Marketing Theory - ROI

 
 
 

Marketing theory for non-marketers – ROI

What exactly is marketing?

A lot of people think of it as the visible stuff: the posters, the adverts, the social media campaigns, the email newsletters. And while these are certainly elements of marketing, they are simply tactics and strategies to reach a specific goal.

With no clearly defined goal or purpose, all this activity is meaningless. For any organisation, of any size, the key goal of any marketing activity should be working towards – or directly impacting – the bottom line.

Marketing is a combination of planning and budgeting – but to be successful, there needs to be a measure of what success actually looks like: your return on investment.

Small business vs. large corporates

Large corporates often have large marketing budgets to match: budgets where £5,000 on a trial for a potential new marketing tool is a drop in the ocean.

For SMEs, £5,000 is a huge outlay: the business needs transparency about where this money is going, a detailed breakdown of the results, and up-to-the-minute views on whether the approach is working, so the marketing team can react quickly when needed. Of course, large corporates need this visibility, too, but the stakes are often lower, the price of failure less damaging.

Similarly, with corporates, marketing teams will think nothing of spending hundreds of thousand of pounds on a campaign designed purely to build brand awareness. For smaller businesses, campaigns more often than not need to be focused on building this brand identity while including a call to action for immediate sales – an immediate return on investment.

So what metrics should you measure? And how can ROI be demonstrated?

Measuring marketing ROI

The key to measuring ROI is to start with the ‘R’, and work out the necessary ‘I’.

The return on any investment is customers. By starting with the lifetime value of a customer, you can work backwards and determine not only how much investment is required, but also how much is appropriate.

As an example, winning a five-year contract with a single client worth £200k per year equals a total customer lifetime value of £1m. With these kinds of numbers, spending £100k in the first year to win the business would be deemed an appropriate investment, thanks to its hefty return. Spending the same on a one-year, £200k contract, however, would make no sense whatsoever.

Marketing ROI is not quite so black and white, however. A customer of this size will rarely be generated from a single lead: calculating the necessary investment will require a journey back up the sales funnel. You’ll need to ask yourself several questions: How many leads do I need to generate to get one sale? How many contacts do I need to gather to get a lead? How much web traffic do I need to generate to gather x amount of contacts? How many blog posts do I need to publish? How many inbound enquiries do I need?

The answers to these questions will determine the best route to getting this customer on-board, and determine where this £100k (or however much) is best spent. Your investment is the total sales and marketing expense required to acquire this new customer – including the salaries of both the sales and marketing personnel involved.

How long does reporting take, and how regularly should you do it?

A final ROI report should be analysed at the end of your campaign – but performance needs to be monitored while the campaign is in progress, in order that any necessary tweaks can be made.

The frequency of reporting will vary depending on the length of the campaign. A three-month campaign, for example, would benefit from a report at least every month, while a two-week campaign should be looked at daily.

The relevant metrics will depend on the type of campaign in progress: reporting on an email marketing campaign, for example, would typically include metrics like click-through rates or the number of inbound enquiries sparked by the campaign.

This data will paint a clear picture of the campaign’s performance and show whether any changes are required to ensure the campaign brings the maximum ROI possible. Our team of part-time marketing directors often see the response rates to new business emails drop substantially over time. Many switch to  inbound, rather than outbound, marketing strategies as a result.

What don’t you need to know?

Measuring and reporting ROI can involve vast swathes of information – but not all of this information is relevant to every part of the business. Irrelevant (or vanity) metrics are the worst culprit here:

  • “We generated 62 million impressions” – Impressions mean nothing if those who have seen your campaign are never likely to buy.
  • “It must have been good because we printed the leaflets”They may have been printed – but were they distributed, or are they gathering dust? Sales teams often request printed marketing collateral for use on the road, but leaflets and flyers are useless if they are not used.
  • “I showed it to the sales manager in [insert country] and he liked it”“Liking” a campaign, while a nice-to-know, is not a measure of success.

None of these situations have an impact on the bottom line and, while interesting, have no business being part of a marketing report.

By understanding what marketing ROI looks like, how it is measured and what to expect from the outset, non-marketers can get a clear picture of the success of a marketing campaign, without needing to delve into the nitty gritty.

The important thing to remember, though, is that marketing is a cumulative activity: a series of many moving parts. The only way to ensure return on investment is to understand and document what each element of your campaign does, the required results and how it links to the bottom line, in order that you know where your money is going.

The Marketing Centre works with businesses to ensure that every element of marketing activity is aligned with the overall business goals. Find out how your business is performing with our Marketing 360 Healthcheck.