HOW TO MEASURE RETURN ON MARKETING INVESTMENTSep 02 2019
Calculating return on investment (ROI) on marketing activity has been a longstanding challenge for businesses. Next year MMGA celebrates its 100th anniversary, so I have been contemplating our marketing budget. I thought it useful to share my thoughts with you:
Return on marketing investment is a metric used to measure the overall effectiveness of a marketing strategy in order to help the management team to make better decisions around future marketing investments.
Marketing activity adds value to different business functions in different ways. Your sales team might define marketing value in terms of revenue growth, whereas your operations team might view it in terms of cost management or pricing strategy. As such, you should map out what value means to each function and create metrics that measure the impact of marketing for each part of the business.
In order to track and measure ROI on marketing, you need to know how much you are spending on it – this is where your marketing budget comes in. Set a marketing budget at the start of the year alongside clear objectives which focus on areas such as new client acquisition, client retention, brand and reputation development, etc.
It can be helpful to explain the marketing budget to colleagues. By providing visibility on how each spend in the marketing budget aligns with key strategic objectives, you can educate your colleagues and establish the credibility of your marketing function.
It is often necessary to educate your colleagues in relation to the uncertainties of marketing. Just because the firm invests £100 in marketing doesn’t necessarily mean it will make £1,000 in new sales. There are various uncontrollable factors which influence the outcomes of marketing activities and you should take the time to help your colleagues to understand this.
You can then create some KPI’s which illustrate the return on marketing investment against each strategic objective, and also measure how the marketing investment has delivered value to each business function in your company.
If your business has a client relationship management (CRM) system you can track how many customers your marketing campaign has targeted. You can also track the conversion rate – i.e. what percentage of customers who were marketed to by your firm actually purchased from you each quarter.
Marketing is a long-term investment in developing relationships with potential customers. The ROI may take several months to start coming through. As such your reporting should focus on longer-term measures (i.e. quarterly rather than monthly measures). As time goes by you should be able to show how business growth followed each marketing campaign.