Episode summary
The Next CMO’s latest podcast is with Dan Faulkner, the CTO of Plannuh. Dan is one of the 3 authors that wrote the Next CMO: A Guide to Operational Marketing Excellence. In Chapter 9 of the book he discusses the New Marketing ROI. During this podcast we focus on why measuring ROI is so important, the 3 key principles of MROI, the difference between ROI and CPO, and most importantly how marketers measure ROI correctly.
Helpful links
Dan Faulkner - https://www.linkedin.com/in/danielfaulkner/
Book - The Next CMO: A Guide to Operational Marketing Excellence: https://info.plannuh.com/the-next-cmo-a-guide-to-operational-marketing-excellence
For more info about Plannuh, check out our website
Book - The Next CMO: A Guide to Operational Marketing Excellence: https://info.plannuh.com/the-next-cmo-a-guide-to-operational-marketing-excellence
For more info about Plannuh, check out our website
Full Transcript
Kelsey Krapf 0:00
Welcome to the official podcast of the next cmo hosted by Plannuh. The next cmo is a thought leadership podcast for those that are CMOS or want to become one. My name is Kelsey Krapf, and I'm the senior marketing manager.
Peter Mahoney 0:15
And I'm Peter, and I'm the founder and CEO of Plannuh. And welcome to the next cmo podcast.
Kelsey Krapf 0:32
We have Dan Faulkner, the CTO of Plannuh, Dan is one of the three authors that wrote the next cmo a guide to operational marketing excellence, as we just discussed in our last podcast. This week, we are going to focus on a very hot topic ROI. And Dan just happened to write a chapter on it. Dan, this is a two podcasts back to back with us how you feeling
Dan Faulkner 0:54
honored.
Kelsey Krapf 0:56
And lucky? Well, let's get started here, you know, what is ROI? And why is it so important?
Dan Faulkner 1:04
Um, so I think everyone knows that ROI stands for return on investment. And it's a term that is used heavily. But I think I by use, I mean used in discussion heavily, but used in practice, not as frequently as it could be. And part of the reason for that is that if you're looking to understand what your return on investment is, you need to express the return in terms of financial outcome. And very frequently, that can feel challenging. And it can seem challenging to really create a through line from the marketing activities, you're you're carrying out the campaigns, you're executing to a financial outcome, and then organizing your investments at the right level. So that you can actually relate those financial outcomes, the investments you made into the campaign, if you can do that, then you really can get to a true ROI measurement. And that's really what the chapter is about how you can go about getting to a real ROI.
Peter Mahoney 2:16
So Dan, let's we should step back a little bit. And and I'm going to ask you to sort of lay out your overall thesis for what you're calling the new marketing ROI. But I'll start by just making sure people know that chapter nine of this book is what we're talking about. And if you're you're interested for our, our listeners, we're gonna have a link in the show notes. So you can actually get for a limited time a complimentary copy of the next cmo book, which I highly recommend. I love the author's wonderful, intelligent, good looking people. And but first, Dan, before I get myself in real trouble, why don't you just let lay out the approach for the new marketing ROI as you defined it in your chapter?
Dan Faulkner 3:10
Sure. So my starting point was really asked myself, why does this metric that everybody aspires to seems so difficult to deliver? And Peter, we discussed it, maybe in another podcast, but many times in real life, the fact that people will selectively pick our way, they'll say, Oh, the ROI of this small campaign was fantastic. But they can't say the ROI from my plan was fantastic, or the ROI across my campaigns varied like this, because they only seem to be able to latch on to the right returns to measure against investment. episodically, and I was wondering why that is. And so my starting point was, what are people measuring? And I found, and I doubt this will be a surprise to too many of the listeners. But this this, there's this well known quote of what gets measured gets managed. And that's, that's often spoken of as if it's a positive. The full quote actually says what gets measured gets managed, even when it's pointless to measure and manage it. And even if it harms the purpose of the organization to do so. People tend not to quote that second part as frequently. And it's really a warning to say just because you can measure it doesn't mean you should, just because it's easy to measure doesn't mean that's the thing you should measure, you should measure the thing that actually matters that actually is going to prove the value of what you're doing. And ultimately, if you're in marketing, that's a financial outcome, its revenue or its pipeline. And so I wanted to orient the chapter towards providing a framework where you could do that consistently. In order to do that, the there's kind of a portion of the chapter that talks about sorting metrics that matter. So sorting the wheat from the chaff, the stuff that you should measure from the stuff that you can measure. Then there's an element that talks about how you actually ascribe a financial value to those things that you should measure, depending on where they appear in the marketing funnel. Because again, it can feel sometimes difficult to get something that's high up the funnel and say, is that really worth a for? Can I really say that's worth the financial amount, I can test you can. Um, and then there's just a worked example, to show how you might actually achieve it. Because obviously, you know, the books intended to be very practical, they're meant to be a guide book, it's not meant to be an academic book, it's meant to show you how you could actually put it into practice.
