Every Fall, we enter planning season. A time when someone in a meeting will ask the question – what is marketing’s return on investment (ROI)? It’s a question I once dreaded but now look forward to it.
In October, I spoke at a MOCCA event in the Washington, DC area about Marketing ROI and why I think the questions about marketing ROI don’t matter. Here are the key highlights of my presentation.
Let’s start by defining what marketing ROI is:
In its simplest form, marketing ROI is calculated by taking the incremental financial value gained as a result of your marketing investment less the cost of the marketing investment divided by that cost. This is a pretty basic ROI formula applied to marketing and as such has the typical trappings of an ROI formula. Marketing ROI doesn’t account for time lags, it doesn’t explain what’s included or excluded, and it underestimates the long-term benefits that marketing brings to brand value.
Does Marketing ROI Matter?
My answer is NO. Marketing ROI doesn’t matter. However, I believe most people asking this question are wondering how marketing contributes to revenue. This, I do agree, is absolutely critical. Linking marketing to financial performance should be the goal of all marketers!
My 5-five step process to showing marketing’s contribution to the business:
- Prioritize Business Outcomes: This is the most important step in the process. Take the time to align on what the prioritized outcomes are for your business that reflect the actual health of your business. For example, it could be new customer acquisitions or retaining existing customers or launching a new product. Make sure you agree across the business on the goal target and the timeline. Don’t underestimate time to negotiate, get buy-in, and prioritize business outcomes as an organization.
- Build a common language hierarchy: Next, work to align the prioritized business outcomes against your marketing strategies, programs and tactics. Many people in your organization don’t understand how a specific marketing activity helps an overall business objective – a common language hierarchy helps align the team.
- Chose the metrics that matter: Not all metrics are important for your business – they should be aligned to the business outcomes you have prioritized. Forrester has some great research on “Metrics That Matter For B2B Marketers” which break down business questions around revenue, profit, and customer growth and what metrics actually help answer those questions.
- Build, Measure, and Learn: This is the fun part! Many marketing organizations are set up to operate in an agile manner. Don’t be afraid to test programs, tweak and optimize in order to improve marketing outcomes and ultimately business outcomes.
- Communicate! Build Support! Keep sharing with your functional peers what’s working and what isn’t. Show them that you’re learning and improving as you go. Many will become your biggest supporters and cheerleaders.
Tell us what you think. Have you found marketing ROI matters for your business or have you found new ways to show marketing’s impact on business performance?
To learn more, check out my slides: