*** NOTE: I expanded my thinking on this topic at Measure Marketing Campaign ROI in 2024 on Bill Freedman's Soon to be a Major Trend ***
Calculating ROI is simple. *Measuring* ROI is supremely difficult.
Let me explain.
ROI is a simple ratio of two numbers: profit from an investment divided by the cost of that investment.
Calculating the three numbers mentioned above is what makes this hard:
- Cost
- Investment
- Profit
Let’s start with costs of a marketing campaign. There are the direct costs, for example media buys. But there are lots of indirect costs: labor to create the campaign, sales effort to manage the account and win the deal are examples. And what if a buyer responds to 3 different marketing campaigns before purchasing? Which campaign gets the “profit” credit (this is a complex topic of its own called marketing attribution). And then frequently marketing spend has impact, but can’t be directly traced back to a particular campaign or tactic.
Now onto investments. This one is even more fraught with nuance. How do you allocate costs like brand value, website maintenance, a global dealer network.
And finally profit. Are any marketing campaigns profitable in their own right? It takes a company to satisfy a customer need.
Am I going to throw my hands up and walk away from measuring marketing impact or ROI? No way! It is important to measure the economic impact of marketing.
Each marketing tactic is measurable in many ways:
- Cycle time (from idea to execution)
- Direct costs
- Number of impressions
- Number of conversions
- Differential outcomes (A/B test results)
There’s more, but let me move on. If you have a set of numbers like this for each campaign and then you run 30 variants of these campaigns, you can get some interesting performance metrics around Direct Costs and Outcomes (conversions or purchases).
The job of each campaign manager on the team is to maximize the results from the campaigns they run and to improve the productivity of the spend under their direction.
Let me drill into improve productivity. Say you are an email marketer. You have campaigns targeting C-level executives, Buyers and Developers. You should report on the performance of each segment and make assertions about marginal improvements for future campaigns targeting those segments.
Say you’re an event marketer and you attended 3 trade shows that quarter. You should be able to rank the performance of each audience/region/industry targeted, and use that information to make plans for future quarters and to inform the CMO-level investments in industry penetration and brand spend.
My belief is you should calculate the direct cost ROI of every campaign: ads, trade shows, emails, telemarketing. The goal of a marketing campaign manager is to both grow the number of conversions and do whats possible to get more in-target conversions at lower marginal cost. So that’s how you use ROI in marketing. Not to solve the problem of the ages, but to make the process more productive with each turn of the crank.
One caveat to what I’ve stated above: statistically valid sample sizes. Typically campaigns focus on reasonably small segments and short timeframes. Be careful about making strategic changes with only a few datapoints. Be familiar with the way conversions are trending, run experiments and make marginal improvements in how you execute. Share your data with managers and executive along with your recommendations about what to try next. Give your executives the information they need to plan for the future as you march toward statistically valid and data-driven decision-making.