…everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they’re doing it…
A recent survey conducted by ROI Marketing Institute that collected information from 22 different countries revealed that 52% of companies do not measure the economic return of their marketing projects. 32% claim they do it; while the remaining 8% said they don’t know whether their companies do calculate or not the ROI of marketing investments. Many companies, many managers, and marketers, claim to calculate the ROI of their projects and campaigns, however, most results are never shown or shared neither at higher or lower instances within the organization. Why? Furthermore, the results obtained are seldom used for future planning. The key to really understanding whether our ROI calculation is good or not lies on its credibility which is based on the robustness of the method used for calculation. So how can we do it? For any ROI calculation to be credible and useful, it should have at least the following attributes:
- The whole method should start with clear measurable and time-framed business objectives (besides marketing objectives).
- There should always be a direct cause-effect relationship between the project output (marketing performance) and the business inputs (costs, revenues, and returns)
- There should always be a conversion to monetary value of as many marketing performance indicators as possible.
- All calculations and assumptions shall be conservative… as much as you can.
- There should always be consensus around the methodology to be used prior to start evaluating (you don’t want people to start discussing your methodology rather than the results of your project)
- There must be a data collection plan that shall be implemented with rigor.
- It is advisable to test your methodology with some low exposure project first.
With these guidelines, common sense, and internal support, you should be able to start your quest towards valuing the economic (cash flow, not just value) contribution of your marketing project.
With work, discipline, and rigor, we can all meaningfully calculate the actual economic return of marketing, and it is much better than just claiming we do it…
Do you evaluate your projects from the actual economic return point of view? Does your boss believe in the results you present?
Have a nice day!