Peter Mahoney 6:12
So there are a few things in there, Dan, that we see pretty consistently, that are interpreted differently when you go from company to company, and even different people within a company. So one area that you talked about is the idea of what actually is a return. And and that's something that is is kind of interesting, because I often see people equating, for instance, a pipeline value to a revenue value to a margin contribution value. So they're obviously different things. But maybe you can explain the difference to two people. And I know this may feel obvious, but but it's it's a really important reminder, especially when you're saying that has an ROI of 2.6 that has one of 3.5. But if the this is pipeline versus margin contribution, that means something very different, correct?
Dan Faulkner 7:19
Yes, absolutely. So pipeline, of course, is the representation of all the business you haven't closed yet. And so there's what you need to do if you want to actually get to an ROI of that you should estimate as accurately as you can, how much of that you really think you're going to close, you should actually you should be converting that pipeline into an outcome that will give you a revenue target. And then very importantly, you should be saying yes, for the what's the margin that we make on that revenue. If it's very profitable, revenue, great. If it's not very profitable, then you will need more of the top line revenue in order to achieve a big outcome. So really, the true return on your investment is the margin that you make on the revenue from the campaigns that you run, that's the thing you should be driving the calculation off, if you want to show ROI.
Peter Mahoney 8:16
Yes, and there are two important reasons for that. One is a normalization of measurement. So you can understand that this campaign that has an ROI of three and a half, when you look at pipeline doesn't have the same value as this one, that's three and a half of margin contribution. The other is actually understanding the true business value and the thresholds of return performance that are acceptable or desirable by by your company. So I think those two things are incredibly important to differentiate.
Dan Faulkner 8:54
Yeah, I agree. And the very important word that you said there was consistency, you need to be consistent across your campaigns. And you need to have a consistent understanding of how you're going to be measuring with your counterparts and other functions, obviously, particularly with finance and with the executive team, so that you're all using the same anakinra when you're talking about the value that marketing is delivering.
Peter Mahoney 9:21
Yes. Now in in this particular chapter that you wrote down, I like that one, you you do include some math, although it's it's not high math. I mean, to be fair, I think if you made it through sixth grade math, you'd be fine. Understanding this chapter,
Dan Faulkner 9:39
I'm going to kind of show your work kind of man.
Peter Mahoney 9:42
Exactly. The other thing that you do is you you actually provide a bunch of examples and one of the things that's interesting is you define a whole bunch of metrics that are useful to measure and I like this term that maybe you can explain a little bit is that did we do it metrics so what what's that all about?
Dan Faulkner 10:01
Did we do it metrics feel good, but they don't mean anything. So I, I have personally had the experience a 100% policy, have you had this experience, as well, Peter, where you'll say someone Hey, how's that? How's the campaign going? And they'll say fantastic. All the copies written. We got it on. It's on the site, it's been launched. And the, you know, the the content looks great. The images look fantastic. That was all done on time. And under budget, like, great new kind of waiting for the other shoe to drop, which is okay, is it working? Are we actually getting some benefit from this? And that's the one thing that's not being included, often because people are confident in what the results are? Well, they haven't got a system in which they can can measure it. And so yes, it did we do it metrics are actions that you might have taken, stuff that you need to do anyway, but not stuff that really impacts the success of the campaign. And those, you need to just have a clear idea of what they are. So you can track them, because they're probably more related to project management than campaign success, right, your ability to execute the campaign. But they're not the thing that you measure the campaign by?
Kelsey Krapf 11:24
Well, Dan, I can't tell you how many times I've, you know, launch campaigns in my career, obviously not a plan out, but they're not, you know, there's no financial targets, or a cost per outcome that are actually associated with those campaigns. So, I know, you mentioned the chapter, you know, your first order of actually measuring ROI is setting those those numbers. Um, but what is the difference between ROI and CPOE? Really?
Dan Faulkner 11:51
That's a good question. And I was actually two good points in there, Kelsey. So let's take them one at a time. Um, it's really common that folks will say the definition of success of this campaign is whatever a certain number of downloads or a certain number of impressions. And then just go, and the thing that's buried in there somewhere, is, an impression is worth something. a download of this piece of content is worth something. And usually what it's worth is getting someone into a stage in the funnel or progressing through a stage in the funnel. And if you follow that through, you will end up at a financial outcome if you understand or can even estimate, you know, with some degree of accuracy, what your funnel metrics are, you can estimate what the financial outcome of those it is, and then work your way back and say, therefore, this is what these things are worth per outcome. If you do that, you can calculate the ROI. Because, Said another way, imagine that you needed 10,000 impressions to generate 1000 leads, which turned into 100 opportunities, which turned into 10 deals. And those 10 deals, were worth $10,000 every step of that pipeline, and every multiple of those metrics is also worth $10,000. Because the $10,000, that you ultimately end up winning lives, on average in math set of higher funnel metrics that you have. That's how you can ascribe financial values, things further up the pipeline. And if you do that, then you can measure ROI of the investments that you're making it those different pipeline stages. If you don't do that, you can only measure the cost per outcome. You can only say, Well, here's how much I invested to get someone to download, or here's how much I invested to get convert someone you know, from a lead to a later stage opportunity. And all you can then do is measure your relative efficiency in achieving those outcomes. So you could stipulate that, hey, it used to cost me $100 to get them from point A to point B, and now it cost me $90. That's good. Meat is good in relative terms, but unless you really understand the financial value of what you're marketing for, you don't know if it's good in absolute terms, you might actually be justifying spending way more than that, or you might be overspending, even with your better cost per outcome.
