Is Your Brand Getting the Most out of its Marketing Investment? Here’s How to Find Out.
Professional marketers understand that no matter how innovative the program, creative the concept, or unusual the campaign, it must generate results.
Unless you have real data, the best you can do is make an “educated guess” as to how much to allocate to next year’s marketing budget.
91% of senior corporate marketers believe that successful brands use customer data to drive marketing decisions, yet 65% said that comparing the effectiveness of marketing across different digital media is “a major challenge” for their business, per a 2012 study by Columbia School of Business. We all know that marketing is a mix of observation, data, analysis, creativity and passion. The Holy Grail of marketing is being able to definitively declare that a given marketing program had a measurable effect on objectives. Blogging Out Loud takes a look at marketers’ most pressing questions and offers real solutions that you can apply right away.
What is Marketing ROI and what does it really mean to my brand’s success?
CLV—Customer Lifetime Value. Think of a mom buying diapers for her new baby—there is a specific time period over which she buys diapers. With this knowledge, marketers can extrapolate how much the customer will spend on diapers before the child is potty-trained.
Marketing ROI gauges the level of improvement you see in your business that is directly attributable to your marketing efforts. Marketing ROI calculations tell you which program delivered the best results based on the measurable objectives that have been established prior to the implementation of the program. Setting up measurable objectives at the post-program analysis stage is often a common “rookie mistake.” If you truly want to invest your brands’ marketing dollars for results, marketing ROI leads you to make effective budget allocation decisions. There are a variety of ways to calculate marketing ROI, but the most common approaches utilize one of the three base formulas.
Formula 1 considers the gross profit for units sold in the campaign and the marketing investment for that specific program:
Gross Profit – Marketing Investment
Marketing Investment
Formula 2 takes into effect the Customer Lifetime Value (CLV) and measures the profit generated by a group of “like” consumers over their lifetime with your brand:
Customer Lifetime Value – Marketing Investment
Marketing Investment
Formula 3 mandates a “fully loaded” analysis for calculating marketing ROI:
Profit – Mkting Investment – Overhead Allocation – Incremental Exp.
Marketing Investment
The components for calculating marketing ROI may be different depending on the organization and its goals, but with solid ROI calculations you can put your attention on campaigns that deliver the greatest return.
Gotta love Dilbert! But the fact remains, in order to know how successful your marketing campaigns are, you have to do a complete and accurate ROI calculation.
What constitutes a “return” in the “marketing return on investment (ROI)”?
At its most fundamental level, the “return” is the contribution to the bottom line that is the result of an organization’s marketing efforts. The company defines what the return, or output, is in a way that aligns with its goals. The return must be measurable: sales revenue, leads generated, and market share. The return also encompasses so-named “soft metrics” such as brand awareness, consumer perception of the brand, and positive word-of-mouth, all of which are important contributing factors in a complete ROI analysis. The “return” can be all of these things together, or a combination of them.
What about test and control groups? Is this “tried and true” way to measure ROI still as effective in the age of social media and real time marketing campaigns?
Test and control groups continue to be a great way to determine if you’re getting the most of out of your marketing investment. You can measure almost anything this way. And it’s relatively straightforward. You divide your target group audience into two or more “like” groups and then apply what it is you want to measure. All other factors being equal, you’ll be able to attribute differences in consumer behavior between the two groups to the particular program.
A Five Stars merchant ran a text message campaign to their loyalty program members. All-in costs to create and administrate the program came out to $6 per respondent. 4% of the recipients of the text came to the restaurant and spent a total of $110. The revenue to cost ratio of this campaign was 18x. Considering that the restaurant only had to incur costs for the food of about $30, and spent $6 to get $80 in gross profit, this was a great result.
The Bottom Line on the Bottom Line Understanding how to calculate your marketing ROI is essential. For example, if one campaign generates a 15% ROI and the other 50%, where will you likely invest your marketing budget next time? Plus, having solid data on hand tells you how your brand should divvy up its marketing budget.
Creating consistently winning marketing programs that deliver results takes foresight, creativity, vision—and data. When you know the output of your marketing ROI, you’re better able to measure, monitor, and improve the success of a particular effort. How are you currently measuring your campaigns’ returns? What method of measurement has proven most effective for your Brand? Your insights are a real benefit for the Blogging Out Loud community!
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Thanks, Shannon. It can be really tough to measure marketing ROI. There are so many variables: knowing when to measure, how often to measure, how to account for other variables, such as trends, weather, timing…the list goes on and on! For example, if the economy improves and people start buying more of a product, can it be attributed to a specific campaign or is it just coincidence?
For marketers, it’s a good idea to regularly evaluate each campaign, frequently.
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Coming from the creative side of things, I don’t delve into the nitty gritty of analysis and planning much, and I thought this was a great review of the ROI principles that should be at the heart of the work all of us marketing folk do.
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