Since there is some confusion about revenue marketing, how should one define it?
Revenue marketing is not properly defined but given its current popularity, the Marketing Accountability Standards Board (MASB) is developing a fresh definition for the Universal Marketing Dictionary, but it’s a work in progress.
Generally, revenue marketing has referred to “marketing which works closely with sales and is focused on driving revenues” – trying to link (attribute) all marketing and sales activities to revenue generation in an integrated fashion. The basic concept revolves around coordination of all activities that generate revenue and tying these activities to revenue.
This is fine, but this concept is hardly new. It’s just that it has recently come into vogue. It is particularly useful in B2B, where there tends to be the greatest organizational divide and friction between sales and marketing. Getting the two to work together and recognize that they have the same goal and work together is sorely needed.
The term revenue marketing can lead marketing down a false path. It draws a false distinction between “revenue marketing,” which is focused purely on sales, and “brand marketing” which is designed to increase awareness, brand strength and loyalty. Marketing’s purpose is to drive revenues, whether by directly provoking a purchase decision, or indirectly, by increasing customers’ likelihood to buy a particular brand, creating customer retention, loyalty, and cross-sell/upsell. Marketing is the driver of the demand chain, the neglected counterpart to the supply chain on which the bulk of corporate attention is focused. All marketing is or certainly should be ‘revenue marketing’.
Revenue marketing tends to focus on coordination and attribution of different functions across the company. Coordination and attribution are good things, but they are really quite incomplete. When pushed, some of the people who promote revenue marketing will say that they really mean profit, given that brand and marketing drive both sales and margins, value as well as volume. They need to do more to examines profitability. Revenue is not profit. The appropriate focus is profitable marketing.
What are some of the challenges to measuring the effectiveness of revenue marketing?
Coordination is especially difficult in large complex organizations, and not easy even in small businesses. Attribution of revenue to specific activities is a challenge because many things are happening at once (marketing activities of the firm, competitors’ activities, general economic and demographic changes) and there are often (usually) differences in time between the occurrence of a specific marketing activity and the revenue it generates (and many activities, like brand building may have multiple effects at multiple points in time). This is especially true of brand building which may have short term and long-term effects on consumers, distributors, etc. This said, attribution can be done with some degree of certainty if a firm devotes effort and appropriate expertise to the task.
What are metrics marketers should consider?
Whether they are just starting to pursue revenue marketing or have some experience, marketers need to understand the firm’s business model – how the firm makes money. This includes:
- who the firm serves (and does not serve), e.g., who values and will pay for what the firm has to offer
- how the firm prices (which is more than just the list price, it includes pricing mechanisms like margins, subscriptions, bundling, pricing structures, etc.)
- how the firm organizes its value delivery activities (what activities the firm does and what activities are delegated to partners like suppliers and retailers, all of which affect cost structure as well as revenue)
- how the firm will sustain the business over time (how it builds loyalty, brand equity, etc. in the face of competitive activity and changes in lifestyle, economics, technology, and other environmental factors)
It is not possible to put relevant meaningful numbers (measures) in place until there is a clear story about how the business works, which includes how marketing activities are supposed to have their effect. Many marketers and other senior managers cannot even tell the story in a credible fashion. Revenue is also an incomplete measure. There is also a need to understand costs. Once you can tell the story you can identify relevant measures (see the answer to the next question).
Is there a need for additional metrics, a standard menu of metrics and methodologies, etc.? If so, what should that include?
As noted above, revenue is an incomplete metric. A firm can go bankrupt even as it generates a lot of revenue. There is a need to understand costs, effects of competitive activities, and baseline (where the firm is on the demand curve). Also, dollars spent is not a good measure of marketing effort. For example, the cost of media weight may produce very different revenue outcomes depending on the message, the media plan, etc. Understanding costs is critical but the more useful information is what those costs buy (better product, better message, better shelf placement, better media plan, greater resistance to competitors’ activities, etc.).
What is MASB doing in the area of revenue marketing?
MASB believes revenue is an important but incomplete measure of business performance.
Our brand investment model represents best practice because it includes costs and revenues, and links revenue and costs to specific activities and specific outcomes that drive profitability and cash flow. Cash flow is fundamental to the MASB Brand Valuation & Investment model. Cash flow is the measure of revenue minus costs (including marketing costs) and it is not subject to the same types of accounting manipulations as “profit.”
Jack Welch once said that if he had only three measures for managing the business they would be cash flow, customer satisfaction, and employee satisfaction.
Our model is closely connected to recently adopted ISO standards for the financial measurement of brand and marketing, which MASB has spearheaded. MASB is engaged in on-going efforts to educate marketers, and managers more generally, about such practices.
MASB is also engaged in the Marketing Organization Initiative because many of the impediments to best practices revolve around organizational decision making and the absence of practices that facilitate the best decisions, amongst them collaboration between marketing and sales.
Two recent MASB summit participants, Chris Hummel and Stephen Diorio of Green Thread, the B2B part of Horizon Media, have just published the book, Revenue Operations, based on over a thousand interviews and surveys. This is dedicated to the concept of bringing the relevant parts of the organization together to drive growth.
What is your definition of revenue marketing? Let us know at [email protected].
About the Author
Founding Director, current Chair of MASB, and Marketing Accountability Foundation Trustee, David W. Stewart, PhD, is President’s Chair in Marketing and Law Emeritus at Loyola Marymount University in Los Angeles. Author/co-author of more than 250 publications and 12 books, he is past editor of the Journal of Marketing, Journal of the Academy of Marketing Science and the Journal of Public Policy and Marketing. In 2021, he received the Margaret H. Blair Award for Marketing Accountability.