Use Marketing to Reduce the Cost Per Order Dollar

When companies face economic hardship, they rightly obsess on reducing costs and finding new sources of revenue. The knee-jerk reaction of cutting marketing and putting more “feet on the street” to increase sales would seem to make sense.

However, those who understand the power of marketing know that marketing creates sales leverage. Although marketing will never replace sales, it can replace certain steps in the sales process, thus freeing sales to be more productive.

The sales process is labor intensive. The sales relationship is one to one, and therefore the coverage model is thin. Sales resources are expensive. Marketing, on the other hand, is more highly leveraged. Even with the newer, more effective targeted marketing strategies, marketing is one to many or one to few.

What’s more, the sales role has changed significantly in recent years. Previously, salespeople were lead generators, information providers, and order takers. Today the best salespeople need to be trusted partners and consultants. This is where marketing comes in.

Marketing can increase sales efficiency by reducing the cost per “order dollar.” For example, if it costs sales $10,000 to book $50,000 in revenue, the cost per order dollar (CPOD) is $0.20, or $0.20 in sales costs for every dollar of revenue. Now imagine that marketing is able to fill the pipeline with higher-quality leads and shorten the sales cycle by helping to move prospects more quickly from one stage to the next. With marketing’s help, sales costs to book that same $50,000 in revenue could be reduced by perhaps 50%. At a sales cost of $5000, the CPOD is reduced to $0.10. Better yet, with a shorter sales cycle, salespeople will spend less time pursuing each prospect and will be able to increase their coverage.

In an economic downturn, when management is worried about hitting revenue targets and saving jobs, this ratio is the key to unequivocally demonstrating the power of marketing to improve the efficiency of sales. What senior management has to understand is that spending money on marketing has the potential to both improve revenue generation and reduce the cost of sales as a percentage of revenue.

This, then, is marketing’s value proposition:

Effective marketing reduces the sales cost per order dollar.

A word often associated with a downturn is correction. A down economy affords the opportunity to fine-tune marketing initiatives by reallocating the budget to invest in high-potential programs and eliminate those that deliver subpar results. It is all about making trade-offs. Marketers, faced with moderate to severe budget constraints, need to examine whether they are spending their limited dollars in the right places and on the right things. They need to spend on the strategies, programs, and tactics that will have the greatest impact on reducing the CPOD ratio.

ITSMA believes that this is the way that marketing can amplify its impact on the business during these challenging times.

Want to know the best ways to reduce CPOD? Read the full report here.

Julie Schwartz is ITSMA’s senior vice president of research and thought leadership.

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ITSMA specializes in helping companies market and sell services and solutions more effectively. We work with the world's leading technology, communications, and professional services providers to generate increased demand, strengthen customer relationships, and improve brand differentiation. ITSMA annual program clients include business leaders such as AT&T, Cisco, Deloitte, EMC, Fujitsu, Hewlett-Packard, IBM, Microsoft, SAP, and Tata Consultancy Services, among others. Our comprehensive research, consulting, and training on topics including ITSMA Account-Based Marketing℠, Brand Positioning, and Solutions Development provide the insight and experience companies need to improve business results. ITSMA is based near Boston, and has offices in London and Tokyo. Learn more at www.itsma.com.