Revenue-Based Compensation: Coming Soon To A Marketing Job Near You
There’s a lot of talk about revenue attribution in marketing these days. Tying marketing activities directly to the organization’s revenues has the potential to elevate marketing’s role and demonstrate its value in a direct and quantifiable way.
That’s not to say that it’s an easy task. The technologies and methodologies for measuring marketing’s impact are still in their infancy and attributing the impact of a multi-touch, multi-channel marketing cycle on organizational revenue is a complex undertaking. However, as systems of attribution improve, it’s very likely that compensation for marketers will increasingly be based on revenue results, just as it has been for their colleagues in sales for many years now.
Even without revenue attribution, marketers are not underappreciated or poorly compensated today. According to research from Equilar, CMO compensation is rising. From 2012 to 2016, compensation for marketing executives in publicly listed US companies with more than $500 million in revenue jumped 24%.
Research suggests that CMO tenure is also starting to lengthen, although marketers still have the highest rate of turnover in the C-Suite. According to HBR research, 57% of CMOs have been in their current position for three years or less. This kind of volatility suggests that while marketing is considered a valuable contributor, that value is not being adequately measured.
Part of the problem is that there is a disconnect between the goals marketers set and the metrics they track. According to a 2017 TrackMaven study (gated), 61% of marketers identified increasing sales as their top objective. Yet the same study showed that the majority of marketers focused on audience-growth metrics, such as Facebook likes or the percentage increase to the database, while slightly more than half of marketers (51%) actually measure leads and sales (including leads, sales, retention, and customer lifetime value).
A 2017 DemandGen Report survey also underscored the challenges of attribution, with 91% of respondents agreeing that marketing measurement and reporting is a top priority for their organizations, but only 13% saying they’re doing an excellent job of doing it. In this survey, too, showing impact on pipeline and revenue topped the list of challenges.
Given the serious gaps and misalignments in many marketers’ ability to attribute revenue to marketing activity, it’s no wonder that only a small minority of them are currently receiving revenue-based compensation. The TrackMaven study revealed that only 23% percent of marketers are compensated based on revenue and/or closed business. By comparison, 29% are compensated based on their salaries alone, and 21% are compensated on performance such as social media metrics, website traffic and conversions, and lead gen.
There are so many different ways to measure attribution—some single touch, some multi-touch, some algorithmically weighted. It gets pretty complicated pretty quickly. If you’re a marketer who needs to connect the dots between marketing activity and organizational revenue, where do you start?
Choosing an Attribution Model
If you’re currently not measuring attribution at all, first- or last-touch attribution is a good place to start. First-touch attribution connects earned revenue to the touch that first begins to pull someone into your funnel, while last-touch attribution connects it to the touch that finally qualifies or motivates that person to connect to a salesperson. These are fairly basic models that leave out a lot of the story, but they offer a good starting point.
If you’re already measuring first or last touch, consider moving on to linear or time-decay models. A linear model allocates an equal percentage to every marketing touch (so if it takes five marketing touches to connect someone to sales, each touch would account for 20% of the total), while a time-decay model is a slightly more complicated version that uses an algorithm to progressively discount the impact of touches that occurred in the past so that the most recent touches get more credit for the conversion. These models aren’t perfect, but at least they account for all the touches in the marketing process.
The next step would be to look at more sophisticated attribution measurement systems that use machine learning to apply different weights to each touch based on how likely that touch is to result in a closed won opportunity. These systems not only measure and predict which channels perform well, but also identify the content that is more likely to move the prospect forward. Marketing attribution platforms have matured and multiplied over the last few years, and there are many options to choose from. Some of the best-known include TrackMaven, BrightFunnel, and, of course, Bizible, which was acquired by Marketo earlier this year.
Progressing towards more sophisticated and customized attribution models requires more effort, but they also enable you to measure your impact more effectively, which will help you to both communicate and enhance marketing’s value. According to a 2017 survey by Adroll and Econsultancy, while simple first-touch and last-touch attribution models are the most popular, more complex, custom attribution methods are more effective.
As the technologies and methodologies for revenue attribution mature, the shift towards revenue-based compensation for marketing will continue to pick up speed. And ultimately, revenue-based compensation isn’t just about what’s best for marketers. It’s about what’s best for the organization. As marketing continues to account for a larger percentage of the pipeline, it’s more important to measure the effectiveness of the marketing touchpoints that drive that pipeline and generate revenue. When marketers can prove their impact on revenue, it supports a system that optimizes revenue by revealing new customer insights.