“Marketers must become accountable for the effects of their marketing efforts on the bottom line and the success or failure of marketing must be judged based on its return on investment,” says marketing and new media leader Christopher S. Penn. Penn currently is VP of strategy and innovation for email marketing company Blue Sky Factory and author of the blog “Awaken Your Superhero.”
Penn asserts most marketers understand conceptually what ROI is, but many are still foggy on what it is not. He clarifies: “ROI is an objective metric, a bottom line truth. Things like number of Twitter followers, pageviews, blog comments, etc. are diagnostic metrics. Imagine you were on a road trip. Diagnostic metrics tell you how the trip is going. Objective metrics tell you if you’re there yet.”
Explains Penn: “Consider this from the perspective of losing weight. You have an objective metric: lose 10 pounds. Now let’s say you use a treadmill as part of this goal. You have plenty of diagnostic metrics, like treadmill speed, miles run, etc. If you make the mistake of thinking a diagnostic metric is an objective metric, then your progress will automatically skew towards achieving those diagnostic metrics by any means, even incorrect ones. For example, if your goal is six miles a day no matter what, you could just stick your cat on the treadmill for an hour. At the end, you’ll have gotten the number you want – six miles – but not gotten any closer to achieving your objective goal. Also, your cat will probably be mad at you.”
The results of such an analysis can be dramatic. For example, when Boston Martial Arts measured its marketing efforts in terms of objective results, they discovered email ROI was a whopping 1,755%! Facebook and Twitter efforts on the other hand both showed negative ROI.
To evaluate what’s working in marketing, Penn says marketing ROI should be measured in terms of “cost per lead”, and ultimately, how many of those leads result in cold hard cash flowing into the company’s bank account. Tracking efforts to this extent requires marketing to work in concert with sales to make sure that all efforts are coordinated, cooperative and truly supportive.
That’s why Penn requires his marketing staff to attend sales meetings and stand with sales on the front lines. He says this helps them come face to face with their audience and as a result, better equips them to design campaigns that will deliver qualified leads to sales. Penn says there’s absolutely no excuse for marketing not knowing what prospects want.
“Attaching a dollar value to each tactic gives you a clearer picture of what is and isn’t working. That allows you to focus resources on supporting the marketing efforts that are earning the most money,” says Penn. Simply put: If it’s not earning any (or worse, losing) money — stop doing it. Caveat: unless you have compelling evidence that gives you a reason to believe that the investment will pay off in the future.
Ideally, the flow should look like this: Marketing provides sales with qualified leads, sales turns the leads into customers, customer service makes those customers into evangelists, who not only will keep buying from you but who also will help you spread the word about your product or service. But the cycle is initiated by marketing and the quality of the turn hinges on its effectiveness.
For more information about how to think about this topic and a deeper dive on how to do the ROI calculations (including handy worksheets) check out the 20-minute web seminar “Calculating Marketing ROI in Three Easy Steps” on the Blue Sky Factory website.
Related post from Penn’s blog, Awaken Your Superhero: Are we there yet? Diagnostic versus objective social media metrics.
Tags: Christopher S. Penn, Email Marketing, Marketing, marketing ROI, objective vs. diagnostic goals
ROI isn’t a “frenemy” – it’s your defendable ground. Without ROI, marketing is just an expense, something to be cut when other alternatives or needs arise.
The key to understanding ROI from a marketing perspective, and one that is often missed in the analysis, is the concept of incremental cost: what has to happen in order for the marketing activity to take place. This is often a case of understanding fully loaded headcount allocation, particularly when we’re talking social media. The other is cleanly isolating the incremental lift – the increase in sales that can be attributed only to your marketing activity: easy with email, complex with retail and other channel-based activity.
All this being said, though, ROI clearly isn’t something for marketers to dread – it’s what we do, day in and day out, and it’s what the C-suite needs to hear from you.
I think Stephen said it perfectly, “All this being said, though, ROI clearly isn’t something for marketers to dread – it’s what we do, day in and day out, and it’s what the C-suite needs to hear from you.”
ROI is essential, but also a very difficult thing to predict, manage and measure. While I know nothing about social media ROI, i do know that there are tools and some ways to make measuring ROI easier and more effective. http://bit.ly/cL2pJm
“Marketers must become accountable for the effects of their marketing efforts on the bottom line and the success or failure of marketing must be judged based on its return on investment,”. Helen yes yes yes. Your opening line says it all. Clients come to me and tell me horror stories of so called ROI marketers calculating this and that which brings not only no business for the money spent but in some cases businesses being band online due to the advice received.
I consider ROI calculations relate to nearly every situation that a business does, including hours spent, money spent and any other spenditure related to delivering a businesses product or service to the customer.
Keep up the good work btw.
Thanks, Steven!