Calculate Predictive ROI: Levers That Lead To More Revenue
If you’re in the boardroom these days, you know that marketing is often measured on one key metric – what is the contribution of marketing to the top- and bottom-line of the business?
The growing revenue focus and increased accountability on metrics has marketing organizations everywhere looking for the best insights to feed into their campaigns.
In the past few years, predictive analytics has emerged as a top contender that addresses these needs by enabling better market entry and budget allocation decisions for marketers. But, how do you evaluate vendors using key performance metrics, project future success based on tangible ROI, and build an ironclad business case with realistic budget allocation?
We’re here to help you select key performance metrics to evaluate your success with predictive and effectively calculate predictive ROI for your business.
Selecting monetary metrics that matter
Marketers that are putting together a business case for their internal stakeholders need to start by looking at the right performance metrics that are impacted by predictive. An integral part of this process is to select metrics and an evaluation process prior to actually evaluating predictive vendors.
Start by selecting a quantifiable and monetary success metric that will be the most compelling for internal stakeholders. For example, prioritizing based on top- and bottom-line metrics or even customer metrics such as customer lifetime value and customer satisfaction are great measures of success.
The reality is that some predictive vendors can offer a wide range of applications, therefore the number of metrics you can impact increases. Based on your predictive use case and performance metrics, the chart below will help you determine the following about each metric…
- Will predictive impact Campaign Performance, Top-line Revenue or Bottom-line Revenue?
- How directly and quickly does predictive impact this metric (Leading or Lagging)?
- Upon adoption, how long before I can expect to see this metric impacted (Timeframe)?
- How does the application of predictive specifically impact each metric?
Don’t try to boil the ocean. It’s important to only select 1-3 target metrics that you’d like to focus on going into a vendor evaluation and long-term relationship. Over time you will expand to more performance metrics.
Now that you’ve selected your metrics, it’s time to show how predictive will result in real return…aka more revenue!
Running a predictive ROI calculator
The mission of predictive is to deliver maximum value to every customer by leveraging the power of the advanced analytics, quality datasets, and expert services & success account teams. With more than 16,000 downloads of this Forrester report, you may already know that 83% of marketing VPs with predictive said they have experienced considerable business impact. But how does that impact translate to dollars?
There are five levers in a predictive ROI formula:
- Improving Conversion Rates: Improved conversion rates in either lead or opportunity stages increases ROI
- Higher Win Rates: Increase in conversion rates of closed won deals – primarily influenced by company-fit and intent
- Improving Sales Efficiency: Higher sales lead capacity and connect rates result in additional opportunities and more increased number of at bats – influenced by less time prospecting and improved data quality
- Decreasing Cost of Acquisition: Higher conversions and rep productivity spread costs over a higher number of customers, lowering CAC ratios
- Increasing TAM: Expand existing TAM by sourcing net-new prospects and reaching them via new channels
What are the most common levers? Conversions, efficiency, and net-new lead volume (TAM). These are the most common ones I’ve encountered over three years and hundreds of evaluations at Radius when working with customers new to predictive.
Using several buyer-provided metrics and industry benchmarks, a vendor can help you calculate the ROI on an annual contract amount by projecting the expected return rate over time. Even with modest lift and gains, a customer can realize positive ROI in the first year. And when running a ROI model, modesty is key. We always recommend buyers work with their vendors to run models using a “base case” – an easily obtainable lift from the current benchmark. There are no silver bullets in technology or tactics; using a base case to demonstrate improvement – especially when in reference to revenue forecasts – will ensure you, the vendor, and the other stakeholder(s) set realistic expectations from the get go. The upside for you – the champion of the new solution – is that everyone is happy when you and your new vendor outperform the base case.
Putting it in practice – Predictive ROI example
Let’s look at one simple example where a company is expecting to see their lead-to-opportunity conversion rate increase by 1% each year. Assuming their 20% opportunity-to-close rate stays the same and their funnel size (number of new leads) stays the same, what is the top-line revenue impact?
It’s a difference of $166,440 in the first year alone.
If you want to see a richer ROI report using this company, you can download our playbook – “How to Build a Business Case for Predictive?” Inside you’ll see what happens when predictive impacts additional levers, and what the exact ROI would be on a $200k annual recurring contract.
Again, these numbers are conservative. It is not uncommon where we see enterprise companies revenue results well into seven or eight figures.
Help us to help you
The days of spray-and-pray marketing are long gone and with it the frivolous approach of adopting new marketing technologies. Forward-thinking marketers are measured on tangible costs and revenue – measuring their efforts based on ROI and overall business impact.
By partnering closely with your AE and customer success team, developing out a realistic yet exciting ROI analysis will not only set you up for successful adoption but also enable you to easily sell predictive internally.
If you’re taking a comprehensive look at predictive and think it would help your business grow market share and unlock revenue potential, it’s imperative to adopt an analytical approach in your evaluation process. Use this framework to identify key performance metrics, measure predictive ROI, and build a solid business case that ensures long-term success from this marketing intelligence upgrade.
If you’re interested in receiving a custom ROI analysis, feel free to reach out to me directly at firstname.lastname@example.org
This article was adapted from the Predictive Evaluation Series. Download all three playbooks in the series to effectively select the right vendor, sell predictive internally, and build the business case.
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