If you work in software-as-a-service (SaaS) you know the number one metric is annual recurring revenue (ARR). Entrepreneurs, C-level executives, and stakeholders understand how recurring revenue helps to increase business value.
But accurately forecasting ARR based on new closed-won revenue and customer retention can be difficult for entrepreneurs. This is why for decades, SaaS and B2B leaders have been so keen on the idea of the funnel. Leads pour into the funnel, and work their way through the buyer's journey, and revenue comes out at the end.
However, Forrester Research discovered that less than 1% of leads in B2B ever become customers. That means in today's digital marketing world, if your B2B marketing team is still only focused on email blasts, form completions, and SEO/SEM, then you could be wasting up to 99% of your company's time, energy and resources marketing to people who will never buy from you.
The status quo in B2B has been asking the same question every quarter: "How many leads do we have that will turn into revenue?" Now knowing how much money is being wasted on leads, it's time for business leaders to look at another metric to forecast revenue: engagement.
Every entrepreneur and company leader cares about sales and customer retention. I believe engagement is the leading indicator to show how many prospects and opportunities are demonstrating the propensity to buy from your company, or how many disengaged customers are likely to churn.
And I'm not alone. This is why account-based marketing (ABM) has become the biggest trend in B2B.
At its core, ABM focuses on engaging only the best-fit accounts that match your company's ideal customer profile (ICP). For B2B marketing and sales teams, it's all about creating engagement within those accounts that you want to become customers.
A variety of activities help to drive engagement. Sales account executives make calls and send emails to prospects while marketing develops content, hosts events, attends conferences and trade shows. You see where I'm going here.
The problem is that somewhere along the way, in an effort to fill the funnel, B2B marketers got obsessed with the number of people they were reaching out to. Marketers thought they had to engage tens of thousands of people (potentially everyone in their CRM) in order to support revenue growth for sales.
The journey to gaining new customers became closely associated with that funnel. C-level executives became obsessed with the number of new leads coming in instead of considering if that lead was actually a good fit for their business. It was an issue of quantity vs. quality.
Knowing that Forrester statistic that less than 1% of leads will ever pay your company a dime is something every business leader should care about. Capital is being wasted on marketing to bad-fit prospects. It's a matter of shifting the C-suite perspective to focus on the quality of that prospect marketing and sales are trying to engage instead of trying to get in front of every single person who you met at an event or who filled out a form on your website.
New leads, form completions, website traffic -- all of those "vanity" metrics are not indicators to show if sales and marketing are on track to meet your company's revenue number. Marketing and sales typically represent one line item on a company's P&L. If marketing is wasting time, energy, and resources on trying to get in front of people who will never buy from your company, then it will ultimately have an impact on your bottom line.
Entrepreneurs and C-level executives should work with their marketing and sales team on creating strategies and tactics for engagement only within those accounts that are the best fit for your business. Realistically, in B2B, you can't go after 1,000 accounts at once to drive engagement.
To be successful with account engagement, you have to scope your activities and have sales and marketing alignment. Every quarter, the marketing and sales team leaders need to sit down with your company's executive leadership team to discuss how they will meet or exceed revenue goals by focusing on a list of target accounts.
I know this is easier said than done because as a co-founder and CMO I've been going through this process at my startup, Terminus, for the last three years. But as an evangelist for account-based marketing, I can tell you that it works!
By focusing on engagement only with best-fit accounts that meet our ICP, we've seen:
Increase in qualified demos moving to opportunities
Higher average contract value (ACV)
More closed-won revenue
Lower customer churn
Increase in expansion revenue from our customer base
My prediction is that engagement will become the leading success factor for B2B. The SaaS world will finally accept the fact that leads don't lead to revenue.