Straight Talk with Jon Miller: Marketing and Sales Alignment

In this video, Steve Farnsworth interviews Jon Miller of Marketo on marketing and sales alignment.

How would you describe the state of marketing and sales alignment today?

I always like to say sales is from Mars and marketing is from Venus. That fundamental difference frankly causes misalignment at a lot of different companies. They have different personality styles, they got into the jobs for different reasons, they get measured differently, and the result is that it’s pretty bad at most companies. It results in problems that are fundamentally outdated, inefficient, expensive and not predictable.

First of all, their processes are outdated compared to their audience’s. I mean you’ve heard this plenty of times before, but the whole digital transformation has led to a very fundamental change in the way that our buyers like to research and make purchases; the shift from information scarcity to information abundance. As a result, today’s buyers want to engage with sales much later than they ever did before until they essentially have as much information as the salesperson does, and they can do that because of information abundance.

That is a new buying process and the traditional misalignment between sales and marketing is making companies not well aligned to match to that buying so it’s outdated. Second of all, it’s expensive and inefficient. When sales and marketing don’t get along, or aren’t aligned, sales doesn’t really rely on marketing for lead generation. They do a lot of their own prospecting. That’s a really bad idea to have expensive $250,000 + salespeople cold calling, and it’s even less of a good idea in this new world where the buyers don’t want to engage with sales until much later on.

The third problem is it’s really not predictable. Predictability is an undervalued metric in business. Every CFO though wants their revenue process to be predictable. And the problem is if you only rely on the sales team to make their forecasts, they’re becoming increasingly less and less accurate because they are engaging with buyers later on the phone, which means actually in some cases sales cycles are getting shorter. To really predict future revenue, as marketing is becoming a more important piece of the whole process, it has to become part of that equation.

If sales and marketing aren’t aligned, you fundamentally have a broken forecasting process. That’s not good for anybody.

What steps should be followed when planning the marketing and sales alignment process?

To build marketing and sales alignment from scratch, when you recognize that it’s pretty bad in most companies, you have to start with fundamentally rebuilding marketing credibility. It’s interesting if you look at the sales process; it’s very easy to measure the output of what sales does. It’s the revenue on the board, and it’s really frankly sometimes hard to measure what all the sales activities are.

Marketing is actually the exact opposite because it is really easy to see marketing activity. You see the checks going out the door in terms of expenses, you see what the people are doing, but it’s pretty hard to start to measure the output of it. And that sort of asymmetry is the first thing that you need to tackle to start to try to build sales and marketing alignment.

First and foremost, it is up to the marketing executives to change their language and how they think about the world. Don’t be the arts and crafts person that’s coming to the head of sales talking about what the trade show booth looks like or the color of the new brochure. Start being that marketing executive that comes to the head of sales talking about the metrics they care about: pipeline, revenue and so on. This is a journey, but the first thing is to build marketing credibility by changing your language.

Second is that marketing and sales alignment needs to come from the top, i.e. the head of marketing and the head of sales really making a commitment to doing this together. Sometimes that might be forced on them by the CEO, but honestly the biggest piece of advice I have for many companies that need to start solving this is: the head of sales and head of marketing should go grab a beer together or play a game of golf. The relationship is often so frayed that a regular social cadence can literally help to set that top down alignment.

The third thing is that you have to recognize this is not a transformation that’s going to happen overnight. You have to think big, but then start small, get some quick wins, and as I like to say, hold victory parades to celebrate those little wins.

What does that mean? Usually, the first thing you want to do to repair this relationship is to find a small set of salespeople (or just one salesperson) with sponsorship from the executive and approach them with a change to the process. Maybe you are going to implement some lead score just for those leads, or have this new inbound marketing program where you’re generating more high quality leads that you’re going to fast track over to this test group.

What are the biggest mistakes you’ve seen that hurt the process?

I’ve seen sort of two mistakes, a big one and a smaller one. The big mistake is that sales and marketing are not communicating with each other well enough or listening to each other and hearing each other’s language. What I mean by that is even in well-aligned marketing and sales organizations, you’re going to find that they aren’t focused necessarily on the exact same metrics to measure their own performance.

