When & How to Calculate your ROI with 360Connect’s Revenue Growth Program
When starting 360Connect’s Revenue Growth Program, companies are often anxious to calculate the value – or return on investment (R.O.I.) – immediately. We understand, since sales and marketing departments are trained to keep their eye on profit when devoting budgeting dollars to a campaign. After starting the program, many jump to ask questions like: how much money did we earn from the program this week? Are we making back more than we invested? Ultimately, was the investment worth it?
But not so fast! Calculating the value of your investment – especially in the B2B space – takes time and patience. To receive an honest, unbiased calculation of your return, you have to let it pan out over a longer period of time. Luckily, we’re here to help you get a clear picture of your R.O.I. with our marketing program when the time comes.
What is a Typical B2B Sales Cycle?
The first step to understanding your R.O.I. with our Revenue Growth Program is to know the average length of a typical B2B sales cycle. Every business needs to define their average sales cycle – from initial contact with prospects to the point at which they close the sale – so they can look at the process holistically. This will help you look for patterns to replicate or avoid as you continue with the program. Additionally, it will help you forecast the revenue you earned and the revenue you anticipate coming in. ALL of these things matter when you look at your R.O.I. and work to improve it moving forward.
Typically, an average B2B sales cycle will last between 3-9 months, depending on the average cost per deal in your company. For smaller B2B deals, the sales cycle often will be closer to 3 months. For larger deals, the cycle is more likely to fall between 6 to 9 months. Consider these statistics from Marketing Sherpa:
- Only 17% of all B2B sales are made within the 1st month the lead was generated.
- Over 50% of all B2B sales are made 3 months after the buyer indicated interest.
The takeaway? Earning revenue from closed sales after receiving leads through our program takes time. That’s just the way it works in the B2B space. However, keep in mind that sales cycles will look different for different industries. Take a look at the typical sales cycles for the following industries:
- Storage Containers
- Rentals – 1+ month
- Purchases – 1-3+ months
- Modular Buildings – 3-12+ months
- Metal buildings – 3-12+ months
- Copiers – 1-3+ months
- Coffee – 1-3+ months
- VoIP – 1-6+ months
The important thing is to know what your industry benchmarks are, then compare it to how quickly you and your team are closing deals. If your cycle is way longer than your industry standard, work to come up with a plan to shorten it. This will make your sales efforts more efficient and boost your R.O.I. And by the way, here’s a helpful tip: if you offer quick and easy online sales for your prospects, you’re more likely to close deals quicker!
What is a Good R.O.I. for Our Program?
Interestingly, reports have found that 83% of B2B marketing departments consider lead generation campaigns a need-to-have part of their marketing strategy. Additionally, 61% of large companies and 41% of small companies pay for leads through a lead generation program to maximize revenue growth. So, the R.O.I. must be well worth it!
When doing research on R.O.I. for marketing campaigns, you’ll find that there are many different ways to determine it. Remember that the intention of a program like ours is to bring in more sales opportunities and revenue. The way we advise our clients to calculate their R.O.I. is driven by that intention.
In marketing, generally most experts say that a $5 return on every $1 spent is a solid R.O.I., and a $10 return is exceptional. This rule also applies to lead generation programs like ours. However, because our leads are pre-verified before being sent to you, it’s likely you’ll see a higher return. That is – if you pair those pre-verified leads with implementing “best practices” for sales! Clients that follow our “best practices” typically see an R.O.I. between $7-$15, depending on their industry. Your R.O.I. is also largely dependent on how much you invested in the program Normally, the more you invest, the more potential for a substantial return.
How Should I Measure my R.O.I.?
Calculating your R.O.I. from our Revenue Generation Program is fairly simple. There are two ways to calculate your ROI: preemptively and retrospectively. When preemptively calculating, you are projecting the numbers you can expect to get out of the program, based on your knowledge of typical sales at your company. If you’re calculating retrospectively, you’re waiting for time to pass to calculate and using real-time, exact numbers. Now, there’s no reason not to project an R.O.I. before starting. But we advise against using those projected calculations to come to a conclusion about the program. Instead, compare and review your preemptive and retrospective numbers (once the sales cycle is finished) in order to learn what to expect from our program moving forward. Then, make adjustments to your process to optimize a higher R.O.I. for the next cycle.
