Given our focus on Marketing Performance Management and Measurement (MPM), we have a lot of conversations with our customers and prospects about Marketing ROI. However, though many of our customers are anticipating advice or information on the subject, they are often surprised when we spend a large part of the time explaining why this measurement method is actually not the best way to quantify the impact of Marketing on the business.

It’s not just us that think this, either. Statistics from studies by Fournaise underscore the imprudent reality of using an antiquated ROI approach to measure Marketing:

  • 80% of CEOs admit they do not really trust or are very impressed by the work of Marketing
  • 90% of Marketers are not training in Marketing Performance and Marketing ROI
  • 80% of Marketers struggle to demonstrate the business efficacy of Marketing

This research echoes the results of our annual MPM benchmark studies, an ongoing study since 2001. We’re here warn you: Trying to measure Marketing ROI is a trap!

Why Does It Pay to Be Skeptical Of ROI?

ROI stands for “Return on Investment,” and it’s an established equation:

return on investment = (gain from investment – cost of investment) / cost of investment

Seems easy enough, right? Not so fast – let’s break it down.

Calculate Marketing ROIThe first problem arises when you try to calculate the “cost of investment.” Why? Because often Marketing doesn’t know the big picture. To get a true calculation of ROI, you’re going to have to approach the calculation from the full perspective.

For every Marketing investment, you will need to include all the costs, such as office space, personnel, benefits, Marketing technology, etc. If you’re not doing so, your ROI figure will be inflated.

Next, let’s take a look at “gain from investment.” When you invest in an event, is it to acquire new customers, retain existing customers, or grow the share of wallet? If so, Which customers? How many? In what time frame? Will you be calculating the ROI of the event based on “number of qualified opportunities” for a sales cycle that may take months to complete? If you are, how will you account for the many other touches that may influence the result, such as your website or direct marketing efforts?

Even with the advances in attribution analysis, it is still almost impossible to calculate the genuine gain from investment. As Marketers, even if we’re as meticulous as possible and employ integrated marketing, we cannot possibly track the individual contribution made by each tactic and every external factor.

So then why do Marketers still feel compelled to report on ROI?

Simple: Because Marketing hasn’t educated their leadership team on more meaningful business metrics, such as customer lifetime value and brand preference. But it’s time to change that.

Getting Out of the ROI Trap

Avoid Marketing ROI trap

Avoid falling into the Marketing ROI trap!

We advise our customers to avoid the ROI trap altogether and instead focus on measuring value, impact, and contribution. There are many metrics and financial numbers you can report on that aren’t ROI.

On the financial front, you can, for example, choose to replace an activity or tactic with one that is lower in cost and report on “financial savings.” But if that activity or tactic produces less value, then is this truly the right decision? Probably not. It would be better to consider a financial number such as “cost to acquire” or “cost to retain.”

Financial numbers alone, however, are not enough to make Marketing valuable in the eyes of the C-Suite. It takes Marketers who are “best in class” to have the ear of their leadership team. Those who succeed measure their performance against targets associated with Marketing’s contribution to business results. That means they are familiar with business outcomes and how success will be measured. Then, they find metrics that matter.

The outcomes and the metrics these best-in-class Marketers choose are incorporated into their Marketing plan to form the metrics chain that becomes the foundation for the Marketing dashboard.

Are you ready to reorient your approach and rise to the ranks of the best in class? If you want help with improving how you measure Marketing’s value, we’d love to hear from you. 

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