How do you make sure that marketing activities at your organization are purpose driven? One way to check the alignment between marketing operations and goals is to analyze the value derived. Marketing organizations are under more pressure than ever to be more accountable with their marketing spending and close the gaps, enabling better and quicker informed decisions aligned to business outcomes.
The ability to measure and manage marketing ROI is a key part of marketing agenda. They provide powerful insights to support decision making during your strategic and tactical planning to drive better enterprise performance and profitability, giving you more credibility with the CEO and CFO.
Here is a three-step approach to demonstrate the value of marketing to your business:
Understand and manage your marketing ROI drivers
Execute measurements based on outcomes
Adjust your marketing activities based on insights
1. Understand and manage your marketing ROI drivers
One of marketing’s primary objectives is to make optimal utilization of existing resources to generate more profits, thus improving effectiveness and efficiency. The first step to do so is to quantify the expected outcomes from the budgeted marketing investment.
The critical starting point would be an accurate ROI calculation. Even in the simplest of marketing ROI calculations, you need to include the incremental profit, i.e., profit associated to a managerial decision. Incremental profits are in most cases driven by factors such as the incremental sales generated, the revenue per sale, the gross margin percent, and the marketing expense.
The intent to run ROI scenarios at the planning stage is to help you improve the profit potential of your campaigns and marketing initiatives. With ROI scenarios, you can:
Identify key profit drivers critical to improving campaign profit potential
Eliminate initiatives with low profit potential or unrealistic objectives
Evaluate alternative tactics that justify small-scale testing
Understand the interdependencies necessary to deliver bottom-line contribution
Quantify potential performance of new strategies or incremental budget
The same ROI calculations need to be run at the conclusion of the marketing initiative for assessment and reporting. These results form the basis of new scenarios designed to make the next iteration of a campaign more profitable.
2. Execute measurements based on outcomes
Looking at the current scenario, it is seen that almost every organization has the necessary tools for measurements and metrics. Too often, “catching up with peers” with kind of measurements such as advertising awareness, customer engagement, or promoting to acquire Twitter “followers” are used to justify marketing spend instead of pursuing measurements on business outcomes that improve marketing performance and profitability.
The key success factor here is - what they measure and how they measure it.
It is important to clearly plan on:
What to measure
When to measure
How to measure
It is important to clearly define the objective of measurement during the planning phase, and it needs to be defined in a way that it is independent of specific marketing initiatives or campaigns where measures are defined to assess specific campaigns.
Some of most frequent questions that I’ve asked my customers are - “How much ROI would the campaign given the budget?” “What is the outcome that you expect out of this activity?” – And in most occasions these questions are not convincingly answered.
When determining what to measure, it helps to work backwards from the desired outcomes, thus ensuring that the marketing activities drive those outcomes.
3. Adjust your marketing activities based on insights
Clarity precedes measurement and the right measurement positions you to make better-informed decisions. It’s important to know where improvements can have the greatest impact.
Here are some top sources that have generated best results for my customers:
Increasing conversion rates late in the purchase funnel
Integrating effectiveness tactics across the funnel
Accelerating leakage of low potential prospects
Reducing the cost of offers or price discounts on base level sales
Improving efficiency of effective initiatives
The sophistication of tools in today’s market scenario, has made it so easy. Recently, one of my peer shared an insight as to how they were using tools to drive timely insights and distill it enough to precisely focus on the information that they needed for taking action. For instance, he shared that the insights developed around leakage in the purchase funnel could help marketers identify gaps in the flow from marketing contact to changes in behaviors, sales, and revenue generation.
Taking a long-term view of customer profitability and lifetime value will help you align your marketing metrics with sales and financial outcomes. The key is to establish expectations for the team to take actions and constantly pursue performance improvements.