C-suite leaders ignore the imperative of custom-built marketing ROI formulas at their own peril.
Legend has it that, in 1931, when crowds caught a glimpse of two immortals, Charlie Chaplain and Albert Einstein, together, they erupted in applause. Upon hearing it, Chaplain is said to have remarked to Einstein, “They cheer me because they all understand me, and they cheer you because no one understands you.”
Calculating marketing return-on-investment (ROI) is similarly about finding the balance between two opposites: words and math are needed to understand it, but you needn’t overcomplicate it such that nobody understands a thing you say.
The ideal campaign isn’t only one that supports promotion and brand, positioning prospects for the organization and deepening engagement. It’s one that also results in a positive—and measurable—impact on the business. This is, after all, why you do it in the first place.
No Secret Formula
Most CMOs and CEOs struggle to accept that there’s no secret formula, no secret algorithm or, better yet, an off-the-shelf tool that will give them the standard marketing ROI result they crave. It is more complex, at least at the beginning, as you need to isolate the number of purchases directly impacted by your marketing project and determine what influence the marketing project had on the buyer’s decision-making processes. While both are challenging to isolate, it can be done.
The use of less demanding, non-business related metrics resigns marketing to the sphere of costs, based on planning activities (rather than aiming for economic results) and generating different, non-comparable performance indicators for different types of projects, which makes it impossible to assess channels and projects comparatively.
Treating marketing infrastructure—such as a web ecosystem, for instance—as a separate category of measurement (a kind of overhead) only makes things worse, generating a huge amount of expenses with disparate KPIs that, even if they could be compared (hint: they can’t), have no useful business application.
Win or Lose
ROI is binary, it’s true: you either win or you lose. But that is precisely what businesses need to know. And the consequence for leaders who ignore that reality is profound:
- When marketing initiatives are tied to soft, intangible measures, there is no associated opportunity cost and marketing is treated as an expense rather than an investment. Its significance is thus diluted.
- When marketing’s significance is diluted, we are tempted to measure things that have no cause-effect relation between marketing inputs and business outputs.
- The resulting performance indicators, even if they could be compared, cannot inform a business imperative. As a result, budget allocation for marketing will always be biased and influenced by external factors.
The only meaningful way to measure marketing efficiency, then, is with expected ROI, which allows you to validate projects and generate predictive models to support non-biased go-no-go decisions, as is done with any investment. A rigorous ROI Marketing management model brings a business imperative to the evaluation of marketing projects and campaigns, generating meaningful business intelligence to better plan future campaigns.
Marketers and their C-suite masters need to view ROI assessment as a diagnosis tool for planning purposes. We can only improve efficiency by knowing what contributed (or not) to the business’ bottom line in the past; if you are measuring the wrong things, you will never be sure. Ignorance of this information doesn’t mean the impact isn’t real. If your marketing initiatives are losing, the bill will eventually come due. So roll up your sleeves and start working on your own, custom attribution model. Don’t bury marketing ROI or your marketing budget (and maybe your job) will go with it.
Pablo Turletti, an internationally-recognized expert on marketing and sales efficiency and accountability, as well as a marketing keynote speaker, is the founder and CEO of ROI Marketing Institute (ROIMI), which has offices in Miami, Lucerne, and Madrid. ROI Marketing Institute helps companies around the world improve the efficiency of their marketing investments through precise measurement of the economic return on marketing activities. By directly connecting marketing projects and campaigns to a company’s bottom line, he helps turn them into true business investments. ROIMI provides a broad array of services, including auditing, competency-building, implementation support, consulting and research. Turletti is the author of the books ROI Marketing: The New Performance Standard and Marketing & Sales ROI: What Is It Good For? Learn more about the ROI Marketing Institute at roimarketinginstitute.com, and follow Pablo Turletti at twitter.com/pabloturletti or linkedin.com/in/pabloturletti/.