Return-on-investment (ROI) is likely to be the most important metric for just about every CMO. There, we said it. Gartner said it, too. And while determining the financial impact of your marketing efforts is crucial, it is easier said than done.
Naturally, the main reason you’d want to measure your ROI is to avoid spending money on marketing activities that don’t generate enough leads and, essentially, revenues.
According to recent findings by Gartner’s CMO Spend Survey 2017-2018, marketing budgets have gone down from 12.1% of company revenue in 2016 to 11.3% in 2017.
"As CMOs survey the landscape, one thing is clear — previous budget increases have come with weighty expectations, some of which have yet to be met,”
Ewan McIntyre, Research Director, Gartner for Marketers.
Today, more than ever, CMOs are expected to prove the positive financial impact of their marketing efforts. And despite the challenges, they seem to be on the right track.
Gartner’s report shows that the largest share of marketing budgets, 9.2%, is spent on marketing analytics – a clear sign that marketers are willing and increasingly able to track and measure their performance, and their ROI.
Finding the right way to measure your marketing ROI
On the one hand, measuring your marketing ROI can seem like a rather straightforward thing:
You plug in your performance data in a simple formula and you’re done. Well, that could be the case and the formula you need is indeed rather simple:
On the other hand, however, ROI in marketing is not a one-size-fits-all concept. You need to base your calculations on the specific business context and decide whether you want to focus:
- on your entire marketing mix or only on certain efforts (e.g. search ad, email campaign)
- on one single channel (e.g. social media, email, search) or many
- on short- or long-term returns
Taking your business context into account is particularly important since the highest marketing ROI does not always translate into the highest long-term profit and value for your (or your client’s) company.
“Marketers sometimes forget (or ignore) the need to frame MROI in context of a 'hurdle rate' – the minimum return the company should expect from a given level of marketing investment
“The idea is to maximize profit, not necessarily MROI. It’s basically the difference between being efficient (obtaining high MROI) and being effective (driving maximum profit and long-term value).”
Daniel Kehrer, Senior VP of Marketing at MarketShare.
Try out different approaches before deciding on the one that works best for you.
A recent survey among 2,500 digital marketers identified the efforts that generated the highest ROI, with email marketing being the most cited among agency professionals, followed by content-, social media marketing, and search pay-per-click (PPC). “High-funnel metrics such as opens and clicks lead the way with agencies, [with] 31% stating these are the metrics they’re rewarded on.”
Investment in email marketing is expected to be the highest for agencies in the near future as well.
First-, last- or multi-touch attribution?
And while measuring your overall ROI is certainly doable, linking marketing spend to customers’ purchase behavior remains a difficult task.
A campaign you launch next week may have an effect in two weeks or in two months. Or never. Figuring out which of your advertising efforts count – and when – is key to really gaining insight into your ROI. Also, is your ROI the result of just one of your advertising efforts or of multiple ones?
This is where the marketing attribution model can come into play. The idea of marketing attribution is to essentially tie conversions to the exact channels that were involved. You can decide between first-, last- and multi-touch attribution.
First- and last-touch attribution takes into account a single marketing touchpoint: The former focuses on the first marketing channel that engages a user, while the latter does the exact opposite - it focuses on the last channel and often the one that leads to the conversion. Multi-touch attribution, on the other hand, gives credit to a combination of touchpoints, making it a lot more flexible and diverse. Of course, it also requires marketers to have a lot more specific and accurate data about their performance.
“Multi-touch attribution has the power to be the most accurate but relies on a properly chosen model and accurate data collection. Unless your company has a particularly complicated marketing mix, a single touchpoint attribution can be just as effective.
"A good starting point is to choose either the first- or last touch, depending on whether you’re stronger at converting leads or at driving new traffic, respectively.”
Matt Leap, Marketing and Analytics Professional
Spend today, measure tomorrow?
The fact of the matter is that marketing brings both short- and long-term benefits to a business, yet the short-term ones are often easier to recognize. If a campaign manages to attract X new paying customers only a week after launch, then its impact is already obvious. What’s more, you will likely make your CFO happy.
At the same time, a campaign could also be the trigger for potential customers to learn more about the brand and perhaps later become paying customers. In that case, the ROI is a lot less straightforward. At the end of the day, consumer behavior may be the result of a decade of marketing efforts.
Measuring your ROI should, thus, be based not only on the leads and new customers you attract as a result of a specific marketing activity but based on the overall value customers derive from your brand.
