How to use the Inverted Demand Funnel and more precise forecasting to turbocharge your marketing plan
The final months of the fiscal year can be a crazy time in business, and not just because there are still yearly goals to hit. The last fiscal quarter is also planning season for the new year. Getting the fiscal year plan right is the groundwork for all other following success, but finding the best approach and thinking longer-term during the hectic closing weeks of the year can be a challenge, especially for marketing teams.
Marketing leaders commonly own pipeline metrics, but they’re also increasingly seen as responsible for ensuring overall revenue targets are met. In general this is a positive shift for marketing’s role as more of an agent of growth in the business. However, marketing leaders don’t always get much of a hand in picking these revenue targets. Targets are usually negotiated between the CEO and leadership from sales and finance, or handed down from the board in the case of many startups.
In an ideal world, marketing leaders would then be able to work backwards from the revenue targets to a marketing budget that would comfortably allow the resources needed to achieve the company’s goals. But marketing teams often struggle to credibly demonstrate to their executive peers how their investments relate to revenue outcomes. And the current economic downturn is causing marketing budgets to be pared back. As a result, in the current moment, marketing leaders can be somewhat limited in their ability to negotiate their budget.
The Inverted Demand Funnel
If revenue targets are already set, and there’s little wiggle room on the marketing budget, then the most important question becomes what needs to happen in order for the budget to get the necessary results. Specifically, marketing leaders need to identify what assumptions at each stage of the customer journey between the budget and the goal must be true for the goal to be met.
The most effective planning method we’ve found to map out these assumptions is the Inverted Demand Funnel, which identifies the ideal marketing budget per quarter by working backwards from the quarterly sales target. What’s required is to input certain known or target metrics, such as your median sales price, pipeline coverage ratio, conversion rates from marketing qualified and sales qualified stages, velocity of opportunities, and more.
What’s helpful about the Inverted Demand Funnel is it immediately becomes apparent where your business will need to focus and be more effective. For example, if you know that you’re unlikely to be able to push your median sales price higher, or convert opportunities at a significantly higher rate, you may need to plan ways to bring in a much higher volume of marketing qualified accounts, and increase the velocity of opportunities through your funnel.
By comparing your assumptions to past years, you’ll quickly be able to identify where it’s realistic to make improvements. A 5-10% improvement in converting marketing qualified accounts to sales qualified opportunities? It always depends on the scale of your business, but it can be done. However, if the Inverted Demand Funnel shows you that you’ll need 50% improvements across a few metrics to hit your goals with the given budget, this can then act as a powerful tool to negotiate for more budget, or effective cover if that isn’t possible.
The natural dependency of the Inverted Demand Funnel is that you’ll need to have an idea of what assumptions are reasonable to input in order to get useful results. For younger companies or those in rapid growth mode, looking at metrics from prior years is a useful guide, but this may not offer the ideal level of precision.
Take pipeline coverage ratio metrics for example. There’s an industry standard that says your pipeline coverage ratio should be somewhere around 3X-4X, so when the exact coverage ratio is uncertain, marketing leaders tend to revert towards assuming flat 3X-4X coverage across the business. As a stand-in for a more precise metric, it’s not the worst idea, but it prevents you from understanding how your pipeline conversion differs across the different parts of your business, and thus how you should be allocating your budget. And the difference between 3X and 4X coverage can be millions of dollars in pipeline that you may wish you’d planned for generating.
That’s why obtaining more precise forecasts of what your pipeline coverage ratio should be is crucial. Ideally you’ll want leverage machine learning algorithms and time-series forecasting that are trained on both your own operational data and that incorporate broader context from the market. You want recommendations that are based on the specific characteristics of your business, but that are informed by wider trends, to balance out the fact that your company may not have decades of historical data or that you may be changing very quickly.
Assessing Your Plan
When developing your plan, you’ll want feedback not just from other executive stakeholders, but also those with the marketing team’s interest at heart. We’ve been helping marketing teams get a jumpstart on the upcoming year with Fiscal Year Planning Assessments through our Revenue Marketing platform. With a connection to Salesforce, we can generate a complete marketing model that tightly connects marketing objectives to revenue, pipeline and revenue predictions based on segments and budget allocations, and a marketing qualified account plan for meeting pipeline goals. You can contact us to schedule your assessment using the page linked here.
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