Peter Mahoney 14:38
It is of course, a really important first step for a lot of people is is trying to really understand what what a cost per outcome isn't. And I think having a language around what is a reasonable cost per outcome for the different outcomes that you're measuring consistently within a company is really Important, and you see this much more. So you see people talking about the fact that, that we're willing to pay $1,000 or $10,000, or $100,000, for for an opportunity as an example. And having that or it gets a little trickier when you're you're dealing with with leads, because there's tends to be so much variation in in the value of a lead. But having at least some relative understanding that in in aggregate, that spending $20 $30 $100 per lead for my particular business, my historical funnel conversion in in the value of the ultimate outcome, which is getting a transaction is is worth spending that. So having that as a starting point is I think important. What one thing I think that was your third key principle, you just hit on Dan, Dan's a list guy, if you can't tell. And let me just read them to you. If you don't remember, I think you probably remember them. Right? You're your first one. But I'd like to hear my voice. Your first one was a key principle one, all marketing campaigns have an ultimate, ultimate quantifiable financial target. So you talked about that a little bit, but when it when you expand on that a bit.
Dan Faulkner 16:28
Um, well, it was actually a good way to sort of calibrate maybe as well, what you should be considering as a campaign. This actually helps you in the planning process as well. So let's take something like a product launch, you're you're you're launching a brand new product into the same market, to keep it kind of clean, you are going to have a financial model that says, hey, we're going to invest this much in building this product, we're going to launch this product to this segment of the market, these kinds of customers, we're going to price it like this, we want to achieve this much revenue, I can define my desired financial outcome very clearly. And I know what I've spent, and I know what my company's margin targets are. So I can very quickly start to say, Well, okay, I can, I can work out what an affordable marketing investment would be to drive sufficient interest in the market to achieve that business outcome for that product launch within a certain time frame. Once I framed it like that, once I've defined my target outcome, then really everything that I'm doing towards that, to achieving that financial outcome is part of a broad campaign, I might have it, it's got to be part of probably some broad integrated campaign. So there's going to be some maybe some thought leadership, maybe some TV advertising, maybe some digital advertising, maybe some PR, those all flow in to a campaign. And if I can gather all of those costs, now I've got that very clear line of everything I've spent to everything that I've achieved, and I can really talk in terms of ROI. What's actually nice about that is it pulls you up from the thrash and wasted effort of trying to do attribution on a kind of an email level or channel level. That's kind of a fool's errand, because you're just not looking at the full picture of the end goal that you want to achieve. With it with the campaign.
Peter Mahoney 18:49
It makes sense. It makes a ton of sense. And I think it's a good test for a marketer to say, if I can't define a financial outcome, maybe it's not a campaign, maybe I'm not thinking about this the right way. And maybe I need to pop it up another level and say, what, what are the broad set of things? And what am I ultimately trying to achieve? So completely agree with that? So principle two, which I like a lot, we're just talking about this this morning, actually, is that key principle to marketing ROI is not tied to the fiscal year. What do you mean by that?
Dan Faulkner 19:24
Well, it's part of the broader theme that your plan and your marketing strategy and your marketing plan shouldn't necessarily be tied to the fiscal year depends on the nature of your business. So you may be making investments in the second half of the year, you've got a you know, sales cycle, a few months, all the returns that are going to appear next year. You just need to make sure that you you track the investments at the campaign level. Because if you if you don't do that, and if you're not actually explicit about that and having organized it, two things happen. The first is when things get tough in whatever you're currently operating in, people will question labor investments if you can't point to in year returns. But if you've got a real ROI, you can do that. The second base, it encourages, if you if you think of your plan and your metrics and your returns strictly in terms of the current fiscal year, it encourages you to just kind of sweep all this stuff that came over from last year in for free. And it wasn't free, you just spent that money last year. So you end up with a distorted view of the value of your investments.