Let’s walk through the factors that help determine your R.O.I.:
- Total Marketing Investment (TMI): What is your total budget with our program? Typically, we talk about “monthly investment” with our program. But for the purposes of calculating R.O.I., since a B2B sales cycle is 3 months minimum, you’ll want to measure by 3-month cycles. Many companies also prefer to measure in 6-month increments, depending on their typical sales cycle. (See the average sales cycle by industry type above). So, say you’re investing $1,000 monthly to the program – for a total of $3,000 for a 3-month period.
- Number of Leads (L): How many leads are you receiving per month, on average? For this example, let’s assume we are sending you 100 leads monthly.
- Cost per Lead (CPL): Let’s say each lead costs $10 (this number, of course, will vary by lead category)
- Sales Close Rate (CR): Say your sales team has established a steady close rate of about 10%. This is a typical rate for our program, contingent on how quickly your sales team is calling the qualified leads.
- Total new clients (TNC): Say you’re able to sign up 10 new clients per month (out of the 100 prospects they received).
- Customer Lifetime Value (cLTV): How long does each new customer typically sign up with your service? For instance, if the median contract length is 2 years, then use that number to calculate. (*Note* – you can use preemptive numbers or real time numbers here, depending on when you’re calculating.)
- Total Revenue (TR): Say you usually make $1,000 per month from each client, or $3,000 over 3 months. After 3 months, you added $30,000 to your bottom line total revenue after starting the program.
- Net Return on Investment (nROI): Your company earned $30,000 on a $3,000 spend. Your net return was $27,000.
- R.O.I. for every $1 spent: Your ROI was $10 for every $1 spent, proving your investment well worth it!
When Should I Start Measuring?
As mentioned earlier, a typical B2B sales cycle is about 3-6 months on average. This means that if you want to get an accurate measurement of your R.O.I., wait until one full sales cycle is completed to start measuring. Patience is key!
Remember the statistic we mentioned above – only 17% of all B2B sales are made within the first month the lead was generated. When trying to measure your R.O.I. too soon (say, after just 1 month), you will not get an accurate reading. This is because you will only be measuring your sales funnel value rather than actual (accrued) revenue. Meaning, you’ve efficiently built a pipeline with qualified opportunities, but you haven’t closed the deals yet. The revenue in your pipeline is on hold – it’s expected rather than actual. There’s no way to determine yet whether your return is worth the investment.
However, after waiting 3-6 months to measure, more opportunities have moved through your funnel and have closed. Therefore, you’re getting more real-time value. Depending on your industry standard, go ahead and measure R.O.I. after one full sales cycle.
However, believe it or not – after one sales cycle there’s usually still a lot of funnel value you’re not yet able to measure! That’s why we recommend taking another R.O.I. reading after two cycles. That way, most of your initial opportunities should have moved completely through the funnel. You can start making general statements about how well the program performed.
Why Should I Factor in Lifetime Value (LTV)?
Do you work with a Monthly Recurring Revenue (MRR) model? In other words, your clients sign up for a contract spanning several months, and you expect to earn the same amount monthly from each. This is the case for a good number of the companies we work with.
These deals can be extremely lucrative in terms of your accrued R.O.I. If you do work with MRR deals, when calculating your preemptive R.O.I., you should measure the total you plan to receive from them over the duration of the contract. For instance, if your clients typically sign up for a 6-month contract at $2,000 per month, and you have 10 new clients, make sure to add $120,000 in total revenue (TR) when calculating R.O.I. We recommend using this method of measurement. Since you’re benefiting from certainty in revenue due to your contracts, you can be sure about the amount you’ll generate from closed deals. *Note*: If you don’t use a MRR model, you can still factor in Customer Lifetime Value (cLTV) when you measure retrospectively. Say you have a lead that turned into a repeat buyer. Their lifetime value was more than the worth of their initial purchase.
Here at 360Connect, we typically add a 3-year LTV for most businesses who work with a monthly recurring revenue model. Our clients purchase each lead from us one time only, and they continue to reap the revenue benefits monthly. For instance, let’s say you rent commercial copiers and generate $200 monthly per client. After continuing to work with that client, after 36 months you will have earned $7,200 off that same deal! Not to mention, many of our clients are continuing to earn from clients we connected them with 10+ years ago. Attribute all the revenue you’ve earned from a client to the original source, and measure your R.O.I. for the entirety of your relationship with the customer.
360Connect has a team of dedicated Sales Executives & Account Managers that are happy to help you calculate your particular R.O.I. – whether it’s preemptive or retrospective. Once signed up with our program, our Account Management team works hard to send you tried-and-true tips and strategies you need for success. If something seems off, they work to get you back on track towards a great R.O.I.