It’s an age-old problem. You know you need to reach potential customers in order to sell your goods or services, and you need to spend money in order to reach them. But how much should you be spending in order to maximize your profit? And how exactly can you quantify this intangible benefit to justify your marketing investment?
The problem became even more extreme with the COVID-19 pandemic, when companies everywhere turned their eyes inward in an attempt to boost profitability by cutting expenses. But cutting marketing is never a good way to increase profit. Is it?
In an ideal world, measuring B2B marketing ROI would be easy with clear marketing attribution models with reports on exactly what each marketing tactic does for your business and what touchpoints contributed to each sale. However, with all of the variables involved, it’s virtually impossible for B2B companies going to market through channel partners with a mixture of traditional and online sales to separate these metrics.
But not all hope is lost! Specific attribution models are attainable with careful planning and collaboration, and there are other ways of measuring B2B marketing ROI and understanding what you should be spending to make an impact.
In this guide you’ll find:
In order to effectively understand the value of marketing, you first need to form a clear perspective on the topic. Here’s ours, informed by years of experience and backed by the research compiled in this report:
That’s a lot of info packed into a few short bullet points. Don’t worry—we’ll break it all down for you and show you exactly where each of these points came from, starting from the beginning.
Long before the buyer journey even begins, your marketing department has its work cut out for it, laying the foundation that the entire marketing strategy will be built on. It starts with discovering the Voice of the Customer and other market research to discover the brand’s specific niche.
Once that is decided, the team builds a clearly defined, distinctive brand identity and determines the best strategic positioning and messaging for your company’s unique offering, taking an active part throughout the product development process.
All of these activities are critical to business performance and need to be accounted for in the budgeting process. Investing the time to find gaps that marketing could help fill and map out the specific responsibilities that you expect your marketing department to assume will help you set realistic expectations for your marketing budget and set your company up for success.
When done well, the marketing function can provide support for all six phases of the buyer journey — beginning long before sales contact is made and continuing after the purchase is complete. While you’re measuring B2B marketing ROI for your company, it’s important to assess how your brand is performing across the entire customer experience and how and where marketing support can make the most impact.
A heavily-referenced study from 2007— and one of our favorites — is still the most recent, relevant study on a large scale. “Marketing in the Era of Accountability” is a must-read published by the Institute of Practitioners in Advertising (IPA) that can help in measuring B2B marketing ROI.
In this study, 123 brands were analyzed across 30 different categories of “typical” advertising that did not include outliers, such as award-winning campaigns. The study sought to quantify how much market share grows when advertisers increase their share of voice and how factors such as brand size, life cycle stage, and advertising effectiveness contribute.
Share of Voice (SOV): Expressed as percentage, Share of Voice is the amount of marketing communication invested by one company as compared to the total amount invested within the entire industry or for a product category.
Share of Market (SOM): Expressed as a percentage, Share of Market is the amount of sales of a specific company or product category compared to total industry sales.
ESOV (Excess Share of Voice): Defined as Share of Voice (SOV) minus Share of Market (SOM).
What does this mean?
From our perspective, marketers can reasonably assume:
Here are some thought-starters for how to calculate marketing ROI or start the process of B2B marketing attribution.
(sales growth – marketing cost) / marketing cost = ROI
This calculation can be used as a starting point for measuring B2B marketing ROI on a campaign level or at a department level to get a baseline on progress. The drawback of solely using this calculation — particularly in B2B — is that investments in brand awareness or campaigns impacting long sales cycles are not always immediately trackable.
If your company has lead generation as a goal, assigning a monetary value to it can be a good place to start. Get a baseline by tallying your total investment in traditional lead generating activities, such as tradeshows, and the total number of unique leads generated. Use those numbers to calculate the average cost per lead (CPL).
You can use this CPL value to:
You can significantly streamline your expenditures and increase your ROI by having your sales and marketing departments work together to share responsibility for common goals.