But the result of that is that you could have the sales team say, “I don’t have enough business to work on to make my number.” And the marketing team could say, “But we’ve been generating enough pipeline. We’ve been achieving our goal, so therefore sales, this must clearly be your issue because we achieve enough pipeline.” (You can get into that dynamic even in a well-aligned organization.)

This exchange shows that marketing isn’t really listening to what their counterparts in sales are saying. Something’s causing them to say they don’t have enough leads to sell. That means you need to react as a team. This can happen from the sales side too. You might be in a scenario where sales is very happy because they are achieving their quotas, but marketing identifies some red flags for future quarters, meaning there may not be enough pipeline created for the future. The mistake is that sales doesn’t listen to that because they’re thinking that everything is going really well. The net of that is you’re both thinking about the world differently and that’s the inherent sales is from Mars and marketing is from Venus. You think about the world differently, but you’ve got to find that way to communicate and really understand where the other team is coming from, and how to solve the problem.

This can happen on a smaller scale too. I’ve seen companies introduce a new lead scoring methodology to try to pass better quality sales leads over to the sales team. When it’s working properly, the marketing team actually ends up sending fewer, but higher quality leads to sales.

If a company hasn’t set that expectation up front, it could lead to chaos. All of a sudden you could end up in a very bad place where lead scoring gets a very negative reputation because everyone is complaining about where all the leads went. To avoid this marketers can inform the sales team that they are changing the lead scoring model to deliver higher quality leads and that they may notice a fewer number of leads because of the new model.

What are the most important metrics to ensure alignment practices are healthy and on track?

I don’t believe marketing and sales should be tracking the exact same metrics.I’ve definitely heard people say that marketing should only be measured on revenue because that’s what sales is measured on. I like to see companies measuring marketing really for all the different stages and pieces of the revenue process.

First and foremost, companies need to be rigorously defining the stages of what I call the revenue cycle. Most companies have a sales cycle and they know it goes from discovery, to evaluation, to negotiation, to purchase, and they track movement through those stages. What companies need to do is apply rigor to the entire revenue process. Starting with awareness, to people entering my funnel, to a raw name, to becoming engaged, to maybe being qualified as a possible future buyer. Then to being identified as a possible marketing qualified lead, to being qualified and passed over to sales, to being accepted and turned into an opportunity. You might have your own revenue cycle but you’re going to have something that looks like that. Once you have settled on your revenue cycle, next you’ll want to focus on defining the metrics that matter for each of the stages. Starting with your balance or your reach, what’s the size of that inventory? If I am measuring the inventory of my active prospects that are being nurtured, and that are still engaging with me, that’s my inventory of future possible customers. Is that inventory going up or down? This is an interesting predictive measure for the future health of the business.

Second is flow. What’s the movement from one stage to the next? It turns out to be hard to measure in a CRM system because it can’t tell you how many changed from this status to that status last month. But it’s important to try and figure out how you are going to track it in the business over time. The third is conversion, and that’s self-explanatory. Then velocity, “How long is it taking to move from stage to stage?”

By tracking those four key metrics for each of the stages of the revenue cycle, you start to get the core metrics. These are the metrics a marketer and a sales executive need for a common language around discussing the health of the pipeline. You can say, “Oh I’m forecasting there will be less pipeline two quarters from now because I see the inventory of this stage over here dropping.” By doing this, marketing will become a partner in alignment with head of sales talking about the future of revenue.

There’s one other metric that people should look at closely when measuring the performance of a marketing program – the pipeline to spend ratio. That is, “Did that marketing activity and those dollars I spent deliver a reasonable result?” If there’s one metric to rule them all, this is the one I would look at in terms of marketing performance. It’s simple. It’s how much pipeline did that program generate divided by what I spent on it, or as I like to say what I invested in it. To get to that how much pipeline you generated is a whole sophisticated discussion where you need to look at multi-touch attribution. You know the allocation of pipeline dollars to the different touches. I like to see a 10x ratio. When you get that 10x ratio of pipeline to investment, it says your investment is returning value and that the sales team is accepting leads into their pipeline, and doing so at a profitable ongoing ratio for the business.

