What you earned, minus what you spent, divided by what you spent.
Earn $100 after spending $75, divided by the $75, and you have a 33% ROI. Put another way, for every dollar you spend, you get back $1.33.
Simple, right?
Then why do marketers seem to have so much trouble convincing the corner office that investing in marketing is a sound strategic and commercial choice.
Simple answer: Attribution.
Which part of revenue, or margin earned, depending on how you want to measure the success or otherwise of an investment, is attributable to the spending of the money?
Let’s take a simple and very common example: building a website.
Every business these days is told they need a website, not having one is like not having a phone, it simply makes doing business next to impossible.
Let’s look at the formula to try and pick clean the bones of the calculation.
What you spent:
- You need resources to determine the form and scope of the website.
- You need someone to write the copy, and take or source the photos and illustrations.
- You may need subscriptions to items supporting the website, such as CRM integrations, analytics services, pop-ups, autoresponders, and on, and on, and on.
- You may need resources to manage and ‘clean’ the data bases that appear on the site, such as product specifications, promotional deals, customer and lead management, and on, and on, and on.
- Finally, you need resources to build and maintain the website.
All of these resources can be sourced from external parties, in which case you can track invoices, or from internal resources, in which case all you have to do is determine what part of their employee costs you need to attribute to this website development. Simple to say, hard to do.
What you earned:
If anything, this is harder than attributing costs to a website development project.
- What part of the revenue, or margin, whichever you choose as the benchmark, can you attribute to the cost of the website, and which part goes to the sales force, the quality of the product, the photography on the website, the manner in which you follow up enquiries, how you capture returns, the cleanliness of the delivery truck belting around suburban streets, and on, and on, and on.
- Over what time frame do you measure the return? A week, a month, a year, the duration of the associated advertising campaign, the lifetime of a customer?
- How do you factor in other marketing activities, advertising on traditional media, digital ads, the weight of your distribution, the quality of the targeting of activity to real potential customers Vs the tyre-kickers. And on, and on, and on.
- How do you include the value or otherwise of the word of mouth, or organic reach on social media? Which social media do you include in these considerations, is it just Facebook and twitter? What about LinkedIn, or if you are a ‘techo’, GitHub, or Reddit, or the networks of gamers, and on and on, and on.
The core question is, ‘what do you include, and how do you allocate a weight to the contribution it made to the outcome?‘
Attribution.
Too add to the confusion, people use a range of terms interchangeably, usually because they do not think about, or recognise the problems of attribution.
For example, they confuse return on marketing investment with return on advertising spend, and they confuse leads generated with real financial results, and most particularly when confronted by someone flogging new and shiny digital toys, revenue with margin.
To go back to the metaphor at the beginning, a website is not anything like a telephone, so to make the comparison is nonsense. A phone is a one dimensional tool. They all look the same, and do the same job, although the advent of smart phones has widened that scope considerably. A website by contrast is infinitely variable in what it does, looks like, and performs, and should be the product of a robust strategy and tactical implementation plans, not some simple template pulled out of a digital urgers kitbag.
To build that necessary credibility in the corner office, most probably occupied by an accountant or engineer, whose whole mind set is quantitative, you must be able to draw conclusions based on data. This data must demonstrate the cause and effect chains that exist, often very well hidden, and avoid the marketing clichés and jargon, which just make you sound like that digital urger in the foyer.
Need help thinking about the implications of all that, call an expert.
