Originally published in the Boston Business Journal
Year after year, marketing plays an increasing role in driving leads, customers and sales, and is thought of less and less as a vertical function focused on winning creativity awards. The latest iteration of The CMO Survey reflects this shift by showing us that marketing accounts for 12.6% of overall company budgets. As marketing becomes more of an integral, strategic facet of companies across industries, it’s critical to ensure the money spent on marketing initiatives is making a difference in terms of your overarching business goals. In other words, keep track of your marketing ROI.
Marketing ROI, also known as return on marketing investment (ROMI), demonstrates the extent to which marketing efforts are contributing to revenue growth, as well as the specific aspects of the marketing efforts that contribute to the revenue growth.
While marketing ROI can be calculated using a simple equation (more on that later), you’ll want to make a few decisions first to potentially avoid a costly miscalculation.
Determine which elements will factor into these values. For instance, paid advertising might be a given when accounting for your marketing investment, but you’ll want to make sure human capital is weighed appropriately before it’s included. Will your revenue gain look at the value of a lead or the value of a new customer? Are you looking at overall revenue generated or net new revenue generated?
One challenge I often come across is how to determine which marketing programs or initiatives have the greatest impact on revenue growth. While it’s common to attribute success to a new customer’s final touch point, it can also be argued that the customer’s actions leading up to that touch point had a greater influence on their decision-making. Fortunately, this problem can be solved through the right sales and marketing technology.
If marketing is not getting feedback in terms of new revenue or what happens during your company’s sales process, then it’s impossible to get an accurate view of return on investment.
Understand the cadence of what you’re measuring, how it’s tied to your sales cycle (or close cycle) and how your sales cycle is contributing to closed-loop reporting. Your sales cycle will help you set expectations and determine checkpoints at which you can measure progress.
If you’re measuring your company’s marketing ROI based on the value of a new customer, you’ll need to make sure the roles of marketing and sales are crystal clear and fully aligned. It’s possible to employ marketing tactics that generate record numbers of ideal leads and still fail to reach business goals due to sales failing to close on those leads.
I witnessed this firsthand when working with a business that had a marketing team responsible for securing demo requests and a sales team responsible for responding to those requests. When we examined why the client wasn’t seeing ROI, we found it wasn’t due to their marketing team, but due to their sales team taking as many as seven days to respond to the demo requests. Over the course of those seven days, prospects lost interest and moved on to other solutions.
Often companies will evaluate their sales teams based on whether they hit quota, yet quota isn’t necessarily determined based on revenue. Therefore, if you’re measuring marketing ROI, you should also be measuring sales ROI.
To calculate marketing ROI, use the following formula:
Revenue gained – marketing investment = marketing ROI
If you aren’t already, make it a priority to predict on a regular basis what your marketing ROI will be. Once you calculate your actual marketing ROI, you’ll be able to determine whether your tactics are aligned with your company’s overall goals. Keep track of any gaps between predicted and actual ROI, and make note of what went wrong or what you did well. As companies continue to recognize the value of marketing and increase their marketing budgets, it’s up to marketers to prove just how their tactics are enhancing the bottom line.
Susan LaPlante-Dube created PMG in 2002 and acts as one of PMG’s Principals. As a jack-of-all-trades in marketing, she loves digging deep on a topic and finding new ways to spin old ideas. While she would prefer having some high-tech voice software to record all of her blog thoughts instead of having to write them down, she loves the satisfaction of helping her readers learn something new.