What metrics should bonuses be tied to for chief sales and marketing executives?

At the most core level the metric that is best used to measure marketing’s performance and have bonuses tied to is pipeline creation, not revenue output. When marketing has their variable compensation tied to pipeline creation, you’re focusing the marketing team that’s responsible for that job. The thing that sales cares about: pipeline. It’s an important nuance.

If you’re going to tie marketing’s compensation to pipeline, you have to have a business process around it because only the sales team can create pipeline. The mistake I see companies often make is saying we’re going to compensate marketing on passed leads, not really leads that were accepted by the sales team. That’s too easy to game. I’m saying that marketing needs to have their customer, which is sales, confirm the goal.

Pipeline creation is the right metric for certainly part of the chief marketing officer’s compensation and certainly for the demand generation team. However, there are two other metrics that matter at the CMO level. The first is win rate. You’ve got a part of the team that’s trying to create pipeline and you’ve got a part of the team that’s focused on product marketing. A big part of product marketing’s job is to enable the sales team to sell more effectively. By measuring the win rate and whether it’s going up or down, you’re measuring if the product marketing function is doing well.

Then lastly, a big part of the chief marketing officer’s job goes beyond new business pipeline creation and has to do with customer value and long-term customer success. We did research at Marketo that found that the fastest growing, most successful companies had part of their CMOs’ variable comp tied to net promoter score. In summary, pipeline is certainly the most important metric in many businesses, but win rate and net promoter are really important too.

What practices do you recommend to foster successful marketing and sales alignment?

There are a couple of really important processes that are in place. Probably the single most important one is to model out rigorously the stages of the revenue cycle. What is a target prospect and when is a target prospect ready to be called a qualified lead? When does that get passed to a salesperson, when does that get turned into an opportunity, and when does it get recycled? By really answering these questions, you’ll be in better shape. But you have those things rigorously defined. To the point that if you ask the head of sales and the head of marketing in separate rooms, and they can give you the exact same answer. That gives you the ability to understand the process. It gives you the common metrics that you must have. One of the biggest areas of dysfunction that people get into is when marketing says it generated this many leads, but that’s not what sales would call a lead. They’re saying, “No, you only generated this many leads.” That’s just terribly broken. If you had a finance department saying, “We generated this much revenue”, and they’re saying “No, no you only generated this much revenue.”

There’s a whole reason we have generally accepted accounting principles so that there’s a single definition of revenue. Companies also need that single definition of a lead. That’s the most important and it forms all of the metrics. Once you do that there are a bunch of other processes that start to come into place that are important. Companies will start to say, “Well I need some sort of lead scoring if I’m going to be passing certain kinds of leads to sales.” In a business of any size you want that automated. You want some ability to say, “Yes, these people have done this the fast track; these people haven’t.” The requirement is to have solid definitions for each of the stages. Enter lead scoring again. If I’m not passing everything to sales, well then what do I do with everybody else? I need some process for how I maintain and develop those relationships. When you do identify something as a marketing qualified lead, I see a huge best practice about having a lead qualification function, or an inside sales function. At Marketo, we have a team of sales development representatives (SDRs).

You’ve got to have somebody that sits between the demand gen team and the sales team. Someone who takes marketing leads and has a human interaction to qualify them and determine if the lead should be passed over to sales. That’s one of the most important things a company can do because that’s the hand-off. There’s a great line of accidents that happen at the intersections. And at the intersection of sales and marketing, if you have SDRs passing the traffic and making sure that everything is flowing properly, you can improve the overall situation.

The last process that rigorously defines everything needs to address service level agreements and then recycling. There’s actually two things. In terms of service level, once you’ve agreed when the SDR qualifies something what’s going to happen? You want to make sure that you’ve agreed, “Oh we’re going to call that person within five minutes, or we’re going to call them within 24 hours.” And if that doesn’t happen, a reminder is sent out and then ultimately the lead could be reassigned.

To find out what other CMOs have to say about marketing and sales alignment, check out Straight Talk.