Peter Mahoney 20:48
Well, and that's why, of course, being able to measure investment by campaign, not just by fiscal time period, is incredibly important. So that the concept of in most financial systems, of course, don't have the concept. They don't understand what a campaign is, they understand what a fiscal period is, they understand what your general ledger is, but they don't know what a campaign is so. So that kind of focus, I agree, is really important. The the other whole chapter on that we do, it's funny how that works. There's a chapter for that. They The other thing that I you mentioned the idea of, of companies that have long sales cycles, and that's one reason why things might span a fiscal year. But there are other reasons, of course, you can have a very short, you can have a very short sales cycle, and at the same time, have a campaign that spans fiscal years. So you can have a direct to consumer transactional sales business, but you have a brand building awareness campaign, that may last years. And in that campaign, of course, the To what end is about increasing the the visibility to to, to increase the conversion rate, and, and get people to buy more things. And that's going to build over a long period of time. So So measuring that, of course, is going to spend even though the the sales cycle can be minutes or seconds, the at the same time they the campaign can last months and quarters in years.
Dan Faulkner 22:35
And this is why kind of a central theme of the whole book, and that this chapter, you know, completely ties into is the notion of saying, starting with your goals. People in a marketing organization, it it's a great question saying why are we doing this? And what do we want to achieve? And even with things that might be long range, and might feel squishy? If you keep asking yourself that, why are we doing this to what and why do we need to do brand building? What is the value of that, and you understand that it's to make people aware and to create a brand preference or to open up a new segment of the market, then you can very quickly start see how those things that feels squishy actually can be tied into a financial outcome that you can then organize campaigns around. And, and, and justify financially.
Peter Mahoney 23:35
And just to be complete, and you we talked about this a few minutes ago. But your third key principle was the idea that you mentioned that every phase of the funnel is worth the same as the financial as the financial target. So again, explain that because it's a little bit mind bending sometimes for people. So just walk us through a quick example. So we can understand that.
Dan Faulkner 23:55
Yeah, sure. And there is an example in the chapter that talks that kind of goes through this and lays it out in detail. But if you boil it down to sort of one deal, one deal on average is worth $100, let's say. And, on average, you need to talk to 10 people, you've got to have 10 late stage prospects to turn into one deal, then those 10 prospects are also worth $100. On average. It doesn't mean any individually, you can't make a claim about what any individual prospects as well. On average, those 10 prospects are worth $100 because out of those on average, you get one deal that's worth $100 and as you work your way back up the funnel, if you need you know 100 leads to get to 10 leads stage opportunities there. Also Worth $100. And you can see how each of those elements in in the funnel becomes worth less from a financial perspective individually, on average, or set another way, you should be investing to achieve that level of value. But you probably, it might imply a different set of activities to get the thousand dollars 100 leads versus to get the 10 prospects, it doesn't mean you have to invest according to that value, it just means you need to do different things. But the deal, the late stage, the middle stage, and the early stage funnels that on average lead to one deal are all worth the same thing wherever they, wherever they appear in the funnel.
Unknown Speaker 25:50
And I explained you did
Peter Mahoney 25:52
and it's a pictures and numbers help on this one. So I encourage you to check out that particular chapter. And I think in general, one of the most important things to understand as a current or future marketing leader is, is these concepts, understand how you measure and describe value for for marketing. I think this is one of the most important things, one of the most important things that that you can do and understand. So I encourage everyone to study this chapter because it is it is a really important one.
Kelsey Krapf 26:30
And my last question for you, you know, you I know you're the CTA CTO role. And I said CTA cuz I'm live in the marketing world, you have a marketing degree, what advice would you give to marketers that want to become CMOS, obviously, besides read this chapter of the book?
Dan Faulkner 26:51
Well, so I, maybe I should also address the question of why any marketers should listen to a CTO about what they should do cmo. So earlier, in my, in my career, I started out in technology. But I did spend quite a few years running businesses with p&l responsibility, including oversight of the marketing organization, they do have a postgraduate degree in marketing. So I hope that at least gives me boost my credentials a little bit, to give some advice. But particularly in the context of what we've been discussing today, if you as a marketer can demonstrate to the business the value that you're achieving. And if you're in a CMO role, or any leadership role that your organization is achieving, you will flip the conversation from that painful one, which is, why should I give you money, rather than, for example, hire another sales person, chuck it into the product dadadada da, the things that all marketers here, you can turn the conversation into a discussion of your marketing system that says when I invest here, at the front of the system, out of the end of the system, on average comes a return of these multiples. And if you can do that, and you can measure it, and you can show it, the conversation is not going to be about justifying and scrapping for farms, it's going to turn instead to a discussion about how do we test the limits of that? Does that just go up linearly? If I give you more money, does it start to flatten out? And, of course, what you should do is say, well, let's test it test it empirically. So I can't think of many things that are more valuable are many things that you know, there are there abouts, but I can't think of many things that are more valuable than really being able to have a rigorous approach to measuring ROI in financial terms.
Peter Mahoney 29:07
Excellent. Well said Dan. And, and again, I encourage everyone, if you haven't had a chance to check out the book, click the link in the description. And for a limited time, you can get a free copy. It's also available on Amazon, if you want to make me and Jeff Bezos, a little bit of money. You can do that too. But we are, of course want to make sure you have access to this content because we think it's really important. So I think that's it and Kelsey, why don't you take us out?
