It was John Wanamaker, a marketer operating around 1900 who famously said, “Half the money I spend on advertising is wasted; the trouble is I don't know which half.” The sad truth is that, according to a recent report by the Aberdeen Group, 51% of modern marketers in the 21st century aren’t doing any better than Wanamaker was able to achieve 117 years ago.
It’s not for a lack of tools, desire or intelligence. There’s no excuse not to compute accurate marketing ROI in this modern age. In this post, we’ll look at the tools that are needed to establish return on marketing investment (marketing ROI) and a few basic principles about how to get started tracking marketing ROI.
There are 4 big reasons why you should track marketing ROI:
- It’s just good practice to know which marketing spend is working to drive revenue and which is not. Many times, the marketing leader’s continued employment depends on it.
- Without being able to prove a positive marketing ROI, the marketing department and its team members are relegated to the expense side of the ledger. Marketing is perceived as a black art, meaning it is just not understood. Most have the opinion that it is probably needed, but aren’t convinced of any real value beyond the services provided like setting up the trade shows for the sales team.
- Without a proven and documented marketing ROI, Marketing is often the first department to get cut when times are tough. Nobody really understands how marketing contributes to revenue. marketing ROI solves that problem.
- A positive marketing ROI helps you get buy-in from leadership when you want to expand your marketing team, experiment with new tactics, and get more budget.
marketing ROI = (profit generated-cost of marketing)/cost of marketing
Now that we understand why being able to report marketing ROI is so important, here is how you obtain it.
The most common CRM platforms are salesforce.com, Microsoft Dynamics, Oracle Sales Cloud and SugarCRM. A CRM is typically a sales tool because it allows the sales team to track their activity as new leads pass through the sales funnel. The funnel stages usually include something like; suspect, lead, qualified lead, opportunity and closed. Most CRMs also include an option that can tie an opportunity, contact, and/or company to a specific marketing campaign. It should be noted that there are many other features built into the CRM that are not germane to this discussion. The key function of the CRM with regard to marketing ROI is in connecting pipeline and revenue to a marketing campaign.
The most common MAPs are Oracle Eloqua, Marketo, HubSpot, Pardot and Infusionsoft. The MAP is typically a tool used by the marketing department to execute outbound and inbound strategies and tactics. Examples of marketing activity conducted with MAP includes email sending, enewsletter management, landing page creation, social media monitoring, database management, and lead management. The MAP can measure most marketing activities in terms of marketing metrics; i.e. open rates, click-through-rates, landing page conversions, database growth, page visits and list growth rates. The key function of the MAP with regard to marketing ROI is in connecting the contact to the marketing campaign.
To measure marketing ROI, the two systems must be integrated. In other words, they must talk to each other via digital connection. The most common configuration process is set up so that the MAP activity goal is to generate a qualified lead. When a qualified lead is created, the contact information, along with information about the campaign that was responsible for generating the lead, is sent to the CRM. Once the lead is in the CRM, the sales team works on it until an opportunity is generated and revenue is credited to the opportunity. The connection between the qualified lead, campaign, opportunity and revenue allows us to calculate marketing ROI. The important connection between the 2 systems is the campaign.
There are a few key points to note here because this is the crux of how marketing ROI is determined:
- The campaign information will include the cost to execute.
- The lead and the campaign are forever connected.
- When or if the lead is associated with a sales opportunity, the campaign is connected to that opportunity – this shows marketing contribution to sales pipeline.
- When the opportunity is closed as won, the associated revenue is tied to the original marketing campaign closing the loop between the cost of the campaign and revenue generated.
Here’s the tricky part, attribution.
We all know that it is not so cut and dry to attribute one qualified lead and opportunity to one single marketing campaign. In most cases, there are several factors that influence a lead into becoming an opportunity and that opportunity converting to revenue. Choosing to attribute revenue to the last touch or first touch are common tactics for determining marketing ROI. Either of these can provide an indication of marketing ROI, but not a full closed loop model.
Typically, the marketing leader or the team will start with a hypothesis that attributes revenue evenly over all campaign touch points or attributes revenue based on some weighting criteria. Accurate attribution is an iterative process. Don’t let the complexity of attribution dissuade you from getting started. Even a first touch model will help you get started proving marketing ROI to your leadership team.
The marketing ROI Mindset
The first step towards determining marketing ROI is in the mindset. Even before you purchase the tools, it is important to establish a marketing ROI mindset, meaning that each and every marketing activity must be reviewed in the context of generating revenue. Ask these questions for each marketing campaign:
- How will this marketing campaign generate leads?
- How will we know if the leads are qualified to send to the sales team?
- How will the lead generated by this campaign flow through the sales funnel?
- What other campaigns will touch this lead as it flows through the sales funnel?
- What is the expected marketing ROI?
- What will be considered a successful marketing ROI?
- How will this campaign convert to revenue? (map it out on the whiteboard)
The good news is that you can get started tracking marketing ROI without purchasing either one of these tools. Note, I said, “get started”. Start with a marketing ROI mindset and start a spreadsheet that tracks campaign cost and qualified leads as a minimum. Granted, this is a manual and somewhat laborious process, but, at least it gets you ahead of John Wanamaker. Next, take incremental steps towards a full marketing ROI closed loop model.
Imagine your next conversation with the CEO when you tell him that marketing contributed to 25% of the quarterly sales pipeline and marketing campaigns were responsible for generating 30% of the quarterly revenue. Then you follow up by sharing, “Oh, by the way, here is the data to prove it”. Wanamaker would be proud!