We all know the arguments: calculating marketing ROI is expensive. There are all kinds of technology barriers, not to mention turf issues. Like the constant battle between marketing and sales over who gets credit for what.
Plus, most companies, especially manufacturers, sell through distribution, which can often be a roadblock rather than a source of customer insight. In addition, there are long sales cycles, especially in business-to-business marketing.
And finally, there’s the question of attribution (raised by “customer journey” advocates): if a prospect sees a social media announcement for a new product, Googles it, goes to a web page, watches a video, and orders it on Amazon, which tactic gets “credit” for the sale?
The Opposing Point of View: ROI Is Easy
On the other hand, there’s always somebody in the company, usually, the CFO, who says marketing is just asking for a “Get out of jail free” card. That ROI is pretty simple.
In one sense, the CFO is correct if you confine yourself to the quick math: Your marketing budget for a product launch is $100,000, and you sell to 50 customers. So, each sale costs you $2,000.
Marketers will quickly rise to the occasion and note that the purely mathematical approach is an over-simplification, ignoring the value of brand equity and long-term brand building.
But they’re missing the point: by insisting that it’s too difficult or expensive to calculate marketing return on investment, marketers let themselves open to the accusation that they are over-complicating a simple calculation. And demanding a free pass, insisting that marketing is in branding nirvana, somehow absolved from the day-to-day realities of a business.
As a marketer, I can assure you that’s not a good idea. And that marketing is not above the fray. It does not get a free pass.
In my book Brand Vision: The Clear Line of Sight Aligning Business Strategy and Marketing Tactics, I make a similar argument—that marketing cannot be given a free pass on corporate strategy and that it needs to be the CEO’s best advocate for it. It works the same way for marketing ROI with a new twist. Marketers either embrace ROI, own it, and advocate for it. Or they give their corporate rivals (like sales) a stick to beat them.
A Huge Opportunity
Those who insist that marketing should be exempt from financial realities are damaging their cause. Virtually ensuring that marketing is viewed as an expense that can be cut when times get tough. A “nice-to-have” that’s first in line to get the ax, maybe even more expendable than the company bowling team.
Even worse, they’re missing a huge opportunity. A chance for marketing to be viewed, not as an expense that can be cut at the earliest opportunity, but as an important production input, like any raw material essential for prosperity and growth. I’ll explain that in a moment.
The biggest problem? There are no easy, one-size-fits-all solutions. Harvard guru Michael Porter famously wrote that the more differentiated your strategy, the more difficult it is to imitate (and the more successful your company will be). Once again, what applies to corporate strategy necessarily applies to marketing ROI: your ROI techniques and tools differ from those of your global competitors, your industry’s best-practices leaders, as well as your cross-town rivals. Because you are different.
Since your strategy requires differentiation, it must be tailored to your unique circumstances. So must your marketing—and your measurement of marketing ROI—be differentiated as well.
A Game Changer
And as a result, the dividends of a differentiated marketing ROI approach can vary from one company to the next. But, done right, the bottom line is simple: knowing your marketing ROI is a game-changer.
Specifically, understanding what works in marketing gives you some critical insights into how to balance and budget for your initiative.
The Right Mix of Media and Tactics
What is the right balance of marketing tactics to use? Note that I am not suggesting you calculate the ROI for Twitter or Facebook posts, email, or search.
The reason? As I have written before, none of those tactics work independently. Very few sales occur on Facebook or even through an email. Here’s the proof: on more than one occasion, I’ve been in a room trying to figure out why a client’s search volume suddenly dropped. Nothing had changed in the way the search ads were written or how the metadata on the page was constructed. But a broader view provided the answer: the clients had paused their advertising budget. As a result, fewer prospects saw an intriguing offer and did a search. Thus, search volume—and sales—dropped.
The good news? Electronic media are made to be connected to each other. So rather than wasting time trying to ferret out which tactic triggered the sale, focus on the campaign itself. Are you striking the right balance of paid, earned, and owned media? Unlike Field of Dreams, if you build a great web page or shoot a great video, you can’t be sure people will come. Unless you tell them about it.
As a CEO, you shouldn’t be worrying about whether a Twitter post will do better than a search ad. That’s not your job. Your marketing people should be doing that. And if you can’t trust them to do that, you need new marketing people. It’s as simple as that.
So the marketer’s task in this brave new world of electronic marketing is to strike an intricate balance among the various media and tactics.
How much spending is enough? How much is too much?? That’s not a question that is asked often. But I’ve seen many campaigns deploying a full array of media with a minimal budget for paid search. As a result, the search campaign is exhausted a few days into the month, while the campaign rolled on all thirty days.
Did they leave money on the table by under-promoting on search? Specifically, did prospects see an ad or receive an email, then head to the Google search bar to find out more? Then, without the help of paid search, were some unable to find you? There’s no way of knowing. But I’m guessing some were.
You’ll have no way of knowing any of those things without good analytical tools, good data, and an ROI strategy.
And, no, there aren’t industry benchmarks you can apply. As with strategy, the marketing tactics that work need to be customized for your unique audience, positioning, and offering. Trust me, even two years of solid data are worth more than generic “best practices” statistics.
The biggest benefit of mastering ROI is the track record it creates, and the ability it gives you to pull back the curtain and peer into the future. The way marketing is done now, it’s as if marketers have some kind of memory disorder, and every new initiative is Groundhog Day.
But knowing what worked last year is a great way to start planning for this year’s blockbuster event. What if you not only knew this year’s campaign would do about the same as last year’s? But also, how much you’d need to spend to generate the leads and sales you’re hoping for?
It’s hard to imagine a new initiative that would not benefit from this insight. For a new product launch, how much should you spend? Not only to measure your marketing return on investment but also to capture all the revenue possible before your competition eventually comes up with a viable alternative? Taking full advantage of that critical time in your product’s lifecycle when you have the market to yourself, thereby maximizing the performance and the profit before your competition catches up.
Such a process might lead to inclusion of a marketing investment as part of a new product development initiative. So that marketing of a new product is funded from the outset, not tacked on at the end, with a typically strapped marketing department struggling to find the resources to promote the biggest thing since sliced bread. Especially if marketing has been kept in the dark about the new product and feels blindsided.
The goal? To make marketing much more than an expense. And have it be viewed as a manufacturing input. In the same way you can’t build a new computer without chips, you can’t launch a new computer product without marketing.
Your initial steps in calculating marketing ROI are not going to be perfect, far from it. But you need to start somewhere. Think of it as a natural outgrowth of your continuous improvement effort, not unlike Six Sigma.
Do your marketers a favor and demand this of them. They’ll thank you in the long run. Because it makes them a player, gives them a seat at the table. Or at least a chance to earn it.
Written by Jim Everhart.
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