How to understand the ROI of your data-driven marketing

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Neil Davey
Managing editor
MyCustomer.com
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The evolution of marketing has picked up pace in recent years. What was once an art has now developed into a more scientific discipline thanks to its increasing focus on data and measurement.

Simultaneously, there has been a growing demand for marketing accountability, which has meant that marketers have been asked to demonstrate clear ROI on the investments they make.

Historically, this hasn’t always been easy. In the days of pure advertising, of course, there was no obvious way of measuring the ROI of the likes of TV, radio and billboard ads – they may have increased awareness and led to sales, but measuring the impact was elusive.

But the rise of digital has made marketing far more measurable, and this has had an influence on marketing’s role in the business.

“If we go back even a few years, ‘marketing ROI’ became a glorified term which helped many marketers gain a seat at the revenue table by showing the number of marketing generated leads and the potential pipeline value associated with those leads,” says Farnaz Erfan, director of product strategy at Birst.  

“In research by Bizo during 2014, around 60% of B2B marketers are now held accountable for their contribution to revenue, with this responsibility starting at around 20% of overall sales volumes. Alongside this increase, there are now more and easier ways to measure marketing impact and demonstrate that responsibility is well founded. The move to online channels makes it easier for marketers to directly link their tactics and campaigns to leads coming in and conversions in the future.

“This increase in availability of data means that modern marketers can no longer afford to be in a vague position when it comes to attribution of revenue. This ability to attribute revenue more accurately means that marketers are on a hot seat too. They need to prove their value as it pertains to revenue creation and customer retention.”

Data-driven measurement

The advent of data-driven marketing should ensure that organisations can not only identify the strategies and campaigns that are most likely to be successful, but also secure buy-in and investment for marketers by demonstrating the potential ROI of impending campaigns.

Put simply, if a marketing department is truly data-driven, the measurement of ROI should be at the fore.

However, a number of obstacles and errors can undermine the efforts to measure ROI of even those organisations that are data-centric. For instance:

  • Businesses may be unable to access the necessary data to accurately measure the ROI because data is held in silos.
  • Organisations may not collect all the right data from the channels (email, SMS, mobile, web, social media, print) and ensure comparability.
  • Companies may not analyse the collected data for sufficient insights.
  • Total marketing costs may not be included – i.e. the fully loaded cost.

And of course there is also the issue of data volume.

“Today’s digital marketing tracking capabilities generates a pool of data that’s readily available to companies, whereas traditional marketing mediums such as direct mail and print couldn’t be tracked so accurately simply because data wasn’t available or when it was it wasn’t entirely accurate,” explains Kate Cooper, CEO of Bloom Worldwide. “The main challenge with data driven marketing today is that there is a lot more data available – choosing the most important data to analyse and not wasting time on the unimportant metrics will bring benefits. Data overload can be very daunting.”

So what steps can marketers take to ensure that their data-driven efforts put ROI measurement at the core of their operations?

Set SMART (Specific, Measurable, Achievable, Realistic and Timely) objectives

Marc Michaels, director of behaviour and planning at DST, says: “Do you want the campaign to increase revenue & profitability, increase retention, or build brand awareness, brand equity and brand identity? The duration of the payback can greatly vary in each case so you need to ensure you have the right timeframe for your ROI measurement.”

Plan

Identify what will be measured and how, which involves defining experimental designs (testing) to ensure that all measures (e.g. a campaigns response rate) and dimensions (e.g. a respondent’s profile) are able to be analysed with the appropriate level of statistical confidence.

Erfan adds: “Before ROI can be measured in a multichannel integrated marketing environment, it is key to set out a full evaluation plan that will identify the relative contribution of marketing channels. It is also important to recognise this contribution both in the short-term and in the long-term – i.e. considering the life time value of a customer.

“It is important to make sure that the right data is collected on a ‘continuous, consistent, comprehensive and comparable’ (4Cs) basis (custom links, landing pages etc.) and re-attribution methodologies employed as necessary for proper comparison.”

