By Christian Amato
Calculating Return on Investment (ROI), during the marketing planning process, is critical for any business or association. Aside from the fiduciary reasoning, ROI is a tool that you should always utilize. It helps prioritize marketing investments and base that investment on actual results, as it relates to the campaign goal.
Despite the importance of measuring marketing ROI, marketers still gravitate toward metrics that have little meaning outside the marketing organization, according to top findings in Gartner CMO Spend Survey 2018-19. When asked to define the most important metrics on their marketing dashboard, CMOs cited “awareness” as the most important, which beat ROI and measures of customer value and customer satisfaction.
This is particularly alarming, given the increasing need for marketers to deliver measurable results. The Gartner survey also reported that 57 percent of CEOs are prepared to invest more in marketing, but budgets are at risk if marketers continue to prioritize measures such as awareness over ROI.
Measuring and increasing marketing ROI needs to be a marketing best practice for 2019. As a result, businesses and associations need to find the best ways to achieve this goal. According to the recent Nielsen 2018 CMO Report, only one in four marketers are highly confident they can quantify ROI.
The reason for this low percentage is based on trying to apply a static calculation, into a very flexible and dynamic environment. The number, size and frequency of marketing initiatives—based on changes of target audience, pricing and economic landscapes—require a multi-faceted ROI calculation.
The ROI calculation for marketing initiatives has to be as flexible and dynamic, as marketing itself. You must calculate the ROI on a corporate aggregate marketing spend, as a whole. However, it’s important to drill down further into ROI for incremental investments—which is the calculation of additional returns/additional spend. You must also ask, “what is my expected return on just this incremental investment?”
The decision making doesn’t just stop there. You must look at the ROI, based on an aggregate campaign. Independent of this analysis, answers the question, “do I invest in Campaign X and Campaign Y, or either X or Y?” For this reasoning, you must clearly define the formula and the elements that make up the formula.
When you’re determining how to calculate marketing ROI, you need to define the elements that make up the investment. Here’s the marketing ROI formula:
Return/Investment is the calculation defining each element wherein
(Revenue – COGS (cost of goods sold)) = GM (gross margin) – Initial Investment = Return
This is then divisible by your total investment. Some businesses and associations use various elements for the total investment calculation, that not only include the initial cost, but also long-term expense commitments and staff utilization, versus new hires (and/or other factors) calculated to the NPV (value of all future cash flows).
The marketing ROI benchmarks are the same, as any fixed investment benchmark. Defining a benchmark is paramount to how a business or association will measure the success of their marketing strategy.
To determine if the marketing strategy is successful, following is an ROI measurement process to consider:
- ROI benchmark
- Analysis of results
- Adjust strategy and/or assumptions
- Go back to the marketing ROI benchmark and determine what you might need to change
Here are the best ways to increase marketing ROI:
Integrate Marketing Communications Tactics
Today, because of the many diverse platforms that are available, there’s no single marketing approach that will work better than building a successful integrated marketing communications campaign.
This traditional marketing method assures that your message is being delivered to your target audiences, regardless of how they interact with your brand—whether it’s through advertising, social media marketing, public relations or digital marketing. It also offers businesses and associations the ability to outline a core message and highlight its unique selling proposition to an identified target market, with a tailored message, through various mediums.
Having a strong integration between the tactics used to build brand awareness, nurture prospects and close sales is one of the best ways to increase marketing ROI.
Make Decisions Based on Sales Impact
Give attention to the budget, with a goal of making decisions that have a greater impact on sales and close rates. This begins by determining the marketing tactics, key messages and content that will best resonate with your target audience. Then, you need to measure metrics comprising sales objectives (such as customer/member retention), along with business results (encompassing market share and revenue).
Maximize Current Customers Spend
It’s easier and takes less time to maximize current customers spend, by building customer loyalty. This also is the easiest way to increase sales because those customers already know and trust you. Selling to current customers offers your business or association an opportunity to cross-sell and upsell them on your other services—which will deliver excellent ROI.
As stated by HubSpot, cross-selling and upselling are key. It’s 5-25 times more expensive to acquire a new customer, than it is to retain an existing one. When you do retain a customer, they’re more likely to spend extra and purchase more frequently. Also, you are 60-70 percent likely to sell to an existing customer, compared to the 5-20 percent likelihood of selling to a new prospect. If your business or association isn’t cross-selling and upselling, you’re not maximizing ROI.
Align Sales and Marketing Activities with Smart Data
Sales and marketing departments need to align their marketing efforts, to grow their business or association, in addition to building an audience. This includes having a strong content marketing strategy, as well as supporting and engaging customers with great content. This can range from blog posts to video content.
To achieve that, smart data is key. Businesses and associations who utilize smart data in their content marketing effort, will be successful in driving higher sales and marketing ROI. In fact, Content Marketing Institute identified that nearly all top-performing B2B content marketers, 90 percent, put their audience’s informational needs ahead of their company’s sales/promotional message.
Include ROI in Marketing Plan
When building your yearly marketing plan, include ROI. In my recent blog Marketing Planning for 2019: Secrets to Develop a Marketing Budget to Drive Growth, I shared that the real secret to getting your marketing budget passed is to start with ROI and answer, “Why should this money be spent on marketing, as opposed to in other departments?” This could be a challenge for many marketers, as the Nielsen study I reference reported.
It’s essential to financially address ROI calculations, to provide a full picture of execution and the cost/profit because of those efforts. Ensure that you clearly define the measurables for success and that they are consistent across all tactics. In addition, they should align with the business goals—specifically marketing with sales, finance and product development.
Marketing is more measurable than ever before, thanks to technology that allows for more analysis for each tactic. When developing your marketing program, it’s a good idea to know your benchmarks for success. Also, be flexible and open when you’re walking through the process of result analysis. In order to have a successful return on marketing investment, know your industry, target audience and strategy. Then apply the relevant calculations, to get an informative ROI.
Do you want to effectively measure and increase ROI for your marketing campaigns? Contact us today, to get the conversation started.
Christian Amato is the COO and Chief Business Development Officer at CMA, a full-service communications, marketing and association management firm, which has provided its clients with award-winning and proven results for more than 30 years.