On a day like this, a business owner reached out to me who needed help with his overall marketing strategy.
I onboarded the client, during which I asked him questions to understand their business further. I wanted to understand their model, gain product knowledge, understand their product offering and see what they have done in the past. I wanted to also begin to grasp his personal pain points when it came to his marketing efforts.
After many excellent and engaging discussions, I was able to understand their strengths and weaknesses and provide him with a tailored solution that fit his business.
When he shared his pain points with me, the answer sounded very familiar.
He wanted to find a way to measure his marketing success, the gain and return on their marketing efforts.
As a business owner and entrepreneur, he is not alone in this pain.
Off the top of your head, can you tell me with confidence how many businesses invest in digital marketing?
How many businesses are planning on increasing their digital marketing spending this year?
If you were to survey those businesses, how many can come back and tell you exactly how much their return on investment is on their marketing efforts?
Maybe less or close to 50%?
Why is it that some businesses have difficulty understanding or calculating their ROI?
I simplified “the why” in few reasons:
- Wrongful Categorization of Marketing Efforts
- Lack of standardization
- Lack of Technology
- Having a Vague Definition of ROI
- Long-term Payback Cycles
Let’s break it down…
Wrongful Categorization of Marketing Efforts
Marketing campaigns are sometimes difficult to measure for their ROI because of a simple core reason.
They are not tied directly to revenue.
A great example of these marketing campaigns is brand awareness campaigns. Brand awareness campaigns are primarily used to increase audience awareness, engagement, and brand recognition tied to a specific company or a brand.
We can all agree that every dollar starts with brand awareness. Therefore, brand awareness campaigns are essential for the marketing and brand strategy and indirectly but heavily impact the business growth.
The concept is relatively simple; the more people see your brand, the more they’ll tend to trust and therefore purchase from it. And this can be replicated across the board for emails, social media, and all other marketing channels.
Brand awareness is essential for all products across all sections of the product/business lifecycle. Whether new or mature, all can benefit from these campaigns.
However, brand awareness campaigns are very hard to be tied back to sales numbers. The reason being they are tied to indirect success KPIs or soft KPIs. The success of the brand awareness campaigns ties back to soft KPIs such as website traffic, community growth in social media, or social media engagement.
They are your first line of defense to go in the battle to win the hearts and minds of the customers and prospects.
Not to mention creating noise to block your competitors from reaching your targeted audiences.
The more meaningful your brand awareness experience is, the more genuine connections you make online and the closer you will be to your customers. This is very important for brands and companies that compete on differentiation rather than price.
When demand increases for your product or service, the customers’ willingness to pay more will also increase, simply based on that relationship.
In the case of brand awareness, ROI calculation focus should switch from $$ amounts to success metrics. How much traffic did we brought to the website or landing page? How much engagement do we create around the video or the blog?
Lack of Standardization
How would you define your marketing cost per marketing campaign?
In this case, the more cost you associate with the campaign lower the ROI will look like in the long run. Some of the costs you might be considering are:
- Overhead or cost of labor
- Production cost
- Technology or platform cost
- Budget spend to run the media
Unless you are an agency or dealing with a third-party agency, some of these costs are in my humble opinion…redundant…
It makes sense for a marketing agency to include O/H and technology costs because of their business model.
However, some of these costs are too small per campaign level for corporate marketing. In addition, some of these costs are fixed costs, which means, there is no marginal cost associated with your marketing campaigns outside of the budget spent per campaign.
Therefore best is to focus only on the variable costs such as cost per campaign, cost per click, cost per impression. This will allow you to calculate how much variable cost or unpredictable marginal cost will go towards your campaign and how much return are you getting directly from that spend.
Let’s run a scenario together:
Let’s say, I want to run an Ad campaign through Google. Here are my numbers:
- I, Budgeted for the campaign: $10,000
- Expect my CPC to be around: $2.5
- I, convert around 40% per campaign
- Average product runs for $5,000
- and I know I will be turning 20% of those leads into customers per campaign.
