In 2023, Iron Horse polled 400 B2B marketing decision-makers to find out the most important business outcomes they’re focused on with their next planned investment. Turns out that high growth (i.e., grew annual revenue 11%-40%, n=252) B2B marketing leaders are prioritizing three outcomes with their 2024 investments: improving efficiency, increasing retention of current customers, and driving expansion (via cross-sell/upsell) within existing accounts.
While increasing retention and expanding existing accounts have always been pathways to growth, the fact that Marketing is prioritizing investing in existing customers reflects an increasing awareness of how important—and how efficient—these revenue streams really are.
So how do business leaders decide how much of Marketing’s efforts to allocate to each outcome, alongside the traditional focus on net new? There are four essential inputs to consider to determine the optimal B2B revenue mix—and Marketing plays a big role in helping leadership understand those to the fullest.
Before I get into that, if you missed the initial report, the webinar with Demandbase and Netline, my blog on 3 ways AI can support growth, or my recent conversation with Christine Polewarczyk from PathFactory about navigating the content marketing landscape in 2024, it might not be bad to do a little catch up. These resources articulated the “what,” “why,” and “where” (people, programs, and technology) to invest in to achieve growth in 2024. Now, we’re diving into the “how.”
Specifically, let’s look at the four essential inputs B2B Marketing can provide to help business leadership better balance and optimize the mix across net new, retention, and expansion revenue streams.
1. Customer data and insights.
One of the key factors business leaders review to determine optimal revenue mix is the lifetime value to customer acquisition cost ratio.
Lifetime Value (LTV) is the economic value of an average customer over the lifetime of its relationship with a company.
Customer Acquisition Cost (CAC) refers to the sales and marketing expenses related to acquiring a new customer.
The ideal LTV-to-CAC ratio for B2B is 3:1.
How Marketing should help.
The same insights you use to optimize marketing campaigns and increase customer satisfaction can help leadership determine which customer types to prioritize to achieve the ideal LTV-to-CAC ratio. Marketing can help leadership better calculate CAC by providing this information about customers:
- Demographics (characteristics about the individual customer)
- Firmographics (characteristics about the organization)
- Purchase history (what was bought, how often and at what price)
- Buying behavior and interaction preferences
- Quantitative engagement patterns, such as how the customer engages with the company via website visits, email open rates, click-through rates, or product-led growth (PLG)
- Qualitative engagement patterns through customer feedback and surveys
2. Revenue data by source.
Canadian based philosopher, entrepreneur, and author, Matshona Dhliwayo is quoted as saying, “The past is kind enough to give you lessons. The present is kind enough to give you opportunities. The future is kind enough to give you both.”
Understanding historical performance of the business’s revenue sources helps leadership make more strategic decisions about what to focus on in the coming year.
This includes looking at what percentage of total revenue comes from each source, typical growth rates for each source, and what factors contribute to spikes and drops in that growth rate.
This includes looking at:
- What percentage of total revenue comes from each source
- Typical growth rates for each source
- What factors contribute to spikes and drops in that growth rate
How Marketing should help.
Marketing’s traditional focus—generating net new business—typically takes longer and is more expensive than other revenue sources. Quantitative inputs that provide an understanding of CAC and ROI help leadership assess the efficiency and effectiveness of those net new acquisition efforts.
As Marketing expands their focus beyond net new to retention and cross-sell/upsell, you’re in an excellent position to help leadership better understand the true costs and value of each revenue source. Here’s how:
- Begin by identifying total revenue by source (net new, retention, expansion) over a period of quarters or years. This helps your business leadership understand each source’s relative importance.
- Next, assess historical growth rates by source. Look for patterns, such as which source has had the most consistent growth vs. which has contributed to the highest spikes in revenue. Customer churn rate is key to understanding how retention efforts have contributed to reducing attrition.
3. Competitive analysis.
Current market dynamics—including market growth rates, competitive pressures, regulatory changes and emerging trends—should all influence how the mix is adjusted.
There are many market factors—such as industry-specific growth rates, regulatory changes, category spend, target segment health and emerging trends or disruptive forces—that are beyond any company’s control. Nonetheless, the more insights leadership has on the dynamics of the market specific to your company’s target industries, the better equipped they’ll be to apply a strategic, realistic lens when setting revenue targets.
How Marketing should help.
In today’s fast-moving digital marketing world, competitive resources, messaging and positioning can change quickly. Make a habit of reviewing your competitors as frequently as access to competitive data allows. And don’t forget to watch out for emerging competition!
Marketing’s role here is to provide leadership with a deep understanding of your key competitors, including their:
- Offerings
- Pricing strategies
- Marketing and sales strategies
- Positioning in the market
- Branding and messaging
4. Marketing ROI.
Budgets must be assessed for each revenue category so resources are allocated appropriately. These will in turn determine how much investment can be made in Marketing, Sales, and Customer Success efforts.
By analyzing the ROI for different marketing channels, campaigns, or customer segments, leadership can identify which areas are the most cost-effective and efficient at generating pipeline. Then they can reallocate resources from lower-performing areas to the more effective ones. This flexibility allows for ongoing optimization of the revenue mix. It also ensures Marketing is focused on the work that produces the best outcomes.
How Marketing should help.
Providing “true” ROI data to leadership is easier said than done. These calculations are often subject to scrutiny and definitely take time. Follow these tips:
- For resource allocation purposes, big picture trends are more important than down-to-the-cents accuracy. Ensure you’re comparing apples to apples by first establishing what can be calculated. Then repeat those same calculations regularly to track changes over time.
- Look for patterns and outliers to understand which activities are the most effective and what factors can impede success.
- Remember, consistent and repeatable ROI calculations and reporting will help you justify and hopefully increase your budget. It will also help you know which actions to take to drive the outcomes you want.
The Iron Horse insight.
I’m sure many of you have doubts about the ability to provide these inputs. I assure you they are achievable. When Marketing focuses on providing these four inputs that matter, you can spend less time reporting on activity metrics, such as website traffic and email performance. This means you can spend more time connecting the performance of those activities to Marketing’s contribution to pipeline growth. This elevates and improves the perception and credibility of Marketing. And that enables your department to truly become an integral part of running and growing the business.