Kelsey Krapf 29:36
Yes, thanks so much Dan. ROI is you know one of the most important elements of a business especially for marketing so highly suggest everyone listening to the podcast, read the book, or at least Dan chapter on the new marketing ROI. You can find the book on our website plannuh.com or in the show notes below. Make sure to follow the next cmo and Plannuh on Twitter and LinkedIn and if you have any Any ideas for topics or guests, you can email them to thenextcmo@plannuh.com. Have a great day, everyone.
Peter Mahoney 30:06
Thanks, everyone.
Transcribed by https://otter.ai
Welcome to the official podcast of the next cmo hosted by Plannuh. The next cmo is a thought leadership podcast for those that are CMOS or want to become one. My name is Kelsey Krapf, and I'm the senior marketing manager.
Peter Mahoney 0:15
And I'm Peter, and I'm the founder and CEO of Plannuh. And welcome to the next cmo podcast.
Kelsey Krapf 0:32
We have Dan Faulkner, the CTO of Plannuh, Dan is one of the three authors that wrote the next cmo a guide to operational marketing excellence, as we just discussed in our last podcast. This week, we are going to focus on a very hot topic ROI. And Dan just happened to write a chapter on it. Dan, this is a two podcasts back to back with us how you feeling
Dan Faulkner 0:54
honored.
Kelsey Krapf 0:56
And lucky? Well, let's get started here, you know, what is ROI? And why is it so important?
Dan Faulkner 1:04
Um, so I think everyone knows that ROI stands for return on investment. And it's a term that is used heavily. But I think I by use, I mean used in discussion heavily, but used in practice, not as frequently as it could be. And part of the reason for that is that if you're looking to understand what your return on investment is, you need to express the return in terms of financial outcome. And very frequently, that can feel challenging. And it can seem challenging to really create a through line from the marketing activities, you're you're carrying out the campaigns, you're executing to a financial outcome, and then organizing your investments at the right level. So that you can actually relate those financial outcomes, the investments you made into the campaign, if you can do that, then you really can get to a true ROI measurement. And that's really what the chapter is about how you can go about getting to a real ROI.
Peter Mahoney 2:16
So Dan, let's we should step back a little bit. And and I'm going to ask you to sort of lay out your overall thesis for what you're calling the new marketing ROI. But I'll start by just making sure people know that chapter nine of this book is what we're talking about. And if you're you're interested for our, our listeners, we're gonna have a link in the show notes. So you can actually get for a limited time a complimentary copy of the next cmo book, which I highly recommend. I love the author's wonderful, intelligent, good looking people. And but first, Dan, before I get myself in real trouble, why don't you just let lay out the approach for the new marketing ROI as you defined it in your chapter?
Dan Faulkner 3:10
Sure. So my starting point was really asked myself, why does this metric that everybody aspires to seems so difficult to deliver? And Peter, we discussed it, maybe in another podcast, but many times in real life, the fact that people will selectively pick our way, they'll say, Oh, the ROI of this small campaign was fantastic. But they can't say the ROI from my plan was fantastic, or the ROI across my campaigns varied like this, because they only seem to be able to latch on to the right returns to measure against investment. episodically, and I was wondering why that is. And so my starting point was, what are people measuring? And I found, and I doubt this will be a surprise to too many of the listeners. But this this, there's this well known quote of what gets measured gets managed. And that's, that's often spoken of as if it's a positive. The full quote actually says what gets measured gets managed, even when it's pointless to measure and manage it. And even if it harms the purpose of the organization to do so. People tend not to quote that second part as frequently. And it's really a warning to say just because you can measure it doesn't mean you should, just because it's easy to measure doesn't mean that's the thing you should measure, you should measure the thing that actually matters that actually is going to prove the value of what you're doing. And ultimately, if you're in marketing, that's a financial outcome, its revenue or its pipeline. And so I wanted to orient the chapter towards providing a framework where you could do that consistently. In order to do that, the there's kind of a portion of the chapter that talks about sorting metrics that matter. So sorting the wheat from the chaff, the stuff that you should measure from the stuff that you can measure. Then there's an element that talks about how you actually ascribe a financial value to those things that you should measure, depending on where they appear in the marketing funnel. Because again, it can feel sometimes difficult to get something that's high up the funnel and say, is that really worth a for? Can I really say that's worth the financial amount, I can test you can. Um, and then there's just a worked example, to show how you might actually achieve it. Because obviously, you know, the books intended to be very practical, they're meant to be a guide book, it's not meant to be an academic book, it's meant to show you how you could actually put it into practice.
Peter Mahoney 6:12
So there are a few things in there, Dan, that we see pretty consistently, that are interpreted differently when you go from company to company, and even different people within a company. So one area that you talked about is the idea of what actually is a return. And and that's something that is is kind of interesting, because I often see people equating, for instance, a pipeline value to a revenue value to a margin contribution value. So they're obviously different things. But maybe you can explain the difference to two people. And I know this may feel obvious, but but it's it's a really important reminder, especially when you're saying that has an ROI of 2.6 that has one of 3.5. But if the this is pipeline versus margin contribution, that means something very different, correct?
Dan Faulkner 7:19
Yes, absolutely. So pipeline, of course, is the representation of all the business you haven't closed yet. And so there's what you need to do if you want to actually get to an ROI of that you should estimate as accurately as you can, how much of that you really think you're going to close, you should actually you should be converting that pipeline into an outcome that will give you a revenue target. And then very importantly, you should be saying yes, for the what's the margin that we make on that revenue. If it's very profitable, revenue, great. If it's not very profitable, then you will need more of the top line revenue in order to achieve a big outcome. So really, the true return on your investment is the margin that you make on the revenue from the campaigns that you run, that's the thing you should be driving the calculation off, if you want to show ROI.
Peter Mahoney 8:16
Yes, and there are two important reasons for that. One is a normalization of measurement. So you can understand that this campaign that has an ROI of three and a half, when you look at pipeline doesn't have the same value as this one, that's three and a half of margin contribution. The other is actually understanding the true business value and the thresholds of return performance that are acceptable or desirable by by your company. So I think those two things are incredibly important to differentiate.
Dan Faulkner 8:54
Yeah, I agree. And the very important word that you said there was consistency, you need to be consistent across your campaigns. And you need to have a consistent understanding of how you're going to be measuring with your counterparts and other functions, obviously, particularly with finance and with the executive team, so that you're all using the same anakinra when you're talking about the value that marketing is delivering.
Peter Mahoney 9:21
Yes. Now in in this particular chapter that you wrote down, I like that one, you you do include some math, although it's it's not high math. I mean, to be fair, I think if you made it through sixth grade math, you'd be fine. Understanding this chapter,
Dan Faulkner 9:39
I'm going to kind of show your work kind of man.
Peter Mahoney 9:42
Exactly. The other thing that you do is you you actually provide a bunch of examples and one of the things that's interesting is you define a whole bunch of metrics that are useful to measure and I like this term that maybe you can explain a little bit is that did we do it metrics so what what's that all about?
Dan Faulkner 10:01
Did we do it metrics feel good, but they don't mean anything. So I, I have personally had the experience a 100% policy, have you had this experience, as well, Peter, where you'll say someone Hey, how's that? How's the campaign going? And they'll say fantastic. All the copies written. We got it on. It's on the site, it's been launched. And the, you know, the the content looks great. The images look fantastic. That was all done on time. And under budget, like, great new kind of waiting for the other shoe to drop, which is okay, is it working? Are we actually getting some benefit from this? And that's the one thing that's not being included, often because people are confident in what the results are? Well, they haven't got a system in which they can can measure it. And so yes, it did we do it metrics are actions that you might have taken, stuff that you need to do anyway, but not stuff that really impacts the success of the campaign. And those, you need to just have a clear idea of what they are. So you can track them, because they're probably more related to project management than campaign success, right, your ability to execute the campaign. But they're not the thing that you measure the campaign by?
Kelsey Krapf 11:24
Well, Dan, I can't tell you how many times I've, you know, launch campaigns in my career, obviously not a plan out, but they're not, you know, there's no financial targets, or a cost per outcome that are actually associated with those campaigns. So, I know, you mentioned the chapter, you know, your first order of actually measuring ROI is setting those those numbers. Um, but what is the difference between ROI and CPOE? Really?
Dan Faulkner 11:51
That's a good question. And I was actually two good points in there, Kelsey. So let's take them one at a time. Um, it's really common that folks will say the definition of success of this campaign is whatever a certain number of downloads or a certain number of impressions. And then just go, and the thing that's buried in there somewhere, is, an impression is worth something. a download of this piece of content is worth something. And usually what it's worth is getting someone into a stage in the funnel or progressing through a stage in the funnel. And if you follow that through, you will end up at a financial outcome if you understand or can even estimate, you know, with some degree of accuracy, what your funnel metrics are, you can estimate what the financial outcome of those it is, and then work your way back and say, therefore, this is what these things are worth per outcome. If you do that, you can calculate the ROI. Because, Said another way, imagine that you needed 10,000 impressions to generate 1000 leads, which turned into 100 opportunities, which turned into 10 deals. And those 10 deals, were worth $10,000 every step of that pipeline, and every multiple of those metrics is also worth $10,000. Because the $10,000, that you ultimately end up winning lives, on average in math set of higher funnel metrics that you have. That's how you can ascribe financial values, things further up the pipeline. And if you do that, then you can measure ROI of the investments that you're making it those different pipeline stages. If you don't do that, you can only measure the cost per outcome. You can only say, Well, here's how much I invested to get someone to download, or here's how much I invested to get convert someone you know, from a lead to a later stage opportunity. And all you can then do is measure your relative efficiency in achieving those outcomes. So you could stipulate that, hey, it used to cost me $100 to get them from point A to point B, and now it cost me $90. That's good. Meat is good in relative terms, but unless you really understand the financial value of what you're marketing for, you don't know if it's good in absolute terms, you might actually be justifying spending way more than that, or you might be overspending, even with your better cost per outcome.
Peter Mahoney 14:38
It is of course, a really important first step for a lot of people is is trying to really understand what what a cost per outcome isn't. And I think having a language around what is a reasonable cost per outcome for the different outcomes that you're measuring consistently within a company is really Important, and you see this much more. So you see people talking about the fact that, that we're willing to pay $1,000 or $10,000, or $100,000, for for an opportunity as an example. And having that or it gets a little trickier when you're you're dealing with with leads, because there's tends to be so much variation in in the value of a lead. But having at least some relative understanding that in in aggregate, that spending $20 $30 $100 per lead for my particular business, my historical funnel conversion in in the value of the ultimate outcome, which is getting a transaction is is worth spending that. So having that as a starting point is I think important. What one thing I think that was your third key principle, you just hit on Dan, Dan's a list guy, if you can't tell. And let me just read them to you. If you don't remember, I think you probably remember them. Right? You're your first one. But I'd like to hear my voice. Your first one was a key principle one, all marketing campaigns have an ultimate, ultimate quantifiable financial target. So you talked about that a little bit, but when it when you expand on that a bit.
Dan Faulkner 16:28
Um, well, it was actually a good way to sort of calibrate maybe as well, what you should be considering as a campaign. This actually helps you in the planning process as well. So let's take something like a product launch, you're you're you're launching a brand new product into the same market, to keep it kind of clean, you are going to have a financial model that says, hey, we're going to invest this much in building this product, we're going to launch this product to this segment of the market, these kinds of customers, we're going to price it like this, we want to achieve this much revenue, I can define my desired financial outcome very clearly. And I know what I've spent, and I know what my company's margin targets are. So I can very quickly start to say, Well, okay, I can, I can work out what an affordable marketing investment would be to drive sufficient interest in the market to achieve that business outcome for that product launch within a certain time frame. Once I framed it like that, once I've defined my target outcome, then really everything that I'm doing towards that, to achieving that financial outcome is part of a broad campaign, I might have it, it's got to be part of probably some broad integrated campaign. So there's going to be some maybe some thought leadership, maybe some TV advertising, maybe some digital advertising, maybe some PR, those all flow in to a campaign. And if I can gather all of those costs, now I've got that very clear line of everything I've spent to everything that I've achieved, and I can really talk in terms of ROI. What's actually nice about that is it pulls you up from the thrash and wasted effort of trying to do attribution on a kind of an email level or channel level. That's kind of a fool's errand, because you're just not looking at the full picture of the end goal that you want to achieve. With it with the campaign.
Peter Mahoney 18:49
It makes sense. It makes a ton of sense. And I think it's a good test for a marketer to say, if I can't define a financial outcome, maybe it's not a campaign, maybe I'm not thinking about this the right way. And maybe I need to pop it up another level and say, what, what are the broad set of things? And what am I ultimately trying to achieve? So completely agree with that? So principle two, which I like a lot, we're just talking about this this morning, actually, is that key principle to marketing ROI is not tied to the fiscal year. What do you mean by that?
Dan Faulkner 19:24
Well, it's part of the broader theme that your plan and your marketing strategy and your marketing plan shouldn't necessarily be tied to the fiscal year depends on the nature of your business. So you may be making investments in the second half of the year, you've got a you know, sales cycle, a few months, all the returns that are going to appear next year. You just need to make sure that you you track the investments at the campaign level. Because if you if you don't do that, and if you're not actually explicit about that and having organized it, two things happen. The first is when things get tough in whatever you're currently operating in, people will question labor investments if you can't point to in year returns. But if you've got a real ROI, you can do that. The second base, it encourages, if you if you think of your plan and your metrics and your returns strictly in terms of the current fiscal year, it encourages you to just kind of sweep all this stuff that came over from last year in for free. And it wasn't free, you just spent that money last year. So you end up with a distorted view of the value of your investments.
Peter Mahoney 20:48
Well, and that's why, of course, being able to measure investment by campaign, not just by fiscal time period, is incredibly important. So that the concept of in most financial systems, of course, don't have the concept. They don't understand what a campaign is, they understand what a fiscal period is, they understand what your general ledger is, but they don't know what a campaign is so. So that kind of focus, I agree, is really important. The the other whole chapter on that we do, it's funny how that works. There's a chapter for that. They The other thing that I you mentioned the idea of, of companies that have long sales cycles, and that's one reason why things might span a fiscal year. But there are other reasons, of course, you can have a very short, you can have a very short sales cycle, and at the same time, have a campaign that spans fiscal years. So you can have a direct to consumer transactional sales business, but you have a brand building awareness campaign, that may last years. And in that campaign, of course, the To what end is about increasing the the visibility to to, to increase the conversion rate, and, and get people to buy more things. And that's going to build over a long period of time. So So measuring that, of course, is going to spend even though the the sales cycle can be minutes or seconds, the at the same time they the campaign can last months and quarters in years.