My overall expected return on investment on that campaign should be $1.6M. In this scenario, I included cost per click as my only cost.
Business ROI on the marketing campaign is $320K.
Consider if I wanted to do run the same scenario, but add the following costs:
- Cost of technology/ platform
- Cost of marketing strategist
- Cost of sales
- Lead gen cost
Since I added more factors into the equation, I won’t bore you with the calculations.
The missing factor in the new equation will be scalability. If your marketing efforts are scalable, then that calculation would not change the bottom line much. In order for those costs to have a massive impact on your campaigns, your advertising efforts should relatively be minimal.
However, This can be good practice for startups at the beginning to understand their marketing efforts on a much granular scale.
Lack of interest in ROI is also very real with some companies and brands. Whether it is because the brands underestimate the power of the ROI in marketing or lack understanding of using it.
Going back to wrongful categorization…
Businesses might have a certain goal in mind, such as generating $10,000 a month, increasing followership by 50%, or maybe increasing the number of customers by 10% M-o-M.
Anything outside that bucket will be considered redundant and therefore receives much less to no attention from the business.
Lack of Technology
This can be an excellent pain for smaller businesses.
Calculating ROI will require businesses to access particular tools and technologies to gather the data.
And, of course, the tools all come down with a price. So, doing a cost/ benefit analysis…It boils down to, how much the business is investing in the technology, and how much will it get back from it.
Luckily, there are also many free tools in existence that businesses can use to determine the effectiveness of their marketing. Google Analytics and Google Search Console are the two most prominent free tools that can be used to evaluate returns.
Having a Vague Definition of ROI
What is the meaning of return on investment or ROI?
Yes, the name says it all. But what is considered a “return” on your investment?
Most times, the answer is “$$.”
We invested dollars into something, and we want to see how much we got back in the form of dollars.
However, is that defined and agreed upon by the entire organization?
What do you see wrong with that picture?
Going back to wrongful categorization… The brand awareness campaign is very difficult to be defined by dollars and cents. In many ways, there might be an ambiguity of sorts in the costs (point number 2). Finally, misleading data points are not painting the entire picture.
Going back to my previous example…
I am instructed to generate leads for the business. Let’s say as a marketer I expect to generate 4,000 clicks, 1,600 leads with an average cost per lead of $6.
Marketing ROI in this scenario is $1.6M
Now let’s say if the business cannot convert those leads into actual sales for whatever reason. Does that mean the marketing campaign failed? Does it mean the ROI is negative? What if the lead didn’t convert in the first quarter when I ran the campaign, but it did in the second quarter?
It is very important to know the responsibilities and identify how we define success on the marketing campaigns and how we identify their ROI.
Do this right, and you will have a much greater handle on your marketing campaigns.
Your clients will feel happier understanding what is happening with their money.
Also, you will have much happier marketers working for you. They will always understand their values and accomplishments, and they will have confidence in their leaders understand what they are bringing to the table.
Long-term Payback Cycles
There are always external constraints to consider when dealing with tracking and attributions.
The main external constraints are politics and policies.
Changes in laws and regulations alter the platforms’ ability to track user data and, with that, our ability to interpret the data or turn that data into an actionable item within a period.
One way to battle the constraint is to create a standard period to review all your marketing campaigns and efforts, for example, weekly or bi-weekly.
This might make sense for channels that yield immediate return (email) or low ticket items. But for longer period campaigns and for high ticket items with longer sales cycles, the same cadence will not make sense.
Also, consider industries…
And this is another problem that sometimes presents itself. Marketers are trying to replicate efforts across industries.
For example, how can consideration state between buying a house and buying a pair of shoes be the same?
The world of digital marketing is very complex, and that is its beauty. The complexity allows you to reach your audience in many ways. Each way is different from the next.
Just like you cannot use the same storyline to present your brand from print to digital, you cannot use the same storyline from email to social.
Just like how the behavior and interaction look different from channel to channel, so do the goals and measurements. Therefore, the way you define and calculate your success must also be different.
We will tackle ways to calculate ROI successfully for all digital channels in future articles.