Why should your company invest in online display advertising for account-based marketing (ABM)? Couldn’t you make other investments that would produce better results?
These are key questions for leaders in companies that commit to ABM.
As you identify your target accounts, you find you have many competing priorities. You always have limited time, attention, money, and resources.
Compared to display advertising, some alternative investments may seem less expensive, less risky, easier to execute, and faster to produce results. But is that really the case?
Some investments may be more urgent and timely than display advertising, regardless of their cost and relative ROI.
So, under what circumstances does it make sense to invest in display?
This article addresses these questions from the perspective of a chief executive officer (CEO).
How much is display advertising likely to cost?
An earlier article in this series noted that ABM display advertising is likely to cost at least $50,000 for a six-month program. It also said some companies spend more than 10 times that much.
Even at the low end of that range, online display costs enough to make you think hard about what else you might buy for the same money.
And for whatever amount of money you choose to spend on display, you will probably have to defend your decision to skeptics.
Where else might you spend the money?
You have a long list of alternate investments. Any investment you consider is likely to face intense competition.
Which business functions should get more money? Sales? Marketing? Customer service? Product development? Where can your investment do the most good?
Should you hire an inside sales rep or invest in display advertising?
For this discussion, let’s narrow the scope of your alternatives. Let’s say you’re thinking only about how to set your company’s budgets for sales and marketing.
Your sales leader wants more headcount to achieve her quota. Your marketing leader wants more money to do online display advertising. They’re competing for a bigger slice of the same pie.
Here’s your dilemma. You probably know what results you can expect from hiring a new inside salesperson. But maybe you’re unsure what expect from online display advertising. The cost appears to be in the same ballpark for both investments. So how do you decide?
I suggest you weigh the likely risks and returns for each alternative.
So how do you measure the potential return on investment for online display?
How to measure the effectiveness of display advertising
In a recent Kwanzoo blog post, Mani Iyer suggests five metrics to measure the effectiveness of display advertising:
- Account coverage. For the accounts you’ve targeted, how many can you reach through display ads?
- Account awareness. In which of your targeted accounts is it most important to raise awareness of your company and your offerings?
- Account reach. Which of your targeted accounts did you actually reach with your ads?
- Account engagement. Of the accounts you’ve reached, which responded in ways you can measure?
- Account impact. Which accounts became opportunities or deals?
Mani’s article is insightful and authoritative. It’s well worth reading.
But how do you use these metrics to make an either/or decision?
First weigh your alternative investment
Our sales leader wants one more inside salesperson business development rep (BDR) to increase the flow of qualified opportunities. She already has two BDRs on her team.
Let’s think about the cost, risk and likely return on investment for adding another BDR.
I’m going to assume we’re working for a SaaS company. That’s because solid benchmark data is available for that industry.
Consider base salary, on-target earnings, overhead costs, and hiring costs
According to Salary.com, the median annual salary for inside sales reps is about $44,000. That’s in the United States, current for February 2017.
The Bridge Group, which collects data by surveying SaaS companies, reports average base salary of $46,000. Average on-target earnings are about $72,000. That’s for U.S. inside sales reps in 2016, based on their survey of about 350 companies.
In addition to salaries and commissions, you must also consider overhead costs. They include benefits, software tools, workspace, training, and so on. Such costs may add another 30% on top of salary.
Also, add hiring and recruiting costs, if you have any.
Consider your likely ramp time
How long does it take for a new rep to be productive? That metric is known as ramp time. It varies with the size of your average sale and the effectiveness of your onboarding process.
Bridge Group reports that the average ramp time is 3.2 months.
In a 2015 survey, they found the average ramp time was more than six months for companies with an average contract value (ACV) of more than $50,000. The average ramp was 4.8 months for companies with ACVs of less than $5,000.
If you don’t have an effective onboarding process, assume your ramp time will at the higher end of these ranges.
Consider the possibility that your BDR may not achieve quota
Once reps are fully ramped, about 68% achieve their sales quota. Average quota attainment trended downward between 2010 and 2015, Bridge Group says. It ticked up slightly in 2016.
Consider the possibility that your rep won’t make it through the first year
Keep in mind that your new salesperson may not make it to the point where she generates a positive return on your investment.
What’s the average attrition for sales reps in your company? If you don’t know, you can estimate from industry averages.
The Bridge Group reported in 2016 that the average tenure for BDRs is just 1.4 years. Average tenure was lowest for BDRs with less experience and at lower compensation levels.
The annual average attrition rate was 34% in 2015. Companies lost two-thirds of that 34%, or about 20% of their sales team, to involuntary attrition. That means 20% of reps get fired, usually for inadequate performance.
