A look at three primary considerations that help us better define and understand the nuances of the marketing ROI challenge
Technology makes it possible to measure every part of a digital transaction – from before arriving at the store, to leaving the store, and beyond. It’s a journey that can include scores of touch points that help guide the shopper’s decisions.
Collecting and leveraging that data provides huge marketing potential, but pulling the rabbit from the hat isn’t an easy task at all. Like a promising relationship gone sour on Facebook: it’s complicated.
We asked marketing executives to list the biggest challenges they face, and their #1 concern centered on how to manage and interpret data. Their primary goals are attribution, personalization, and better estimates the marketing return on investment (MROI).
Here are the primary points our interviews established:
- Marketing channels have flourished
- Tools and tactics vary between mobile and desktop
- CMO’s must learn to personalize marketing messages at scale
- Data is everywhere, but interpreting and utilizing data is difficult
- Few marketers believe they have a firm grasp on data attribution modeling
How can a marketing executive not only extract actionable information from the available data, but clearly tie marketing activity to sales?
Here are three considerations to help us better define and understand the nuances of the MROI (Marketing Return on Investment) challenge:
- How do I measure the return – has the formula changed?
- Should the cost be viewed as investment, expense, or risk?
- What is the best strategy to employ for measuring MROI?
Let’s use those vantage points to frame the situation and help us locate a clear path through the data jungle.
How Do I Show ROI for Marketing Efforts?
ROI is traditionally based on sales. If you can show a direct correlation between, let’s say, a $100K increase in monthly sales at a marketing cost of $10K, then a typical ROI calculation would look like this:
(Gains – Cost) / Cost =
(100,000 – 10,000) / 10,000 =
9 … for a 900% return on investment
Remember that MROI (Marketing Return on Investment) must consider only that portion of sales directly attributable to marketing efforts. Assuming we were able to isolate and define the gains and costs accurately, it’s easy to see the marketing investment, in this case, was justified.
What if you want to get a more granular look at the situation, though? Maybe it would be helpful to look at the ROI per advertising platform or to consider the shopper’s regional location and how that affects sales.
With proper tools, collection points, and analytics strategy in place, those figures are absolutely attainable. The deeper you go, however, the more rigorous the assumptions and associated indicators become.
MROI calculations can quickly lead to concerns about attribution. It could be important to know, for instance, that 50% of your visitors are arriving from a LinkedIn go on to become customers, while only 10% of those who click through from Facebook do not convert.
You don’t need to get too far down the line, though, before assigning dollar amounts to each touchpoint turns into a mind boggling dilemma.
Scott Rayden, CMO for 3Q Digital, explains:
Most marketers don't know their MROI. Here's how. @ScottRayden Click To Tweet
The majority of marketers (digital or otherwise) can’t say with certainty exactly how valuable each channel or touchpoint is during each customer’s purchase process. That means they can’t say they’re effectively spending their budget and optimizing revenue, which is the entire goal of attribution.
Some companies hire data scientists and employ enterprise-level tools to help assess contribution factors and assign values to each. Others attempt to prune away the variables and use best-shot attribution models.
Ted Rubin (CMO Brand Innovators), though, says there’s another way of looking at MROI:
Instead of asking, “What’s the ROI of social?” we should be asking, “What’s the ROI of trust?” Click To Tweet
I say instead of asking, “What’s the ROI of social?” we should be asking, “What’s the ROI of trust?” or of loyalty or influence… The key to measuring true social activity is understanding your Return on Relationship, ROR, which I believe is measured through organic engagement, community management, sentiment monitoring and much more…
ROI is simple dollars and cents; ROR is the value (both perceived and real) that will accrue over time through loyalty, recommendations and sharing.
The final measure of business success is dollars gained. Along the way to those dollars, though, there are numerous points of contact that contribute to the sale. Understanding the importance of those touches can provide information essential to boosting sales and fine-tuning the marketing return on investment.
Is Marketing Spend an Investment, Expense, or Risk?
Typically, the balance sheet lists funds spent on coffee for the staff as an operating expense, not under cost of goods sold. You might argue, though, that had it not been for the coffee pot, the sales team couldn’t have made as many calls and wouldn’t have made as many sales.
It may be that digital marketing expenses should likewise be scrutinized. Rubin’s relationship-building efforts, for instance, are like friends having a cup of coffee together in the lunchroom. There’s certainly value to the activity, but it would be tough to assess its effect on sales.
Some marketing functions are investments, some are expenses, and some are risks.
- Activities that cater to long-term relationships and future value are investments.
- Activities that are difficult to pin down and deliver widely disbursed returns (e.g. the coffee pot) are expenses.
- Activities that require close monitoring and can readily be tracked are risks.
These distinctions are important because you will wear different hats and behave differently for each function. Identifying those segments can help determine which activities should be included in a particular MROI calculation.
What is the best strategy to employ for measuring MROI?
That idea takes us to a consideration of how the CMO can pull together the necessary ingredients to get an accurate look at the marketing return on investment. As Bill Muller (CMO of Visual IQ) points out, in the quote below, last click attribution is no longer a sufficient indicator.
How to prevent misinformed budget allocation decisions. - @Bill_Muller Click To Tweet
[Marketing leaders] are also tasked with showing exactly how marketing investments further business objectives and contribute to the bottom line, but antiquated measurement standards, like last click, don’t allow marketers to truly understand the multiple touch points that contribute to a conversion or brand engagement activity — leading to misinformed budget allocation decisions and a sub-optimal marketing mix.
At The Good, we assess key problem areas for e-commerce websites and provide a (free) Stuck Score™ to prospective clients. The process is aimed at finding areas where online conversion performance (therefore profits) could be improved, uncovering obstacles that are holding back online sales, and looking for available opportunities currently being overlooked.
To do that, we focus on the trees in order to gain a better look at the forest. And the same strategy can help you step out from under the cloud of data overload confusion.
Rather than attempt to understand, for instance, whether or not the expense of your Facebook presence is justified, run a Facebook campaign and determine whether or not it reached the goals it was meant to accomplish.
Instead of talking about pay-per-click advertising as a packaged entity, track a specific PPC campaign and the associated risks to determine the micro-ROI (mROI). By testing, tweaking, and re-launching at the campaign level, you’ll get a feel for which touch points and tools are important to each platform or situation.
Taking the First Steps
MROI isn’t a big job. It’s an overview of a whole bunch of little jobs:
- By considering the different types of returns possible from marketing activities, CMO’s can begin to redefine “Return” and find alternative ways to evaluate those returns
- By segmenting marketing activities into channels of investments, expenses, and risks, CMO’s can do a better job of analyzing those activities and understanding what to expect from each
- By focusing on the micro (mROI) points, CMO’s can gain building blocks to establish the big-picture MROI
Much of marketing is knowing what to scrutinize and what to change. Technology can provide the data, but determining which data is important to the job under evaluation requires an up-close look at job-level parameters.
“Pay close attention to your pennies, and your dollars will take care of themselves” is more than a maxim for the family budget, it’s a way to ease the too-much-data headache and map out what’s most important to track on the customer journey.
(For a closer look at that customer journey, grab a copy of our book, “Stop Marketing, Start Selling.”)