ROI - Not Fit to be King!

The marketing profession has become increasingly obsessed with measurement. Nowhere is this more obvious than in many of the discussions we have around Return on Investment (ROI) calculations, which are as frequently used to support poor and lazy decision making as they are for good. 

Don't get me wrong - as a Marketing Scientist I am a great fan of using measurements to improve our marketing performance. And certainly measurement will be a key topic at "Engage Me!" - the forthcoming IDM B2B Marketing Annual Conference. But we need to put an appropriate context around our ROI measures if they are to be useful.

Here are three traps that we frequently fall into around the ROI discussion. By understanding the risks and implications of getting it wrong, perhaps we can use these measurements to help guide us to better decisions.

The ROI of What?

Measuring the ROI of a marketing department over the course of a year seems perfectly logical to me. There  is a set of resources (budget and people) who perform a number of different tasks that collectively should make a difference to the business they are serving. And we can smooth out any discrepancies caused by business that gets closed in the current measurement period that was initiated in the previous period.

But the more "micro" the measurement becomes, the greater the risk of misinterpretation. A campaign may consist of multiple tactics over an extended period of time. My belief is that a campaign really is a series of activities that establish and build relationships that are be nurtured until a some business is generated (and even beyond). In that context, ROI at a campaign level makes sense - because we can take account of all the necessary market conditioning activity as well as the more obvious demand generation work.

But if your definition of a campaign is really only a handful of discrete tactics over a short time period we are getting into dangerous territory. To be meaningful the campaign really needs to be at least as long as the buying cycle. Otherwise you measure the Investment you made in the email campaign, the event and the tele-follow up, but don't get to see the business arising from it. Or else you only measure the return in terms of  lead revenue created - which doesn't really count for much unless those leads progress. I used to get so bored when external telemarketing companies would use this approach to claim that my investments with them had created a 2000% ROI. Sorry guys - it didn't; and bandying numbers like this around my business leaders wouldn't gain me any credibility.

Worst of all is when we try to measure the ROI of a discrete tactic. We all know that buyers never purchase as a result of a single tactic so, (despite the fact the many of our measurement tools oversimplify revenue attribution and lump it all against the last touch), so if we make decisions by looking at the calculations alone without considering the context of the related activities, we risk overinvesting in late-touch activities and undervaluing the importance of the activities earlier in the buying cycle.

There's More than One Return

Of course revenue (and lifetime value) are the ultimate measures of business success from our marketing. But   measuring of the impact of every tactic in revenue terms is fraught with danger - particularly for non-DG activity. If you believe that Marketing is about preparing a marketplace and establishing a favourable selling environment as well as capturing demand, then you'll need to develop a different set of tactic measurements to give you indicators on the effectiveness of your social media, content marketing, advertising, and though leadership activities. Sadly many organisations fail to recognise the value of any marketing tactics that do not have a direct linkage to revenue - and then wonder why their DG is not as effective as they had hoped.

There's More than One Investment

While most of the focus on the Investment side of the equations focuses on financial investment, we should not overlook the impact of the choices we make about where our people invest their time. Creating some content inhouse, or leverage our internal experts in our social media activities, all has costs associated - including the opportunity cost of what they could be doing otherwise. Nothing is free.

So as we all get draw into ROI discussions in our different organisations, let's try to be clear on the following

1. What is the real scope and purpose of marketing?
2. What is the story beyond the raw numbers?
3. What would the client/prospect expect?

Let's not let spreadsheet management overtake our desire to serve our clients better. If you disagree, a happy career awaits you in Finance:)

I'd love to hear your thoughts on this topic.


Note: This Post first appeared in the IDM Marketing Blog on April 2nd 2013

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