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#132: How To Build A Winning Business Case For Demand Generation?

6 months ago

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How can you build a business case for Demand Generation? How do you get buy-in from the team around you to start investing some time and resources into it?

At this point on your Demand Generation journey, you understand that the only way you can drive sustainable growth for the business is by taking a strategic approach that builds intense desire and demand for your products and services throughout the entire buyer’s journey.

However, like many marketers – you are likely either:

Stuck on the ‘lead gen’, MQL hamster wheel, or
Seeing that capturing demand on channels like Google Ads and review sites will not scale without your Cost Per Acquisition increasing to an unsustainable level

So today we are going to show you EXACTLY how to build a business case for demand generation to present back to leadership.

We’re even going to give you:

A Marketing ROI Calculator
A ‘Split the Funnel Analysis’ Template
A ‘Capture Demand’ Forecast Calculator

AND, the basis of a presentation to send to leadership.

This is part of our Demand Gen mini-series. You can access the full series and their whiteboarding sessions here:

As per usual, you can read, watch or listen below to get a deep understanding on whether or not your company is suited to Demand Gen.

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Table of Contents

Evaluating The Effectiveness Of Your Current Lead Generation Strategy

The first step to making a business case for Demand Generation is to show that the status quo is broken. In other words, the current method of acquiring customers is inefficient, and is not allowing the business to scale profitably.

To do that, we first have to prove that the costs involved in acquiring and contacting leads is greater than the return/revenue from the leads.

Let me show you how to do that (with examples) below!

Step 1: Calculating The True Cost of Leads

The first step in building a business case for Demand Generation is evaluating if your current strategy is profitable for the business.

This comes down to collecting your data, assessing it, and answering one simple questions:

Is the revenue from the leads MORE than the cost of getting those leads?

How do you evaluate this? Well, there’s lots of different costs involved in acquiring leads. They can include:

Advertising
Tools & tech
Marketing headcount
Time for sales to service these leads

How To Get Your Revenue Number

When performing this calculation, you need to get your revenue number. Here’s how to do it.

First, pick a period of time to measure performance. We recommend a 6-12 month time period.

Second, in your CRM, pull the amount of closed-won revenue that came from leads marketing generated.

Third, Adjust the revenue figure if necessary to account for the Average Lifetime Value (LTV) of a customer.

For example, let’s say we’ve gone into our CRM and seen that over the last 6 months, 50 leads turned into closed-won revenue, totalling $150,000.

You can adjust this amount to account for LTV. Let’s say your LTV is $5,000 – your adjusted revenue figure is: 50×5,000 = $250,000.

Marketing over the last 6 months is expected to generate $250,000 from the leads they have brought in.

Let’s see how this weighs against to our marketing expenses over the last 6 months (the same period) to see if we’re profitable.

How To Get Your Expenses (Cost) Number

Okay, now we have our revenue number, we need to get our expenses (cost to get leads) number.

Marketing over the last 6 months has spent $208,000 acquiring new customers

Costs:

1x marketer salaries: $100,000 each
Tools & Tech: $8,000
Ad Spend: $100,000
Total: $208,000

Are You Spending More Than You’re Making?

Now check to see are we spending more than we’re making?

Our leads turned into $250,000 revenue. We spent $208,000 getting them.

$250,000 / $208,000 = ROI of 1.2

For every dollar we spend on marketing, we get $1.20 back

You Need To Include Sales Expenses

An ROI of 1.2 looks pretty good! But don’t celebrate too soon.

You should also sum the cost of the sales staff required to close those leads. Because remember – it costs money every time they chase a prospect, whether they turn into a paying customer or not.

We may have sent sales 50 leads that close into won deals, but they were just a fraction of the total leads that we sent them to chase.

We might have sent them 2,000 leads over that last 6 months to pursue.

So it’s worth adding the costs of sales chasing all of those leads – because that’s a very real cost on the business.

You might need to work with finance to figure out what this is, but let’s just say you had 4 sales staff chasing these 2,000 leads over the last 6 months, with an average salary of $60,000 each for 6 months.

That’s $60,000 x 4 = $240,000

Now add the cost of sales to service the leads marketing are sending, and let’s look at how it stacks up.

Now our total expenses are $448,000

And our total revenue is still $250,000

250,000 / 448,000 = 0.56 ROI

SO, for every $1 we’re spending, we are only getting back $0.56 – ouch!