Dan Faulkner 22:35
And this is why kind of a central theme of the whole book, and that this chapter, you know, completely ties into is the notion of saying, starting with your goals. People in a marketing organization, it it's a great question saying why are we doing this? And what do we want to achieve? And even with things that might be long range, and might feel squishy? If you keep asking yourself that, why are we doing this to what and why do we need to do brand building? What is the value of that, and you understand that it's to make people aware and to create a brand preference or to open up a new segment of the market, then you can very quickly start see how those things that feels squishy actually can be tied into a financial outcome that you can then organize campaigns around. And, and, and justify financially.
Peter Mahoney 23:35
And just to be complete, and you we talked about this a few minutes ago. But your third key principle was the idea that you mentioned that every phase of the funnel is worth the same as the financial as the financial target. So again, explain that because it's a little bit mind bending sometimes for people. So just walk us through a quick example. So we can understand that.
Dan Faulkner 23:55
Yeah, sure. And there is an example in the chapter that talks that kind of goes through this and lays it out in detail. But if you boil it down to sort of one deal, one deal on average is worth $100, let's say. And, on average, you need to talk to 10 people, you've got to have 10 late stage prospects to turn into one deal, then those 10 prospects are also worth $100. On average. It doesn't mean any individually, you can't make a claim about what any individual prospects as well. On average, those 10 prospects are worth $100 because out of those on average, you get one deal that's worth $100 and as you work your way back up the funnel, if you need you know 100 leads to get to 10 leads stage opportunities there. Also Worth $100. And you can see how each of those elements in in the funnel becomes worth less from a financial perspective individually, on average, or set another way, you should be investing to achieve that level of value. But you probably, it might imply a different set of activities to get the thousand dollars 100 leads versus to get the 10 prospects, it doesn't mean you have to invest according to that value, it just means you need to do different things. But the deal, the late stage, the middle stage, and the early stage funnels that on average lead to one deal are all worth the same thing wherever they, wherever they appear in the funnel.
Unknown Speaker 25:50
And I explained you did
Peter Mahoney 25:52
and it's a pictures and numbers help on this one. So I encourage you to check out that particular chapter. And I think in general, one of the most important things to understand as a current or future marketing leader is, is these concepts, understand how you measure and describe value for for marketing. I think this is one of the most important things, one of the most important things that that you can do and understand. So I encourage everyone to study this chapter because it is it is a really important one.
Kelsey Krapf 26:30
And my last question for you, you know, you I know you're the CTA CTO role. And I said CTA cuz I'm live in the marketing world, you have a marketing degree, what advice would you give to marketers that want to become CMOS, obviously, besides read this chapter of the book?
Dan Faulkner 26:51
Well, so I, maybe I should also address the question of why any marketers should listen to a CTO about what they should do cmo. So earlier, in my, in my career, I started out in technology. But I did spend quite a few years running businesses with p&l responsibility, including oversight of the marketing organization, they do have a postgraduate degree in marketing. So I hope that at least gives me boost my credentials a little bit, to give some advice. But particularly in the context of what we've been discussing today, if you as a marketer can demonstrate to the business the value that you're achieving. And if you're in a CMO role, or any leadership role that your organization is achieving, you will flip the conversation from that painful one, which is, why should I give you money, rather than, for example, hire another sales person, chuck it into the product dadadada da, the things that all marketers here, you can turn the conversation into a discussion of your marketing system that says when I invest here, at the front of the system, out of the end of the system, on average comes a return of these multiples. And if you can do that, and you can measure it, and you can show it, the conversation is not going to be about justifying and scrapping for farms, it's going to turn instead to a discussion about how do we test the limits of that? Does that just go up linearly? If I give you more money, does it start to flatten out? And, of course, what you should do is say, well, let's test it test it empirically. So I can't think of many things that are more valuable are many things that you know, there are there abouts, but I can't think of many things that are more valuable than really being able to have a rigorous approach to measuring ROI in financial terms.
Peter Mahoney 29:07
Excellent. Well said Dan. And, and again, I encourage everyone, if you haven't had a chance to check out the book, click the link in the description. And for a limited time, you can get a free copy. It's also available on Amazon, if you want to make me and Jeff Bezos, a little bit of money. You can do that too. But we are, of course want to make sure you have access to this content because we think it's really important. So I think that's it and Kelsey, why don't you take us out?
Kelsey Krapf 29:36
Yes, thanks so much Dan. ROI is you know one of the most important elements of a business especially for marketing so highly suggest everyone listening to the podcast, read the book, or at least Dan chapter on the new marketing ROI. You can find the book on our website plannuh.com or in the show notes below. Make sure to follow the next cmo and Plannuh on Twitter and LinkedIn and if you have any Any ideas for topics or guests, you can email them to thenextcmo@plannuh.com. Have a great day, everyone.
Peter Mahoney 30:06
Thanks, everyone.
Transcribed by https://otter.ai