Demystifying ROI by Measuring Marketing

In good times marketing and sales get all the credit for increases in sales and profits, but in bad times, IT gets the brunt of the cost-cutting pressure. What have been missing are truer measures of return on investment (ROI) for companies adopting customer-facing strategies. What’s really needed is a more focused approach to quantifying the contribution of marketing, while at the same time questioning some long-held beliefs about ROI.

The best way to get started on truer ROI measures of performance is to start quantifying the performance of marketing — which in many companies is seeing rejuvenation in spending thanks to more targeted program focus and the ability to tie back results accomplished with sales, all underscored by a recovering global economy. Today the better you can quantify your departments’ contribution, the greater the chance you get to spend more on projects your department sees of value; the converse is also very true, where lack of measures quickly lead to a lack of funding.

Arm Yourself with Marketing Metrics

It’s critical to get a solid return on customer-facing strategies — quite frankly if these strategies are fully automated and rely on CRM, order capture, or service-based applications or not isn’t at the heart of this point, the ability to execute and accomplish the quantified goal is.

So before your company starts layering in technology for streamlining marketing and sales tasks, get a handle on the metrics listed here first. Sure, there are many more, but it’s better to have a solid handle on these to feed the knowledge in your company of just how effective you are being with customers.

The following metrics are a must-have list for any marketing organization:

Cost per lead. This applies to every marketing activity, from advertising to direct mail and trade shows. Be sure to capture this on each strategy you use for generating leads — one high-tech manufacturer found the cost per lead from television was US$110, yet the close rate was the highest of any lead generation strategy.

Lead-to-close ratio. This is a measure of how many leads in your pipeline have closed relative to the total leads generated. From the leads that didn’t turn into sales, consider doing a win/loss analysis.

Cost to fulfill an order. There is a tough irony in this figure for many companies. They find their average cost to fulfill an order is over $200 — especially those with disconnected, yet distributed, order management systems — and find that their average order size from smaller customers is below $150. So these companies have found they are actually losing $50 per order from their smallest and highest maintenance accounts.

Renewal rates by customer segment. Just classifying your customers and then capturing their renewal rates is easily enough done in a Microsoft Excel spreadsheet. This can give you great insights into how to capture even greater business throughout your customer base.

Event-based ROI. Trade shows, “webinars,” even regional sales events have many useful insights to be gained by measuring their ROI. For many companies who have CRM systems they have the chance to see the history of the event coming together in the targeted prospects’ histories — and can see which incentives worked and which didn’t to bring prospects out to the event. The bottom line is that event-based ROI has many surprises waiting to be discovered for the benefit of your company. If you aren’t doing this today get started.

Dispelling ROI Myths with Marketing Data

Once any company is armed with just the metrics above, it can better negotiate with CRM vendors, system integrators and consultants to get to the performance they want. Let’s take a look at many of the myths that start to fall apart when there’s better metrics in place from marketing’s contribution (www.lwcresearch.com/filesfordownloads/MeasuringValue.pdf):

Myth: Various vendors’ ROI assessments are useful for comparing their applications’ contribution. In reality, payback period is a much more effective relative measure of a given application’s ability to deliver value.

Myth: Hard numbers are all that matters in defining ROI. It’s a safe assumption that 70 percent of the total cost of any CRM implementation is going to be training and assisting people to change how they work today. For every dollar spent on CRM, at least two or more additional dollars needs to be spent on assisting the people who actually use the application change how they work. It’s the numbers spent on “soft” strategies like changing how people work where the true ROI gets earned — and when marketing has an idea of their performance on processes with the metrics above, this myth gets exposed quickly.

Myth: You can predict ROI using industry-specific averages. One company’s best practices can be another’s worst. Too often companies buy into the vision of ROI by proxy instead of performance. When a company is armed with marketing metrics, this is much easier to refute.

Myth: When all else fails, cost-reduce your way into a positive ROI. A hold-over strategy from the recession, this rarely works and as many have said, it’s impossible to cost-reduce your way into market leadership.

Myth: Sustainable ROI is possible without integration. The most dangerous of all myths, because there is evidence everywhere that the exact converse is true. In the case of marketing, the more integrated the processes the higher the ROI of the systems added to automate the information required to complete the goals the processes were designed to achieve in the first place.

Myth: ROI on a per-project basis is always traceable. This is certainly not true, and only happens when a process is owned from start to finish, and has clear boundaries. Cause-and-effect happens when processes change first and technology gets selectively applied.

Bottom Line: As global economies recover its important for many marketing organizations to embrace metrics first, before spending on technology. Don’t let the budget for IT spending on customers force false urgency — stop and think about how you are doing on these strategies today first — and then make smart investments that get you to your marketing goals.