Plug your data into our Marketing ROI Calculator below to work this out for yourself.

You can grab a free copy of the Marketing ROI Calculator below along with our Demand Gen Business Case Template.

Step 2: Split The Funnel Analysis

The next step is to perform a ‘Split The Funnel’ analysis on your leads. This splits your leads by source, i.e. where they became a lead, and then assessing the typical quality of those leads.

You can use it to analyse how many opportunities and customers were produced by your lead-generation campaigns compared to high-intent forms. For example, you can compare how many Sales Qualified Opportunities come from ebook downloads vs inbound demo requests.

The goal is to show that the point of conversion (i.e where someone becomes a lead) actually makes a difference in pipeline.

So you should be able to see a difference in conversion rates from demo requests vs MQLs generated from ebook downloads.

For example, it might take 20 demo requests for 1 deal to go through, vs 500 MQLs from gated ebooks.

To split the funnel and run your analysis, you need to pull data from your CRM for a set period of time, including:

Conversion point (demo form, e-book, gift card promo, event lead etc.)
Cost to acquire leads before they converted
Deal stage
Revenue from Deal

This allows you to show where the poor quality leads are coming from. For example, you might find that 0.4% of your gated ebook leads turn into closed won deals, versus 5% of demo requests.

Grab our ‘Split The Funnel’ analysis template here so you can input your own data.

Step 3: Demand Capture Forecast

This final step is for marketers who want to show that their existing demand capture activities will not scale profitably. This is a template I wish I had back in my performance marketing days, when leadership kept insisting we throw more and more money into platforms like ‘Google Ads’ and review sites like G2, Capterra and TrustPilot.

We need to paint a clear image for leadership that we cannot scale these demand capture channels without investing in demand creation.

This is simply because out of the 100% of the market, research shows only 5% are ready to buy right now. As you increase your budgets to capture more of this market, your competition are too.

This results in a bidding war where only the platforms win. It’s like you and your competitors are fighting for a bigger piece of the same sized pie.

This means that your cost-per-click often increases as you scale – something that very few businesses plan for.

Many businesses also build an incorrect assumption into their forecasts that conversion rate will improve in future months. This is normally based on an expectation their landing pages will improve, their funnel will improve, and their sales process will improve. This is rarely the case and should not be relied on.

Enter Your Actual Data From Demand Capture Platform(s)

So, what you need to do is to plug your existing data from your Demand Capture platform(s) (e.g. Google Ads), and see what the data tells you.

Here we can see that as our budget scales in our desire for more deals and more leads, our CPCs continue to rise. Even worse, your Cost-Per-Acquisition (CPA) keeps climbing to unsustainable levels – all the way from $6,666.67 in January ’24 to $16,000 in August ’24.

Forecast Future Results Based On Actual Data

If the actual data isn’t enough data to show that your CPCs and CPAs are spiralling out of control as you scale, you can also forecast future results from this data.

*Please note this is dummy data – which is why the SQO:Won percentage keeps climbing. If you input your data, the forecast is unlikely to do this.*

In the template we provide, you can enter the number of deals you need to win for each month (highlighted in yellow), and the rest of the information should automatically populate based on this and the historical data you’ve entered.

Above is what the ‘Demand Capture Forecast’ template will look like once you fill it out.

Please note that the calculations for the Forecast Data in this template is not overly sophisticated. It is based on the ‘FORECAST’ formula in Google Sheets. This is a linear regression of a dataset, so is limited in its application. It can however still be used for demonstration purposes.

You can grab this Demand Capture forecast template here.

Graph Actual and Forecast Results

The final step here is to graph the actual and forecast results based on your historical data.

This helps paint a very clear picture.

Over time, as you scale your Cost-Per-Click and your Cost-Per-Acquisition will continue to rise. Capturing Demand alone will not allow you to scale sustainably.

You need to start to get in front of the other 95% of the market that isn’t in ‘buy mode’ yet.

If you build trust with them, and show them they should prioritise the problem they solve – they’ll come to you when they’re ready to buy instead of the competition.

You can grab this Demand Capture forecast template here.

Building The Presentation To Show To Leadership

The way you communicate these results to leadership depends on your company. We’ve created a presentation below that you can grab as a base, which integrates the calculations and projects above. It also provides information on Demand Gen if needed to explain to the person you’re showing it to.

Our business case covers: