The ABCs of marketing ROI: square peg & a round hole?

Whether you're budgeting for next year's marketing activity or justifying this year's spend, it's likely that the topic of ROI will be at the heart of your boardroom discussions. This year, more than ever.

Over the last decade, investment in marketing has been growing year-on-year. It's reported that marketing spend has almost doubled, up from £11.35bn in 2009 to £22.16bn in 2019. It doesn't come without a caveat though, as budgets increase as has the pressure for marketing to prove its impact on the bottom line.

But ROI is flawed. It has limitations. Limitations that must be better communicated to members of the senior management team that aren't as well-versed in marketing.

We create activity that is complex, multi-faceted, and often, unattributable. It doesn't sit in the confines of a year-end or a profit and loss, nor can its impact be ring-fenced just to revenue. By measuring the effectiveness using a money in vs money out formula we're doing ourselves a severe disservice.

By attempting to make the incredibly complex incredibly simple we risk failing to demonstrate the true value of our activities.

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments.

Investopedia

That doesn't mean marketers no longer need to report on ROI, but they need to acknowledge its flaws. Here's the ABCs of ROI to consider:

A - Attribution

Reporting, tracking, and analytics have advanced huge amounts over recent years, partly due to the acceleration of digital transformation. As digital adoption grows so does our ability to understand more about our buyer, enabling us to give them more of what they want. 

Luckily, a complete view of what buyers hear, see, and feel about our brand is still more Minority Report than marketing reporting. But we mustn't let the advances in analytics cloud our judgement over the effectiveness of our marketing. Buyers interacting with our content or activity paints a picture, but we mustn't forget the unattributable; e.g. the conversations with peers or anonymous research. 

Confusing causation with correlation could have us investing in all the wrong places,  misleading us to place an emphasis on activity that may well have just been the straw that broke the camel's back or good timing, rather than impactful. 

B - Brand? Or lead gen? Or both?

Brand-building activity adds another layer of complexity. The more long-term the activity, the more profit and loss year-ends it straddles and the harder it is to attribute. 

Yet when we consider attribution, we can never truly separate lead generation and brand building due to the intrinsic link between our long-term brand building activity and our short-term direct response activities working in synergy.

Whether you're spending your marketing budget and resources on the brand or direct response your ultimate goal for both is likely to be revenue. How do you attribute return on investment for something that may not offer yield for three years or longer, often amalgamated into your lead generation activities?

Throughout the COVID crisis, there was a clear switch as organisations reassigned their activities from revenue-generating to brand-building, primarily due to the lack of spending from buyers across many markets. Marketers have always understood that brand building has a significant impact on tomorrow's bottom line, even if it cannot be specifically attributed.

No buyer purchases in a vacuum, they soak up both long-term brand communications and short-term lead generation activities. If we know buyers don't buy in a vacuum, maybe it's time we stopped trying to measure our marketing activity in one.

C - Complexity

The simpler we try to measure marketing, the more inaccurate the value we assign. 

In an ideal world, every buyer would buy the same. Every activity would offer the same yield. And every touchpoint could be tracked within the neat yearly accounts of the organisation. 

Research from LinkedIn might suggest we're also lacking in confidence, trying to measure and quantify our campaigns too soon, and in the process, underselling the effectiveness of our activities.

Many organisations are aware of their average sales cycle, but when compared to their marketing reporting period there's a distinct difference, meaning we aren't giving our campaigns enough time to be effective and have the desired impact.

77% of digital marketers are measuring return within the first month of their campaign. And within that group, over 52% of digital marketers knowingly had a sales cycle that was three months or more. 

Only 4% of digital marketers measure ROI over a six-month period or longer, which is the duration we know to be more in line with the length of a typical B2B sales cycle.

LinkedIn

Measuring marketing using money in vs money out is doing marketing a huge disservice and it's not just isolated to our impact on sales through the way we influence the existing pipeline. 

Further afield, our activities impact existing customer retention, cross-selling opportunities, recruitment, and supplier relations. After all, everyone wants to be part of something good. 

Taking one measure of marketing, based on a profit and loss snapshot delegates marketing to an expense rather than an investment, further enforced perhaps by its position on the profit and loss rather than the balance sheet.  

If we take the chance to admit the flaws in using ROI to measure marketing effectiveness, we can move on and seek to understand the additional value marketing brings, and in the process, show the true value of marketing.