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Re-thinking ROI in Marketing (Part 8 of 8)

Posted by Ellen McKewen on Dec 9, 2014 10:00:00 AM

Note: this entry is part of a series about using marketing to generate leads and enhance brand awareness. See our Sales & Marketing topic for previous blog posts.

shutterstock_154261838If you’re a business owner or manager, chances are you’ve asked your staff to calculate the ROI, or return-on-investment, for your marketing program. On the flip side, if you’re an employee, you’ve probably heard your boss say, “This costs how much? What am I going to get back in return? What’s the ROI on this project?” Commonly ROI is calculated using the following equation:

ROI = [Gain from investment – Cost of investment] / Cost of investment

This is a reasonable and important metric. You are spending resources on marketing, so you want to understand the effectiveness of your investment. At the end of the day, marketing is all about results… generating leads and enhancing brand awareness!

While ROI is a fantastic measure, manufacturers need to think of this approach differently. While it would be wonderful to simply plug in this calculation to prove which marketing tools yield the highest ROI, we don’t live in a simple world.

Think of it this way – studies show that it used to take between three to five marketing “impressions” to land a new customer. For example, an individual receives a direct mailer from your company (marketing impression #1), then he/ she scours your website for more information (marketing impression #2), then he/she receives your quarterly newsletter (marketing impression #3), and finally a salesperson would make a follow-up call to close the deal (marketing impression #4).

Today, it is much more difficult. Now, it typically takes anywhere from 12-25 marketing impressions to obtain a new customer! People now have more competitors from which to choose and think longer and harder about their investments.

Consequently, when so many marketing “impressions” influence your audience’s purchasing decision, it becoming more difficult to perfectly evaluate the ROI of your marketing tactics. You can look at things in regards to your entire marketing budget vs. your increased sales, but it becomes difficult to measure the effectiveness of your specific marketing tactics.

So how do you evaluate your marketing program and improve it? There is another approach that manufacturers can use: ROO, or return on objective.

Your different marketing tactics serve different purposes, so we have to evaluate them as such. For example, let’s say you have a dynamic e-mail marketing program. One of the primary objectives of your e-mail marketing program is to generate new leads, and you set the goal to get 5 new qualified leads a week from your program. This month, your program ends up getting you 150 new qualified leads. Therefore, the ROO on your website was fantastic.

You may ask yourself, “Well… what if none of those leads end up buying anything?”

This is a very fair question. But look at it this way - I would argue that you have to look at things more holistically. Does your marketing program include any follow-up system for these leads? Are the leads being followed up with by a salesperson? Do you have a strong website where these leads can go to for more information? Has someone from your company connected with the new leads on LinkedIn?

In a nutshell, it isn’t your e-mail’s “fault” that all of the other factors that go into a purchasing decision fell through.

While the concept of ROI is important, it isn’t the only metric you should focus on. Consider using the ROO strategy so you can evaluate the effectiveness of each marketing tool in your kit!

We hope you enjoyed our series about marketing. If you have thoughts on more topics you would like us to explore, let us know! We will take your feedback into consideration when writing future entries!

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