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Make the most of marketing ROI: Five best practices to follow

10th Jul 2015
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Work by The Economist Intelligence Unit found that, over the next five years, four out of five companies will move to classify the marketing function as a revenue driver. This will increase the level of responsibility that marketers have within their business, and push them to find easier ways to measure the impact of their decisions.

However, measuring the marketing impact on revenue can be difficult. Here are some best practice steps that can help you along the way to marketing return on investment (ROI):

1. Be clear on how you define ROI

Marketing ROI can have many definitions: generated leads, wins in target accounts, higher NPS scores, and so on. It is therefore important to start any ROI discussion with a clear definition on what counts as the real ‘return’ on marketing investment.

This starts by defining the terminology: What do you count in as revenue? Do you include net new revenue as well as upsell / cross-sell revenue? What is the timeframe in which your marketing campaigns should pay off, or else you would exclude them from your calculations?

Equally, it is important to define what costs are associated with this ROI. Does it include only the marketing and customer acquisition costs, or should the cost of sales and customer on-boarding be included as well? As companies look to build up a greater picture of customer profitability and lifetime value in order to measure success, these additional costs should be considered in your early discussions.

2. Weighting your returns

Many marketers think that a campaign is successful when it has a positive ROI; mainly this involves generating more actual revenue than was invested in the campaign. However, while creating revenue is the ultimate goal of all marketing programs, many activities take a long time to pay off. This is especially true in industries that have longer sales cycles, such as high-tech and manufacturing.

For businesses in these scenarios, marketing ROI should take a weighted approach. This involves counting both the leads that are generated and are moving along the sales process, as well as the ones that are considered closed revenue. In this calculation, you can assign less weight to the leads that are earlier in the sales cycle and more weight towards the ones that are in later stages.

Measuring this revenue pipeline can help show two things – firstly, the marketing campaigns that are producing revenue. Secondly,  the marketing value in areas like content and field-enablement that are accelerating sales cycles.

3. Use marketing ROI as a collaboration tool between marketing, sales, services and finance

While the big vision of marketing ROI is apparent to marketing, it might not be as clear for those leading sales, services or finance. In these circumstances, marketing ROI can be perceived as a way for marketing to try and prove its value. This can lead to very reductive arguments that ignore the core purpose of any ROI discussion: the need for the whole organisation to collaborate on maximising customer value.

Instead of arguing over ROI numbers, it is important to use marketing ROI conversations as an opportunity to align everyone around the same goal: raising the bar for customer-centric programmes to drive growth.

To start, marketing should lead the charge for bringing data together from different customer information silos to help support these discussions. The management team can then decide how much investment should be put into each segment of current, near-term and future-term customers. For example, should budget be allocated to creating net new leads? Or to support upsell, cross-sell and customer engagement programmes?

Making decisions on where to invest budgets and resources should not be done in isolation. By analysing how existing channels like field-marketing, partners, sales and digital are performing, the organisation can decide on the right mix of content, field-support, sales and product marketing activities that can tune the return of investment for the best results. This way, the use of analytics becomes the centre of discussion and a great way for facilitating conversations – as well as providing a tremendous opportunity for transparency, collaboration and co-ownership of revenue.

4. Don’t expect your marketing ROI to be perfect

Calculating marketing ROI can get really sophisticated. For example, using customer life time value (CLTV) in ROI calculations is the ultimate Holy Grail for many marketers. However, getting an accurate overview of CLTVs involves using predictive analytics capabilities to forecast the value of each customer based on their past and current patterns alongside their industry, company size and specific cohorts. While this is a great idea, it might not be what you can achieve today. Instead of treating this as an insurmountable obstacle, think about how you can break things up into smaller chucks.

In this case, it is worth thinking about short-term ROI vs. long-term ROI. A short-term ROI should be an achievable goal that is a good first step to implementing that wider programme. For example, a short-term goal might be defined as a marketing campaign that will generate a certain number of highly-qualified leads within a company’s target market. Defining the qualification criteria - i.e. what is an accepted level of qualification for both teams - will itself require some collaboration with sales.

Once this initial project is working well and achieving the required results, the next phase can focus on whether marketing programmes are contributing to sales acceleration as part of the overall sales process. Over time, this cycle continues and it may change based on new findings from the company’s data.

These individual improvements should add up to higher levels of ROI. By adapting and adding to short-term goals, you can deliver more incremental return in every phase. Where you start - and how you evolve – will be different for every company; however, it is important to set achievable milestones and use these short wins as part of the pursuit of long-term goals.

5. Start with the end in mind and work your way back

Starting small and iterating, as we discussed in the previous section, is the right approach, but even with that in mind, it can be difficult to know where to start.

The best place is where you had your biggest success; where you have seen your largest deals and most successful customers. By analysing the campaigns that helped you win those accounts, you can determine how to create more potential opportunities. In addition to analysing these customers, make sure you interview those customers and find out how they learned about you, why they bought and what made their buying decisions easier. This helps you not only to target the right market segments, but to use your existing customer relationships to create content and marketing proof-points that can accelerate the entire revenue-generation process.

Taking a pragmatic approach to ROI, similar to what is outlined here, means that you are using ROI as a strategic guide for planning your future. While many think of marketing ROI as a tactical measurement that proves the value of marketing from time to time, best-of-breed marketers shift their mindsets to look at marketing ROI as a programme for the future.

By linking marketing ROI to regular checkpoints internally, you can identify the campaigns and programmes that pay back positively and use your findings to ask for new funding in similar campaigns. This provides a virtuous circle and positions you as strategic leader for the organisation, giving you more power and ammunition to justify your investments and continue doing good work.

Farnaz Erfan is director of product strategy at Birst.

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