Marketing ROI: If It Ain’t Financial, It Ain’t Functional

In the past three issues of Calibrero INSIGHTS, I offered some tips on what to look for when selecting a viable marketing ROI solution. To recap, so far they were:

1. Make sure marketing ROI covers Return on MARKETING Investment
2. Marketing ROI Effectiveness = Metrics x Methods x Mindset
3. Make Sure Marketing ROI Is 360°

In this blog post, I will offer one final tip: 4. Make sure marketing ROI is a financial metric.

Be wary of marketing ROI solutions that are only so in title, but in fact:

• only focus on the traditional non-financial marketing KPI’s, or;
• only focus on tracking activity-based KPI’s

Below, I explain why these ‘ROI’ approaches cannot be a substitute for marketing ROI:

Why you shouldn’t just focus on traditional non-financial marketing KPI’s
Typical KPI’s in this category are: customer satisfaction, # of leads, brand awareness, purchase intention, willingness to recommend, and so on. These are perfectly legitimate KPI’s for marketing. In fact, they are in many cases closely related to the company’s commercial profitability.

Most marketers will  understand the value that these indicators represent. This is, however, not the case for marketing’s stakeholders. For years, marketers have reported these KPI’s to the Board. And in spite of these reports, many CEO’s and CFO’s still wonder what exactly is the added value of marketing. That is because these KPI’s don’t make the business value they represent explicit. It is the translation of these KPI’s in monetary value that will allow marketers to determine their ROI and as a result clarify marketing’s financial impact.

Recently, I read an online article, titled: The Three R’s of Marketing Measurement: How ROI, ROO and ROE change the way we spell success. I respectfully present this healthcare marketing example to illustrate a common practice: how easily nonmonetary metrics are being positioned as reasonable alternatives “when calculating true ROI isn’t possible.” In this article you see how the ‘ROI family’ is being extended with some nonmonetary variations such as ROO and ROE. ROO stands for ‘return on objectives’, or your ability to realise Marketing KPI targets. ROE stands for ‘return on engagement’. It is “the measurement of involvement in social media based on online interactions and relationships.”

Don’t get me wrong. I think it is very useful to track these nonmonetary returns. But they are no substitutes for ROI in the true sense of the word.

Why you shouldn’t just focus on tracking activity-based KPI’s
Under the marketing ROI label, I have seen suppliers offer templates that merely summarise the marketing activities such as: # of RFP’s produced, # of seminar programs held, # of client briefings and newsletters published, et cetera.

Activity-based KPI’s are only valuable – in the context of ROI – if the assumption is: the busier the department is, the more profits are generated. Unfortunately, it has been my experience that the minute companies start to reward their staff based on the level of activity, the focus on profit is out the window. It compares to rewarding a referee of a soccer match based on the number of yellow and red cards he shows. No more incentive to reflect on whether it makes sense to initiate a certain activity or not.

Why marketing ROI should be a financial metric
Marketing’s  stakeholders are being increasingly clear about, and consistent in, their expectations for marketing to justify their actions (read: marketing budget) in terms of monetary value. This is a certain and well publicised trend. Marketing ROI, in the true sense of the word, is a reality that marketers will need to deal with.   And still, there are those that say it is either impossible or inappropriate to measure marketing ROI (Idiscussed some of their arguments in a previous Calibrero INSIGHTS article: Shifting the Marketing ROI Paradigm). In their efforts to convince everyone else of the ‘pointlessness’ of measuring marketing ROI, I sometimes make the comparison with the Flat Earth Society. With their slogan “deprogramming the masses since 1547″, this society has built a very amusing case to dispel the “myth” that the earth is round.

The Flat Earth Society is an obvious prank from someone who has way too much free time at hand. Nevertheless, my point is: Marketers have to measure, monitor and maximise their marketing ROI. No choice. Why? To achieve the following benefits:

• All marketing team members can identify closely with the company’s commercial targets
• Marketing’s stakeholders  (CEO, CFO, sales, etc) clearly understand marketing’s commercial role and added value
• Marketing is no longer susceptible to budget cuts when business is slowing down

I want to be clear of the definition of marketing ROI:

Marketing ROI (in value) = Total Marketing Income (TMI) – Total Marketing Cost (TMC)

 Marketing ROI (in %) = ((TMI  – TMC) / TMC) x 100

Looks obvious, doesn’t it? In the following articles, I will elaborate on the components of this formula – it is not as simple as it looks! But it tackles the marketing ROI challenges head on.

CALCULATED MARKETING SUCCESS!