’t invest your program dollars with them, don’t expect too much of a return
This requires you to really think through how much partner marketing and development funds you are willing to invest
Over-indexing on one source: Not all sources are equal, but not all sources are endless.
Yes, you’ll want to max out your PQLs first, but after that you’ll have to move down your list of sources judiciously for the next best bang for your buck
Don’t over index on just one type of lead, or you might run out halfway through the year
This will cause a spike in your customer acquisition cost as you turn to more and more expensive channels to source the same leads.
See you next week for Part IV on expenses. Know a friend who would benefit?