Run a pilot/small test campaign

This will help marketing departments determine how campaign will play out before committing large investments.

Analyse and review

Michaels advises: “Fervently collect data and analyse to provide detailed insight on the campaign’s performance and the factors underlying this result, e.g. full media source analysis by response channel. Periodically collate into a holistic ‘story’, share and discuss the analysis findings with all relevant stakeholders.”

Iterate

Change channels and calls-to-action for better performance, i.e. fix what is not working. “Evaluation will fully inform the optimisation of our activity to proactively and intelligently suggest improvements/redeployment of budget in the roll out in order to increase value for money and the payback from the marketing investment,” says Michaels.

Redeploy and scale up

Once you get the formula right for your marketing mix, you can start investing more money into the campaign. Adopt a continuous improvement ‘test and learn’ strategy that will slowly raise the bar in terms of the ROI effectiveness of your campaigns over time.

Michaels notes: “Once you understand the revenue-to-cost ratio, it's easier to start ranking marketing decisions. Should I advertise in press? Should I pay to advertise on Facebook? How does direct mail sit in the mix? Should I do a daily deal? The likely impact of all of these decisions can be assessed against your ROI hurdle.”

Company-wide goals

Another consideration that may further complicate ROI measurement for marketers is that with marketing increasingly sitting at the revenue table as co-owners of revenue, they also share the same goals and objectives as the company’s sales and service teams. This has implications for the way that marketers approach ROI, according to Erfan.

“It has become harder to measure marketing ROI, because it requires alignment with what sales defines as sales ready leads or what the services team believes determines a customer’s readiness for upsell. The ROI conversation in this context requires marketers – and their business counterparts – to have a consistent, single view into what describes a customer, and in particular what defines a high value customer.”

To help address this issue, it would be helpful for organisations to break down silos between the departments, bringing data from CRM, marketing automation, service and financial systems together in a single view, as well as agreeing on shared definitions, and aligning definitions of ROI as well. A further benefit of this, of course, is that this single trusted source of data can also be used to make strategic decisions on what types of customers to go after, where to focus your energies and what type of programmes to run.

Erfan further recommends a phased approach to aid with ROI measurement in this scenario.

Firstly, determine where you see an immediate value to the organisation. “This may be the value you are creating from closing sales faster. In this case, you can develop programmes that accelerate close rates in response to competitive pressures,” explains Erfan. “Your way of measuring the success of these programs might be with a simple attribution model, such as a ‘last-touch’ attribution. In this case, your marketing ROI could be defined as the total dollar amount won as compared to the number of marketing campaigns placed as the last marketing interaction prior to opportunity close date.”

Once you achieve this simplistic marketing attribution model and you are able to show its success, you can move to the next phase. In this example, this could be a lead generation effort where the value of marketing is measured by the number of quality leads created.

“In this case, your ROI will expand to take into account the number of touches needed to get leads to a sales qualified stage. This could be a place where you look at multi-touch attribution, across a multichannel approach. You can break this into phases as well. Maybe you start by measuring the number of touches across one channel and expand from there.”

Finally, and importantly, marketers should focus on the ultimate definition of marketing ROI by tying in the value that marketing has created in increasing the adoption within your existing accounts and increasing status quo retention rates.

“This can include the value that marketing has created in expanding the customer’s spend or overall share of wallet,” suggests Erfan. “In this case, you will broaden your marketing ROI measurement to not only look at new leads created and new opportunities closed, but also how customer marketing programmes increased your product usage, reduced churn and generated product or service upsells.”

Of course, this still only represents a basic approach to ROI measurement to start out with, and more advanced models can be utilised as the organisation gets to grips with ROI.

Erfan concludes: “You might want to ultimately measure the lifetime value of all your customers or tie in all your marketing touchpoints across multiple channels together, but starting out small and with achievable objectives is more likely to be successful. It’s important to have a vision on how you would expand your remit in each phase, and where this will tie into the bigger picture - but not trying to boil the ocean is always a smarter and more achievable choice.”

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