How to Avoid the Trap of Fake Marketing ROI

Given our focus on Marketing Performance Management and Measurement (MPM) we are privileged to engage in regular conversations with our customer and prospects about Marketing ROI. Unfortunately, although many of our customers are anticipating an illuminating conversation on the subject, we find ourselves routinely clarifying why this measurement method is far from the best way to quantify the impact of Marketing on the business. We are not alone in this approach either. Statistics from studies by Fournaise underscore the imprudent reality of using an antiquated ROI approach to measure Marketing:

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

This research echoes the results of our annual MPM benchmark studies, now in its 16th year. We’re here warn you, trying to measure Marketing ROI is a trap!

Why Should Marketers Be Wary 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

Perhaps you believe it is easy to calculate the ‘cost of investment’. Easier said than done. Why? Because often Marketing doesn’t include or know the big picture. Remember, to truly calculate ROI, you cannot crop the image to suit your purposes, and that means you’re going to have to approach the calculation from every angle.

• 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, you’re ROI figure will be inflated.
• And what about the gain from the investment? When you invest in an event, is it to acquire new customers, retain existing customers, or grow the share of wallet? Which ones? How much? When? 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 touches that may have influenced 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.

Now that you’re in the know, if you choose to continue presenting your results as ROI, you can’t ignore the fact that you risk reporting fake ROI, and all that does is potentially negatively impact your credibility. This is why 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 it 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 know the business outcomes and how success will be measured. Then they find metrics that matter. The outcomes and the metrics they 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 Best-in-Class? If you want help with improving how you measure Marketing’s value, we’d love to hear from you. 

This article was first published on Integrated Marketing Association.