One example of this was when VantagePoint’s President and CEO was an in-house VP of Marketing at a manufacturing company and needed to define a detailed attribution model that considered the complexity of how the company went to market.
He worked together with the VP of Sales to define the value of marketing by answering a simple question: “If B2B marketing went away, what percentage of sales would suffer?” They agreed on a percentage and were able to set appropriate expectations during budgeting and reporting.
As you develop your marketing budget, analyzing how other marketers allocate their spending can provide a helpful benchmark.
According to the February 2022 CMO Survey, there is a discrepancy between B2B product and service providers for prior and projected marketing spending:
The percentage of the overall budget dedicated to marketing and its corresponding revenue varies by the company size:
Measuring B2B marketing ROI shows that the level of investment is trending up. B2B-specific marketing budgets are starting to shift back to pre-pandemic levels, rising to 11.8% of the overall budget, and increasing to 10.4% as a percentage of revenues. Yearly B2B-specific marketing spending growth in breaks 10% overall for only the second time in a decade and is predicted to show continue growing 13.6% in the next year.
Looking back over a five-year period, we can see that CMO’s budgets tend to be split fairly evenly across resources with some variation.
In 2018, the Center for Exhibition Industry Research (CEIR) released their most recent study of marketing budget allocation.
Because these are pre-pandemic statistics, they do not reflect the effects of social distancing and restructuring. Most companies reduced spending on in-person events, and these numbers are likely to fluctuate as the economy continues to reopen.
According to the Center for Exhibition Industry Research (CEIR):
In addition, strengthening and investing more in partner and channel programs to drive sources of revenue is a top go-to-market priority for B2B companies after the pandemic. Until tradeshow or virtual experiences regain traction with channel partners and end-users, B2B marketers will continue to explore alternative ways to connect with their bases. When measuring B2B marketing ROI, be sure to account for the changing dynamics.
According to the February 2022 CMO Survey, digital marketing spending, which currently accounts for 57.1% of marketing budgets, is expected to grow by 16.2% over the next year.
And spending isn’t all going directly to advertising. Investments in data analytics have become the most common investment by marketers, growing by nearly 40% over the last year.
When marketing goes beyond simple sales support and takes responsibility for revenue growth, higher budgets follow. When your company adopts this model, using analytics, such as measuring B2B marketing ROI, becomes even more important to help justify and defend your higher budget.
According to the annual CMO Study in 2012:
As you’re measuring B2B marketing ROI, one tempting idea that might come up is to try shifting marketing work from outside agencies to in-house teams.
After all, without looking at hard evidence, it seems like there may be reduced costs and more brand immersion, to name two of the more persuasive factors. But are in-house teams really more effective and affordable than agency partners?
Before we answer that question, let’s take a look at what marketing agencies do best.
With a specialized focus and a finger on the pulse of the industry, reputable marketing agencies have the benefit of familiarity with your audience and a certain amount of distance from your products or services.
Their creative pool is constantly renewed with inspiration from other clients and strategic experience across a wide variety of campaigns. They analyze trends and data to help determine your best course of action and create and execute strict timelines for projects.
Agencies are also agile, able to quickly step in for a product launch or create a comprehensive strategy for the long haul.
As you debate whether having an in-house or agency team for your company’s marketing needs, you may want to evaluate each of the following areas:
If it’s too hard to choose which would work better for your company, why not choose both? Allow your internal team to handle your day-to-day marketing and bring in an outside agency for larger campaigns.
Want to read more about the pros and cons of choosing an agency or in-house team? Check out our blog in-house marketing vs. agency: 6 things to consider.
No matter how big your company is or what your goals are, measuring B2B marketing ROI is an important factor in determining your optimal marketing budget and setting your company up for future success. Whether you need help with a new campaign you’re ready to move to the next level, VantagePoint is here to help you every step of the way.
We’re an integrated marketing agency with a range of specializations. We’re passionate about guiding B2B companies like yours to find the right perspective, map out a strategic path, and develop creative solutions that help you reach your business goals.