How do you measure Marketing ROI?

Last week’s post about What C-Level Execs want from Marketing discussed the top 3 C-level executive priorities from the eMarketer review of a research study conducted by Heidrick & Struggles. This post looks at ‘Improve Marketing ROI’ which is the 4th highest priority in this survey.

Return on Investment (ROI) is a financial metric generally defined as:
ROI = (Gain from Investment – Cost of Investment) ÷ Cost of Investment
It may be relatively straightforward to calculate the ROI on each specific marketing program or campaign – e.g. a marketing program costs $100k, generates $200k of revenue which represents 100% ROI. But how do you measure ROI for Marketing overall from a C-level perspective? If the marketing budget is a typical 2.5% of total revenues for B2B companies, does that mean the ROI is 3,900%? Not likely.

The big variable is what constitutes the ‘Gain from Investment’ created by Marketing. IMO, this is the crux of most of the conflict and frustration for C-level executives and Marketing to define the value in consistent and measurable terms for Marketing ROI.

Marketing can and should track the ROI of each campaign and program. This essential starting point provides lots of tangible data for analysis and reporting, but it’s an incomplete view. Some sales may only occur long after a campaign is done, but were nonetheless originally influenced by the interest and awareness created by that campaign. How about interest and awareness created from all campaigns and programs that generate sales not attributed to a specific marketing program? How do you account for these?

Then there are all the valuable but intangible gains that marketing creates. Conditioning the target market(s) with press releases, articles, advertising, etc. Developing credibility with various influencers such as industry analysts, consultants, mavens, etc. Customer loyalty and retention programs that may only pay off in future years. Many others. These are all important, necessary and valuable gains generated by marketing, but difficult to put a $ value on for calculating ROI.

"Marketing is inherently about producing results - either financial or otherwise." – Geoff Smith

A better approach is to use a balanced scorecard or marketing performance management (MPM) framework to measure and manage Marketing ROI across all areas that marketing spends time and resources on. This would be based on agreed goals and strategic objectives with C-level executives for each area for marketing. Then establish metrics or key performance indicators (KPIs) for each element. This will produce a more balanced and equitable view of the ROI produced by marketing across all areas for C-level executives that directly relates to the performance of everything Marketing does.

Now that you’ve established what and how you’re measuring marketing performance and ROI, you can work with C-level executives on objectives to improve performance and ROI in specific areas and elements.

How do you measure and report Marketing ROI to C-level executives?

Your comments are always welcome.
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