Get agreement upfront from everyone who will criticize you later.
Daily, businesses invest in physical, hard assets like machines and warehouses. To justify the expense, they use ROI analysis.
Some companies invest in large compensation packages for talented programmers to write unique code that can reshape an industry. They figure the ROI of their spending will bring them millions of dollars worth of value. They use business forecasting and another modeling to prove ROI.
Sales organizations add CRMs and sophisticated systems in place to boast their ability to grow revenue – and little analysis is done on that return-on-investment spending.
Marketing professionals are often held to a higher standard.
Marketing pros are also investors but are often criticized because we don’t have a way to prove ROI. Many of our colleagues challenge our assumptions and don’t like the uncertainty of brand building and growing an audience.
C-Suite leaders will ask marketers:
- How do you know your efforts are working?
- What analysis have you done to show the effectiveness of your campaign?
- Why should we spend on a new website when we built a recent one five years ago?
As Gary Vaynerchuk famously said, “ how do you prove the ROI of your Mom in your life?”
Everyone from the C-Suite wants to know – what’s the ROI for marketing?
Marketing is essential to any business, and brands invest heavily in various marketing tactics to drive growth and generate revenue. We need research, messaging, website improvements, advertisement, influencer campaigns, etc.
However, measuring these tactics’ return on investment (ROI) can be challenging, as directly linking marketing efforts to revenue is not always easy.
I’d argue that proving ROI on capital investments (equipment/plants/inventory) is also based on forecasts and assumptions of future revenue and throughputs. Marketing isn’t different. We rely on future projections that also have underlying assumptions.
So how should brands measure ROI for different marketing tactics, and what are the challenges and solutions to measuring ROI in marketing? Keep in mind measuring and proving are two other things. You can measure a change, but proving exact causation is complex.
My recommendation: Get agreement upfront from everyone who will criticize you later.
When you get agreement on what success will look like BEFORE you invest, you can get other team members to be invested in your success. Collaboration is vital to measuring marketing ROI because everyone uses the same type of measurement for improvements.
Quotes From Leading Marketing Authorities on ROI for Marketing
“The key to successful marketing is measuring and analyzing your results, so you can continue to refine your strategy and get the best possible return on your investment.”
Neil Patel, Co-founder of KISSmetrics and Crazy Egg.
“The only way to know if your marketing efforts are working is to measure their impact on your bottom line. By tracking ROI, you can maximize your marketing budget and deliver real results to your organization. Marketing without data is like driving with your eyes closed.”
Dan Zarrella, Social Media Scientist at Hubspot.
“ROI is not just a metric; it’s a mindset. It should be at the forefront of all marketing strategies and decisions.”
Jay Baer, President of Convince & Convert.
“Marketing ROI is not an exact science, but it’s essential for proving the value of your marketing efforts to your organization.”
Ann Handley, Chief Content Officer at MarketingProfs.
“ROI is the ultimate measure of marketing success, and it’s essential to track it accurately to ensure you’re getting the best possible return on your investment.”
Avinash Kaushik, Digital Marketing Evangelist at Google.
“ROI is not a destination; it’s a journey. You need to constantly track and measure your marketing efforts to ensure you get the best possible return on your investment.”
Jim Sterne, Founder of the Digital Analytics Association.
Thoughts on How Brands Measure ROI
But the key takeaway is that you should get agreement from those who will judge the results. (C-suite, sales, ops, finance, etc.) The CFO can be your friend in measuring marketing ROI.
Customer Acquisition Cost
One of the most common ways brands measure ROI for marketing tactics is through customer acquisition cost (CAC) and customer lifetime value (CLV) metrics. These aren’t just for DTC (direct-to-consumer) business models. Even old-school products sold through traditional channels need to understand CAC.
CAC is the cost of acquiring a new customer, while CLV is the revenue customers generate over their lifetime with a brand. By comparing CAC and CLV, brands can determine whether their marketing efforts generate a positive ROI.
For example, if in a DTC setting, the CAC is $100, and the CLV is $500, the ROI is $400, indicating a successful marketing campaign. But if you are spending $100K to buy ads or put up billboards, how do you know how many customers you are acquiring and how to count the value?
You can measure velocity – how quickly products turn at retail, perhaps at stores near those locations where the billboards appear.
And, if you conduct ongoing consumer research, you can measure the change in awareness from a benchmark. (For example, pre- and post-advertising).
But it is true – you are trying to find causation, which is tricky to prove.
It is, however, easier to show directionally that the marketing effort has a positive impact.
Traffic and Conversion Rates
By tracking the number of visitors to a website and the percentage of those visitors that convert into customers, brands can determine the effectiveness of their marketing efforts. For example, suppose a brand invests in search engine optimization (SEO) to increase website traffic. In that case, they can track the number of visitors from search engines and calculate the conversion rate to determine the ROI of their SEO efforts.
This metric measures the percentage of leads that convert into paying customers. It considers the number of leads generated by a marketing campaign and the number of customers acquired through those leads. A higher lead conversion rate indicates a better ROI for marketing efforts.
Social Media Engagement and Influencer Marketing
Social media engagement and influencer marketing are also essential tactics that brands use to drive revenue, but measuring the ROI of these tactics can be challenging. Social media engagement can be measured through likes, shares, and comments, but linking social media engagement to revenue can be difficult. Similarly, influencer marketing can be effective in driving sales, but it can be challenging to measure the ROI of an influencer campaign. Brands can calculate the ROI of influencer marketing by tracking the increase in website traffic and sales during and after an influencer campaign.
Despite the importance of measuring ROI in marketing, several challenges are associated with this process. One of the main challenges is determining the appropriate metrics to use. Numerous metrics can be used to measure ROI, but not all are relevant or useful for every marketing tactic. Brands must choose the most relevant metrics for their marketing goals and objectives.
A/B Testing
Another solution is to conduct A/B testing. A/B testing involves testing two versions of a marketing tactic to determine which version is more effective. For example, a brand may test two versions of a social media ad to determine which version generates more clicks and conversions.
Customer Feedback Surveys
Brands can use customer feedback and surveys to measure the effectiveness of their marketing efforts. By soliciting customer feedback, brands can gain insights into what is working and what is not working in their marketing strategies.
Bottom Line
Measuring ROI in marketing is essential for brands to determine their effectiveness. It is hard.
You need agreement beyond your marketing department on measuring success for a significant investment like a website rebuild or an ad campaign.
Attribution is tricky.
What tactic gets the credit when a customer may have been exposed to a brand through multiple marketing channels before purchasing?
Brands must use tools such as multi-touch attribution modeling to accurately determine the contribution of each marketing tactic to a sale.
In addition, there are often external factors that can impact the ROI of marketing tactics. For example, changes in the economy or shifts in the consumer behavior can impact the effectiveness of marketing efforts. Brands must be aware of these external factors and adjust their marketing strategies accordingly.
If you remember one thing from this post – it is the importance of getting some form of agreement beyond your marketing team when starting a big and expensive project. Explain to others in the company how you’ll measure success – even if it is imperfect and only directional.
What did I miss? What do you think about ROI for marketing?
You can set up a time to chat with me about your marketing challenges using my calendar. Email me jeffslater@themarketingsage.com Call me. 919 720 0995. The conversation is free, and we can explore if working together makes sense. Watch a short video about working with me.
Photo by Diana Polekhina on Unsplash
