3 Forgotten Parts of Marketing ROI
Marketing budgets and top-down pressure to prove ROI are projected to increase in equal measure in the coming years. In spite of this dual rise in marketing investment and accountability, there are few CMOs who are up to the challenge.
Every marketer who is fond of his job can and should prove the business impact of marketing spend. The challenges lie in deciding how to separate the successful initiatives from the flops.
Here we take a look at some of the often overlooked factors to consider when calculating ROI to better assess campaign effectiveness.
Complicating Factors: ROI Over Time
According to the February 2014 results from The CMO Survey from Duke University’s Fuqua School of Business, only 37.5% of CMOs in the United States feel they can prove the short-term impact of marketing spend quantitatively.
It doesn’t get any better in the long run — only 28.6% reported confidence in proving the long-term impact quantitatively.
These surprisingly low figures become easier to understand when we consider the many factors that affect marketing ROI in the long-term.
In a traditional financial sense, ROI is defined as a ratio of net revenue and cost. Subtract the cost of a campaign from its net profit, then divide by the campaign cost, and you have ROI in its simplest form.
ROI = (Incremental Profit - Campaign Cost)/Campaign Cost
This revenue versus cost ROI ratio, however, becomes more complicated for marketing initiatives as a campaign’s timeframe elongates.
Consider, for example, the long-term investment in content marketing or paid ads. In all likelihood, a single blog post or banner ad won’t immediately lead to a sale.
However, as the number of interactions from a consistent ad or content marketing campaign increase over time, their impact on purchasing decision will (hopefully) accumulate, building momentum for a single, or even recurring, purchase.
Which leads to three oft-forgotten ROI factors: Brand Awareness, Customer Lifetime Value, and Touch Points.
Measuring Brand Awareness With Leading Metrics
Marketing activities aimed at brand awareness often have an aggregate effectiveness that — if measured on too-short a time-frame — will belie their overall impact on ROI.
For this reason, gains in brand awareness are typically measured according to leading metrics such as impressions, clicks, and interactions. These leading metrics measure initial customer engagement with your content on each channel, and can be optimized daily.
ROI metrics, on the other hand, are metrics that attribute revenue or a proxy for revenue to a marketing source. Optimizing ROI across various channels is a cyclical rather than linear process.
Measuring and optimizing leading metrics on each marketing channel provides early indicators of success (or failure) of marketing campaigns to better track and predict their cumulative impact on customers’ purchasing decisions in the long run.
Compounding ROI of Customer Lifetime Value
According to a 2014 report from Econsultancy and Sitecore, 3 out of 4 global marketers reported that customer lifetime value (CLV) is an important metric for their organization.
The high value on CLV is understandable given its direct ties to revenue and ROI. Often, marketing departments have such laser-focus on drumming up leads, that a single lead’s long-term value. CLV, however, is a predictive metric that forecasts the future value from converting a lead to a customer.
CLV is particularly important in the SaaS business, where the long-term value of a customer lies in renewals. When you reconsider the revenue versus cost ROI formula, it’s clear that an understanding of CLV is integral to determining the upfront costs to attract and convert new leads, and the investment required to keep and grow existing customers.
Touch Points: Stepping Stones In The Buyer’s Journey
Another factor to consider when calculating ROI is the number of marketing touch points in the average buyer’s journey.
Unfortunately, marketing is not analogous to baiting a hook, tossing it into the pool, and reeling in a customer. It takes a net of interwoven marketing efforts and touch points to create resonance and ultimately influence a customer’s purchasing decision.
The typical number of touches it takes to close a deal varies across the board, but in almost every case it’s greater than one. While the revenue from a single sale is ultimately known, how do you assign value to the host of touch points that influenced the deal along the way?
Whether you use single-touch or multi-touch attribution (and whichever you choose, stay consistent!), the branching of attribution across multiple touch points complicates the net revenue to cost ROI calculation.
Conclusion
So what does it take to quantitatively prove marketing’s impact on your company’s bottom line?
According to Professor Christine Moorman, the director of The CMO Survey, marketers can take their cues from the scientific method to prove the value of their department’s efforts:
“Demonstrating the impact of marketing means developing hypotheses about how your marketing actions and other competitor and macroeconomic factors will affect customer behaviors; developing measures to detect those effects, and then designing a good test to study the impact of your actions.
Developing hypotheses is about making predictions between actions and outcomes. It requires marketers to think very carefully about how their marketing actions will move customers through a process of becoming aware of their offerings, developing knowledge, considering and purchasing the offerings, and maintaining their use. Every action should have a corresponding hypothesis.”
Assessing marketing ROI typically goes beyond looking at dollars-out versus dollars-in. There are many ways to draw the line of success in your marketing sand, and each means of analysis offers different advantages and insights.
As Professor Moorman noted, the complications in calculating ROI can be navigated based on your marketing goals. Define what a successful campaign looks like quantitatively, develop hypotheses linking leading metrics to these ultimate ROI metrics, and gather the data you need to connect the dots.
If you liked this post, you might like Marketing Metrics Your CEO Cares About or 10 Influencers On The Future Of Content Marketing.
Kara Burney is the Content Marketing Maven at TrackMaven, the Competitive Intelligence platform for Digital Marketers. Have content marketing questions or topics you'd like covered on the TrackMaven blog? Tweet her your ideas! See more of Kara's posts
