Marketing Best Practices

Capital efficiency and return on invested capital are the hallmarks of successful companies. Venture capital is a milestone driven investment model and companies benefit, with respect to dilution, by being able to achieve milestones and value creation on as little capital as practical.

A major area of potential inefficiency and burn is marketing. This post passes on a few marketing performance indicators that are worth tracking to ensure return on the marketing dollar. At scale, software companies spend 20-30% of revenues on sales and marketing, while start-ups, typically spend 50-60%+. Marketing, when done well, can be a critical driver of sales leads and growth. The goal must be to avoid being in a company where you feel like paraphrasing John Wannamaker, who famously observed, "I know I am wasting 50% of my marketing budget -- my trouble is that I don't know which 50%."

The goal of a start-up's marketing plan should be to drive leads into the sales process. Ultimately, management needs to track the cost per lead and the cost per close. My suggestions are to track the following

• Programs
• advertising (home page ads, newsletter sponsorships, banner sponsorships, search engine key words)
• direct email
• outbound telemarketing
• events
• Costs per program
• ex $2,000 to sponsor a newsletter geared to the target demographic

• Reach
• ex newsletter reaches 12,000 readers

• Expected response rates
• ex .5%

• Actual response rates
• ex .75%

• Costs/lead = cost per program/leads from program
• expected cost per lead = $2,000/60 = $33.33
• actual cost per lead = $2,000/90 = $22.22

• Leads/quarter from all programs
• Average cost per lead/quarter
• Total programmatic spend/total leads generated

Metric-driven management helps a young company quickly triangulate on what is working and what is not. Tracking costs, response rates, and the contribution of marketing to the success of the business helps make marketing more scientific and its contributions more tangible to the overall goal of reaching the next milestone as efficiently as possible.