Sales and Marketing Alignment: Why Should You Care?

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You’ve heard it before — the seemingly endless “he said, she said” debate between sales and marketing. Many CEOs feel like they are counselors and could write John Gray’s next relationship advice book: “Sales is from Mars, marketing is from Venus.”

Clearly, the counseling approach isn’t working; as the “divorce rate” between companies and their marketing leadership is extremely high — 75% of enterprise technology firms replaced their VPs of marketing between 2002 and 2003. Chief marketing officer (CMO) tenures, already on average much shorter than those of other CxOs, has dropped from 23.6 months to 23.2 months according to an article in Brandweek (“Length of CMO Tenure Continues to Decline”. http://www.brandweek.com/bw/news/recent_display.jsp?vnu_content_id=1003020713

By comparison:
[list]
[*] CEOs average 44.4 months (91% longer),
[*] CFOs last 39.4 months (70% longer),
[*] CIOs lasted 36.4 months (57% longer).
[/list]

If you were to interview other CEOs and ask them how they are dealing with the situation, the most common responses you’ll get include:
[list]
[*] “My alignment problem is the result of the specific personalities of my sales and marketing leaders, and there is nothing I can do about it.”

[*] “Sales and marketing will always be at odds, and I am not about to spend money on some relationship-building exercise to get these two groups to work together.”

[*] “I am overseeing marketing’s expenditures and personally approve every expense item to make sure we spend our money wisely.”

[*] “We replaced our last VP of marketing and hope our new one will be a better fit for our company.”

[*] “We decided we couldn’t measure marketing, so we eliminated the entire department.”
[/list]

While these are all common reactions to the problem, many CEOs also believe this issue will correct itself. Given this perspective and the pressures facing most executives today — sales are hard to come by, margin pressures, increasing commoditization, etc. — it is understandable that CEOs are not investing time to examine the sales and marketing alignment problem.

However, this is a big issue, one that will not be miraculously cured by a leadership change or any one program. Your revenue engine may be fundamentally broken due to mistaken assumptions that drive your sales and marketing decision-making.

How can you quickly assess how much this issue is costing your company?
As a results-oriented executive, you want to invest your time and energy into fixing problems that will have the greatest impact on your bottom line. Your first step is to get a quick and simple measure that will help you indicate the magnitude of the problem and decide how much energy you want to devote to fixing it.

Sales and marketing expenses are investments your company makes to drive profitable revenue. These expenditures are consolidated as a single expense category on your income statement. For many companies, sales and marketing investments are, by far, the largest expense category. Therefore, the biggest impact you can have on your operating margin is to increase the return from those expenditures.

For a simple analysis of how efficiently you are utilizing your revenue generation resources, start by determining your sales and marketing return on investment (SMROI). This is calculated by taking your total revenues for a given period (annual or quarterly), subtracting from that your total sales and marketing expense, and dividing the remaining amount by your total sales and marketing expense.

For example, OTG (a former publicly-traded software company that was acquired by Legato, which has since been acquired by EMC) reported $64.9 million in revenue for 2001. During that same period, their sales and marketing expenses were $29.8 million. For this time period, OTG’s SMROI was 118%.

Like all metrics, without something to compare to, this information is nearly meaningless. During 2001, the average SMROI of comparable companies was 153%.

So, what does this tell us about OTG? Two things:

1. If their sales and marketing organizations were operating at industry average efficiency, and they invested the same amount of money on sales and marketing, they would have produced $10.5 million dollars more revenue during 2001.

2. Or — perhaps more likely given today’s low growth business climate —they could have achieved the same revenues by spending $4.1 million dollars less.

How much of an impact would adding $4.1 million dollars to the operating margin have on a $65 million dollar company? Pretty substantial, I’d say.

If you agree this is an issue, I’d like to hear your thoughts on any of the following questions required to solve this problem. I’ve got some answers which I’ll post later, but I want to hear your opinions.

[list]
[*] What are the root problems a company needs to address to improve its sales and marketing effectiveness?
[*] What are some specific reasons that cause inefficiency?
[*] What are the cost drivers that influence inefficiency?
[*] How can a company examine the effectiveness of their current sales and marketing investments?
[*] Why have my past investments in sales productivity failed to produce the expected results?
[*] What does sales effectiveness look like?
[*] Who should be responsible for addressing this issue?
[/list]

1 COMMENT

  1. Hi Scott,

    I really like your SMROI metric and I was wondering if you have any updates as to what the average SMROI is in 2010?

    Thanks for sharing,

    Mark Yager

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