More than one in 10 companies had attrition rates of more than 55%.
Consider your minimum risk level
Also, consider your minimum commitment. How soon can you pull the plug on a rep who isn’t producing? And how much money will you have lost?
Assuming your new salesperson doesn’t flame out right away, you’ll probably give her at least six months to see if she can prove herself.
That means you could lose 50% of her salary and overhead costs without seeing any positive return.
If you have to pull the plug early, you’re likely to have little or nothing to show for your investment. You’ll have to start over with a new rep. You’ll face a repeat of the same costs, risks, and ramp times.
Consider the potential gain
Now that we’ve laid out your likely costs and risks to hire a new inside sales rep, let’s think about your potential gains.
On the upside, your new inside sales rep has roughly a two-in-three chance of achieving or exceeding her quota. That’s assuming she makes it through her first year.
For field sales reps, the costs and risks are likely to be even higher. That’s because their salaries, on-target earnings, and travel expenses are usually higher. And ramp times tend to be longer for field reps.
Project your likely return on investment
So, is it a good decision to hire a new rep? Maybe. Let’s review.
First, calculate the amount of revenue she will generate at or above her sales quota. Then subtract all the costs of hiring her and paying her expenses for a year.
Multiply that by the probability she will achieve her quota.
Then calculate your profit margin on the net revenue she may produce.
That tells you your net gain if all goes well.
Divide that net gain by your total investment to hire and maintain her on your payroll. The quotient of that division give your likely return on investment (or ROI).
If you’re doing this calculation for the first time, I’m guessing your projected ROI is lower than you’d thought it might be.
Consider how your BDR will work
Now let’s consider how your new BDR will spend her time and what she’s likely to achieve.
If you have a good database of target accounts, she’ll hammer the phones and send emails to people in her assigned accounts.
The Bridge Group reports that inside sales reps were each assigned an average of 207 accounts in 2015.
The number of assigned accounts per rep declines as ACV increases. In companies with ACV in the range of $25,000 to $100,000, the average number of accounts per rep was 155. The lowest number of accounts per rep was 138. That’s for companies with ACV of more than $100,000.
Factor in the limitations of cold email prospecting
When your new BDR sends email messages, she will achieve open rates between 2% and 60%. How her messages perform within that broad range will depend on four main factors:
- The quality and relevance of her email messages
- The size of accounts she’s targeting
- The industries she’s targeting
- The seniority of target contacts she’s trying to reach.
With email alone, she cannot reach any of the 40% to 98% of email recipients who don’t open her messages.
Consider the limitations and inefficiencies of cold phone prospecting
What about phone calls? SaaS inside sales reps averaged 5.8 meaningful phone conversations per day. That was in 2016. For that survey, a “meaningful conversation” was defined as one where the SDR learns as least one piece of qualifying or disqualifying information.
In a year with 250 work days, one new rep will have, on average, 1,450 meaningful conversations. Those conversations will focus on the 140 to 200 accounts assigned to her.
If you sell to big companies, the number of accounts assigned to your BDR will be toward the lower end of that range. Your BDR will also have fewer meaningful conversations per day.
Note that your BDR will accumulate her phone conversations slowly, at a pace of about 116 a month.
That’s like searching for sales opportunities in a big, dark maze. Your rep has no guidance other than a small flashlight. She can spot opportunities only where her light shines. And she can see only one small area at a time.
She moves through the maze slowly, with no map. She doesn’t know which way to turn or which corridors she can bypass.
If your BDR follows this slow process, she’s likely to miss many opportunities. In target accounts she hasn’t yet reached, she may miss big buying cycles.
Also, note that not all the accounts assigned to your new BDR will be open to her outreach.
Some may have set their email system to blocked your company’s email messages. This may happen if a previous sales rep at your company has spammed their account or burnt bridges in some other way.
Further, the success of your new BDR will depend heavily on the quality of the contact lists you provide her. She can’t reach contacts who aren’t on her list.
Now consider a possible investment in display advertising
Suppose you were to invest about the same money in online display as you would to hire a BDR. How might that work?
The ABM display industry is too young to provide reliable benchmarks. So let’s conduct a thought experiment.
What is your minimum investment in display?
As we’ve said, your minimum investment for online display is about $50,000 for six months of ads.
That would be your cost if your ad tech platform is Kwanzoo. Your minimum cost may be somewhat higher or lower for other platforms.
What are your risks?
You can think of that $50,000 as the most out-of-pocket money you would lose if your ads were to generate no results.
What is your risk of generating no results in six months?
It’s very low. That’s because you start getting feedback within a week or two after running your first ads. The feedback you receive enables you to tune your targeting, your ad content, and your frequency.
