Setting a revenue target is something that many marketing teams dread, and it's easy to understand why. Here are a few reasons why marketing teams would want to avoid setting a revenue target:

  1. Sales might not close the lead

  2. Attribution can be more of an art than a science

  3. Failing to meet a revenue goal doesn't look good

These are real factors that you have to take into consideration when holding marketing accountable to a revenue target. While it may be daunting, the benefits of a revenue target outweigh the risk. When marketing teams attach their work to revenue, they create clarity about the value they bring to the organization, improve their ability to communicate that value, and learn to work closely with sales to ensure that they are creating qualified leads.

How to create your revenue goal

When creating a revenue goal for a marketing department, we can use some simple math to help us determine a goal, but first let's go over how to get some of the numbers we will need.

  1. Life time value (LTV) - Total value of a customer. This number is created by multiplying the average monthly income from a customer and the average amount of time that they continue to pay for your product. Example: Customers pay an average of $400 per month and stick with the product for an average of 36 months. $400 x 36 = $14,400 LTV

  2. Max customer acquisition cost (MCAC) - How much you are willing to pay for a customer. This is something that the CEO typically needs to decide because this decision can be very nuanced. I like to start between 10-20% LTV and adjust from there based on expected profitability (in a profitable business model). Ideally you'll be able to optimize and lower your customer acquisition cost, but a maximum helps to understand how much we can spend when validating new strategies.

  3. Marketing budget (B) - This is simply the total amount that you currently have budgeted to spend on ads, events, assets, and anything else that you will use to market your company.

  4. Average close rate (ACR) - This number is based on the amount of sales that are created from marketing qualified leads. If you provided the sales team with 15 leads and they were able to close 5, then you have a 33.3% ACR.

Once we have an accurate picture of our current performance, we can start to create a revenue goal. Let use some sample numbers to create a revenue goal:

  • LTV - $14,400

  • MCAC - $1440

  • Budget - $288,000

  • ACR - 33.3%

With these numbers, if we are able to deploy our budget effectively, we should be able to acquire 200 new customers (Budget / MCAC) and a total of $2,880,000 in new revenue (200 * LTV). Since your ACR is 33.3%, you'll need to create 600 marketing qualified leads in order for 200 to close. This might be optimistic based on your past results but it gives you a starting point for conversation. The more accurately you can measure your historical performance, the more successful you will be at setting an ambitious yet realistic goal.

Impact on sales / marketing alignment

In order to effectively hold marketing teams accountable to a revenue goal, the marketing team needs to be in close alignment with sales. Without a common goal and consistent communication, the sales team will likely get burnt out by bad marketing leads and start cherry picking only the ones that they think look qualified. According to research done by Marketo, sales teams ignore 80% of marketing leads. Ideally, marketers are creating leads that sales reps are excited to connect with, because they are already qualified and interested in the brand. Holding marketers to a revenue goal incentivizes them to work closely with sales to close their leads and speeds up the feedback cycle if the leads aren't qualified enough.

Takeaway

A lot of marketing teams avoid attaching their work to a revenue goal, but in reality, it is actually in their best interest and the best interest of the organization. Holding marketing to a revenue goal forces marketing teams to work closely with sales and that is a good thing. Businesses are 67% better at closing deals when marketing and sales work together, so anything we can do to align their goals is worth the effort.

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