What’s Your ROI?
This week we are fortunate to have the winner of the 2010 B2B Twitterer of the Year, Michael Brenner, guest post and share his thoughts on Marketing ROI. Michael Brenner is a Sr. Director of Marketing for SAP. He is the author of B2B Marketing Insider and co-founder of Business2Community.com. Michael has been in marketing for over 17 years in various roles where he has used customer insights to drive sales, ROI and customer loyalty through effective sales and marketing strategies. You can follow Michael on Twitter: @BrennerMichael
What is your return on marketing? This question can come up when you least expect it: while presenting your annual plan, while speaking to the CEO in the hallway, or maybe as one of those emails that lands in your inbox with a huge “thud!”
This question can come from sales, company leadership or even be debated within marketing. Many marketers cringe. Some run and dive into the closest trash bin. And some marketers rise up, fill their chest with air and answer with confidence. Here is my view and hopefully you will find something here that can help you face the firing squad.
The New Marketing Accountability
In my blog B2B Marketing Insider I provide tips and insights from my perspective from inside a B2B marketing organization. In The New Marketing Accountability I talk about how ALL marketing spend should be tied to quantifiable results that the sales team and executives can understand. Generally, our marketing should be focused on generating and then managing demand. But sometimes, the CEO wants to “extend the brand” and sometimes sales folks want to work under the cover of a nice, massive awareness blitz. Aside from those examples, we need to show hard results and make sure EVERY marketing program has a sound business case or ROI. Or as this Annuitas Group blog post stated recently, “we need to resolve to measure our marketing in terms of revenue.”
One Metric to Rule Them All
Deals, leads, conversion rates, inquiries, visitors, NPV, LTV, conversations? There is a dizzying array of metrics a marketer can use to measure the return on marketing. Unfortunately, there is no one metric to satisfy every goal. Each marketing objective has its own nuance.
- Awareness: This is challenging to measure but you should attempt to identify the increase in the number of people that know you but also like you. “Pre- and Post-“ ad recall is not enough. Many brand marketers will stop with awareness. For these tactics, you need to measure positive share of voice: for all those who care, what % has a positive impression of your brand?
- Consideration: When you are trying to get people to consider your product or solution, marketing tactics are highly measurable. You should look for increases in the number of branded or product-related searches, landing page hits and a steady growth in website visitors.
- Decision: This is where conversion rates become the most important. The ability for your organization to offer the information required for a prospect to make a decision will determine the conversion rate as well as the velocity or time it takes. I personally do not believe in marketing “acceleration” but I do believe we can remove the self-inflicted friction we impose on our deals. Not having transparent pricing or clear comparison tools is often the issue here.
- Retention: Customer satisfaction and Net Promoter scores are often used to identify the likelihood that we will keep our customers. We need to look at retention rates and analyze marketing programs that have a high number of lost customers. Some marketing programs like deep discounts might produce more customers that leave.
What Is Your Return On Marketing?
Still don’t think I’ve answered the question? If the question comes at the total marketing spend level, the answer is easy: ROI =direct revenue returned divided by total marketing spend. This is the only way to show true ROI. The reason this is an incomplete answer is time. Many B2B companies have long sales cycles that don’t conform to calendars. In the short-term, you can get through this issue by showing marketing-driven growth in the number of visitors, inquiries, leads and pipeline. I have typically used pipeline opportunity dollars delivered over marketing spend as a short-term benchmark. With an average close rate you can even get to a calculated ROI.
If you have the luxury of a longer time-frame, then Life Time Value (LTV) might be the way to go because it adds the element of future revenue with your company’s ability to retain customers. Marketing should not just produce customers but should aim to keep them.
If the question comes at the program or even the tactic level, then the answer is much more difficult. I have written enough on Social Media ROI. And The Annuitas Group has a great metrics overview titled Metrics – Tying it all Together.
But sometimes the answer comes down to determining the cost of NOT doing something. ROI has a cost and a return element that often misses the opportunity cost. This also needs to be considered when looking at marketing accountability. Is the competitor doing it? Are your prospects looking for it? Sometimes you need to invest ahead of the market. You will need to take on risks. You will make bets. And some won’t pay off.
Welcome to marketing! If it wasn’t fun, we’d be doing something else.