The best way to report the value of marketing is through financial metrics that make sense to counterparts outside the marketing function. If you have structured your campaigns appropriately and are measuring at the right level, you will be able to consistently track the relative performance of marketing campaigns in terms of ROI. Data from our OMI survey states that less than 40% of marketers can measure their return on investment so marketers need to understand which campaigns are having the greatest, and the least, impact, with a consistent, comparable metric.
Develop a process for adapting your plan throughout the year
To measure ROI, you must have a consistent and realistic measure of return. The only consistent and real measurements of return are financial targets. Therefore, you must begin by stating your desired financial targets. You should also be able to state upfront what your desired ROI is. Too frequently, marketers carry out activities and then wonder what those activities were worth. This is backwards—marketers should define their target ROI at the outset.
If you know your financial targets and your ROI targets, it is simple to calculate your target marketing budget. Campaigns should then be devised to meet the financial target with an appropriately sized budget. This is not the typical approach to calculating Marketing ROI (MROI), to the detriment of the function. Marketers tend to measure what they can rather than what they should. Therefore, they tend to report on second-order metrics (impressions, views, likes, downloads, attendees) that are difficult to square with financial value. They also tend to measure at the wrong granularity.
Ultimately what matters in marketing is whether the marketing efforts are generating financial value to the company. Any metric that is decoupled from financial value has an undesirable level of indirection. This is not to say that all metrics must be financial, but they must all be demonstrably connected to a measurable financial outcome. The more ROI can be grounded in financial targets, the better the team can communicate the value of marketing within and outside the team, the more credibility it will have in justifying its budget requests and explaining its results, and the easier it is to communicate the impacts of budget changes. This is achievable, but it may require looking at the deceptively simple ROI calculation in a new way.
Marketing ROI (MROI) for marketing campaigns is known to be difficult to measure. The concept is simple. Indeed, the formula is just a twist on a standard ROI calculation:
The challenge that most marketers encounter is inconsistently defining and capturing the data needed to fill in the variables in the equation. Let’s start with the easier of the two variables: Marketing Investment. What should that include? Let’s imagine a digital marketing campaign— should you include the media buy? It seems pretty clear you should. What about the creative agency you used to make the content for that specific campaign? Yes. How about a prorated share of the content writer you have on retainer? She contributed to it, after all, but how much time was it exactly, and what were her rates again? What about a prorated share of the company FTEs? Corporate overhead? Meals for the meetings you had with the agency? A share of the SEO optimization platform costs? It’s tough to know precisely where to draw the line, but you can see that each of these costs changes the denominator and that’s going to change the ROI.
The other key variable in the numerator is Business Value from Marketing. Revenue seems like a clear indicator of business value. But is that one-time revenue or customer lifetime value (LTV) that you should care about? How about gross margin? Bookings value is good too, but you’ll need to map that to revenue formulaically. Pipeline? Opportunities? Impressions? Brand perception? Each step further up the marketing funnel, the more intangible a discrete measurement of marketing value becomes.
Dan Faulkner is co-author of The Next CMO: a guide to operational marketing excellence, and the CTO of Plannuh, an AI-based marketing planning software, where he is responsible for the technical strategy and delivery of the world’s first AI-powered marketing management platform. Dan has 25 years of high-tech experience, spanning research and development, product management, strategy, and general management. He has deep international experience, having led businesses in Europe, Asia, North America, and South America, delivering complex AI solutions at scale to numerous industries. Dan holds a Bachelor’s degree in Linguistics, and Masters degrees in Speech & Language Processing, and Marketing. He has completed studies in Strategy Implementation at Wharton.