Even if people are not making purchases NOW, your marketing may still be influencing their spending behavior by making them aware of your brand, what it offers and its uniqueness compared to competitors. Those are people who may, one day, start spending their money on you. After all, every single person engaging with your brand is a contributor to the overall marketing ROI.
Reasons CMOs Are Failing at ROI
Kyle Brantley, Co-founder and Chief Service Officer at Proof, shared his insights on why the proliferation of marketing technology hasn’t quite helped CMOs on the measurement front as much as was expected. Not even the tectonic shift to digital advertising makes measurement significantly easier, it’s still hard. Even though we have much more data and tech. But we don’t have any more insight into how all of the marketing pieces roll up into real business results. We like to agree on his 5 reasons why marketing executives seem to fail at ROI:
1. Lack of alignment between marketing and sales
There is an almost natural struggle between marketing and sales departments - and it seems to be even more looming when it comes to the fact that everybody contributes to revenue and growth. It does not help when those two keep finger pointing at each other, while marketers need a clear overview of the big picture when it comes to measurement. David Cancel, CEO at Drift, put it very clearly: “Sales and marketing teams have never seen eye to eye. They’ve fought over lead quality and SLAs and built fancy systems for reporting and managing both. And yet, for more than 20 years now, none of it works. The thing is, marketers are doing things they know are working. But they’re fighting to get credit from sales. At the same time, sales leaders say marketing isn’t bringing in the right leads. Neither side will ever win. And in the process, you know what really suffers? Growth. Look, my message is simple: It’s time to end the war between marketing and sales. Forget about how many leads marketing has delivered. Get sales and marketing aligned around the single metric that actually matters for measuring growth: revenue.”
2. The wrong metrics
As we pointed out above, calculating ROI can be quite complicated. Marketing leaders should get way beyond their regular marketing like CTR and CPC and focus on business metrics to be taken seriously from other business leaders: (monthly recurring) revenue, client lifetime value, sales and client success goals are a good starting point to get the big picture.
3. Oversimplified, unclear, or inconsistent calculations
We chose to talk about Return-On-Investment (ROI), instead of Return-On-Advertising-Spend. From our prespective, marketing is a wide field of different factors that go way beyond advertising costs. For your big picture ROI you have to include agency fees, IT and infrastructure cost as well as salaries. Only with all those numbers in place, you will get the needed attention from your other business leaders.
4. The tools don’t take us far enough
According to www.chiefmartec.com, there are around 5,000 tools for marketers to choose from. Many of them deal with data and analytics and are here to help all of us out. But finding the right one to answer your questions is not an easy task. And seeing how many CMOs are still having a hard time figuring out ROI, those tools are still not good enough.
5. Lack of expertise
Over 5,000 martech tools. A growing number of tech companies offering more and more ad services, formats, metrics. The advertising space is accelerating faster than most other business counterparts and it is getting harder to keep up with this pace. Marketers with the right analytics skills are still a rare species. So business leaders need to form the right teams to adapt to the new normal.
You have to work and wait for your ROI
The key is for CMOs to find the golden middle between short-term sales and long-term strategy in order to drive business growth. How should you spend your marketing budget – what works, what doesn’t work so well, and what is simply a waste of money? The only way to know is to keep a close eye on your marketing data and analyze it on a regular basis to gain the insights you need to answer those questions. Easier said than done, yes, but certainly doable. Follow these three steps to master your ROI and make your CEO happy:
1. Start small and grow your expertise
Yeah, we know. We told you to take the high road and include all your expenses into the calculation to get the real big picture of your investement. But we know this struggle by heart from our own business. Before you start building the perfect, think about the KPIs and number that you have. What insights can you get from them?
2. Find the right partner to tackle this problem
You have to face it: you won't be able to do this on your won. First and foremost, build relationships to your finance, BI and product teams to have them work on this problem together. To see your ROI, you have to look far beyond your campaign time frames and those partners will be able to support your activities with the needed numbers. Also, your CEO will value your leadership and team spirit!
3. Consider this a long-term project
Marketing success does not happen over night. Nor does your positive ROI. Patience is more than just waiting for your results. Accept this process as necessary and try to find quick wins from short-timed insights. You will have to learn how to connect the dots, work with the right people, get all the data you need to make this project a success. Also, make sure to work with the right tools: you need the right data for the right insights - there is no point in this whole project without accurate and meaningful data. Last but not least: depending on the industry you are working in, sales cycles can last a long time. Looking at the average lead run time at Adverity, this can easily take 6 months before we close a deal and the author gets his sweet sweet marketing ROI. The wait is always worth it.