If you don’t produce the results you want, you can adjust until you like the results you see. You’re in control.
How long will it take to get started?
You can ramp an online display program in as little as two weeks. It will take longer if you try to start before you’re ready.
To be conservative, let’s quadruple your ramp time to 12 weeks. That’s three months. It’s still less than the average ramp time for a new BDR.
Let’s clarify what happens as you ramp.
You target your accounts and you specify the account locations you want to reach. You may also target the people you want to reach in each location. You may even be able to specify their business function, job title, and seniority level.
Then you choose the frequency of exposure you want to achieve with your ads. Finally, you create and publish your ads.
When can you expect results?
At the end of your ramp time, your display ads appear on the screens of people you’ve targeted. You can reach people in job functions you designate. They will have job titles you’ve specified. You needn’t know any contact names or email addresses.
Your ads will appear only to people in the accounts and locations you want to reach.
Your metrics will start improving almost immediately after you publish your first ads.
Your early results will be in the form of increased traffic to your website. You may also see more clicks on your ads, with more people filling in forms on your landing pages.
With this fast feedback, you can quickly refine and tune the factors that can give you even better results.
If you spend more money, you can increase the reach and frequency of your ads. You can also modify the content of your ads to increase their appeal to the people who see them.
What results can you expect?
When these new visitors arrive at your website, you need not rely on opt-in forms to capture their names and email addresses. You’ll have information that’s even more valuable.
Reports from Kwanzoo identify the internet protocol (or IP) addresses of all your visitors. You’ll also see the names and geographic locations of the companies they work for.
Depending on how you’ve targeted your ads, you may also see job functions and titles of visitors.
How soon will we see an uptick in revenue?
As with any investment in sales and marketing, you’ll achieve actual payback only after you’ve closed new deals. How fast you can do that depends on the length of your sales cycle.
How you can use your early results
When you share information about account-level activity, your sales team will see relative “hot spots” in the accounts on their list. They’ll know where to focus their sales activity.
Your BDRs will have better tools than flashlights as they move more efficiently through the maze.
They can stop calling blindly on their accounts. They can focus instead on accounts and business functions whose interest is apparent.
What it can mean for sales productivity
The success rates for your BDRs will climb. The frequency of meaningful conversations will rise.
They won’t be limited by any shortcomings of their initial contact list.
Your salespeople can then use social media, including LinkedIn, in conjunction with other data sources. They can identify individuals in the job roles and business functions where reactions to display ads suggest the interest is strongest.
When your reps can quickly reach a large number of unknown people in targeted accounts, it can be a game changer for sales productivity.
What’s unique about online display advertising
These capabilities are key differentiators for display advertising. No other sales or marketing investment can achieve such results so effectively, so fast, so inexpensively, and with so little risk.
Display ads can make all your current sales reps more productive, without the added cost and risk of hiring new BDRs.
These are not soft benefits. You can measure them all with hard numbers. You can do so by comparing activity and success levels for your sales team before and after you advertise.
Used in combination with website analytics and the reports you receive from Kwanzoo, you will have solid evidence of the effectiveness of your ads.
When it would be better to hire BDRs
Does all this discussion suggest that most companies should invest in online display advertising rather than hiring new BDRs? Of course not.
Your situation is unique, and you don’t want to make decisions based on generalizations.
If your company has no BDRs or inside sales reps, it probably makes most sense to go ahead and hire your first one or two.
Once you have a few BDRs in place, online display advertising can improve their productivity before you take on the costs and risks of hiring a third.
Your goal is to remove the primary constraints to growth
If you’re familiar with the Theory of Constraints, you understand that the throughput of systems is always limited by constraints or bottlenecks.
As soon as you eliminate your primary constraint, a secondary constraint moves to primacy.
Every business leader faces the same challenge: How to achieve the best results with limited time, money, and resources. The leaders who consistently make the best decisions, win.
So always make sales and marketing decisions to reduce what you see as your biggest constraints to revenue growth.
To do this, you must correctly identify your key constraints. Then you must identify the best ways to remove them.
As you weigh your alternatives for opening the constraints on revenue growth, it’s always prudent to review costs, risks, resource requirements, and speed to benefit.
For many companies, online display advertising has been a little-understood alternative. Few decision makers know how to evaluate it. I think it deserves more careful consideration.
I hope this article has opened your mind to new ways to think about it.
Look for future articles in this series to address these topics:
- How marketing leaders can compare the effectiveness of online display to that of other marketing communications
- How ABM display advertising is different from lead-gen marketing
- Essential elements of effective ABM display ads
If you share your name and email address, we’ll notify you when future articles appear.
If you have other questions about getting started with B2B online display advertising, look for other articles in this series. Here are the links: