Marketing VP’s, Directors, and CMO’s have passionately pursued “marketing ROI” for several years now. Marketing technology innovation, shifts in strategic thinking, and the focus on measuring every activity and campaign are key drivers. CEO’s and CFO’s and the never ending drone from Sales adds emotional fuel to the mix.
Pursuing marketing ROI is misguided. Marketing is not an investment. Marketing will never produce ROI.
Revenue produces profits. Marketing helps Sales generate revenue. Marketing should grease the skids to make the entire process efficient which leads to profits. There’s a big difference between profits, profit margins, and ROI. Marketing is not a stock. Start-ups and mid-market companies struggle with this. Marketing is often viewed as the spending black hole of budgets where every single email campaign, tradeshow or webinar is scrutinized with the “ROI” within some unrealistic time frame like 30 days, or six weeks, or three months. When the floodgates of revenue don’t open, the tactics are viewed as having zero “ROI”. This is crazy thinking.
Marketers Need to Lead With the Right Ideas – And CFO’s Can Help
Marketing is part of doing business. Period. Always has been. Always will be. Organizations like Microsoft or Apple spend billions on marketing every year. And their spend is accounted for as a strategic component of doing business. Yes, downstream marketing managers have metrics to measure campaign effectiveness which help with annual performance reviews, etc. But this isn’t ROI. The CFO can be a marketing execs best friend, coach, and guide. The CFO can help shape the line of thinking from marketing ROI to profits.
Here is Where Marketing is the Strategic Powerhouse (And NOT the ROI punching bag.)
Marketing leads how profits are generated for any company. Marketing feeds the machine where Sales can close deals that generates revenue. Marketing can make this entire process incredibly productive and efficint with the entire customer lifecycle. This includes everything with demand generation, branding, advertising, events, product marketing, social media, and on and on. If the machine is running smoothly, the process leading to profits can be very efficient. If sales cycles shorten and accelerate, more of the right customers are identified, and Sales closes the loop, profit margins can increase.
Everything Marketing uses should make the strategic process to generating revenue as efficient as possible. Everything from powerful technology platforms like marketing automation, analytics, CRM, CMS, and social media should add to efficiency to helping win business and generate profits.
And not everything Marketing does cannot be measured. Sorry folks. It’s true. My favorite example is measuring the “ROI” of email, web browsers and telephones. It’s impossible. Yet without email and telephones businesses would grind to a halt.
But, but, but but……
Yeah yeah yeah. I know. You heard someone present marketing conference and they have 87,000 followers on Twitter and all they talked about was Marketing ROI. There’s a reason why those people are professional speakers and not strategic marketers. It’s up to you to lead within your organization with the right business thinking and execution. I’m sure you would rather review marketing effectiveness differently than simply reporting on marketing tactics, social media followers and email opens and web site visitors. And how about getting the CEO off your back asking about the ROI of a single webinar? Look at how the metrics tell the bigger story.
Use the Right Formulas to Build Credibility
Marketers need to use the right language to build credibility. ROI may sound neat when you read a marketing celebrity’s blog. But it’s the wrong way to look at the business. Here are two ideas to for B2B marketers to measure velocity and efficiency.
- Pipeline Velocity = Time from lead identification using Marketing Automation x Close Rate x Average Deal Size / Length of Sales Cycle
- Pipeline Efficiency = Number of Sales / Number of Leads Identified x 100
Velocity and Efficiency will help map to the big picture measurements with profits
- Gross Profit = Gross Sales – Cost of goods sold
- Net Profit = Revenue – Cost
- Net Profit Margin= Net Profit/Revenue
- Lead by using the right language. Yes, ‘semantics’ matter.
- Establish a “Profit Partnership” with your CFO that builds a culture of the right focus in your organization.
- Measure pipeline velocity to identify how Marketing adds efficiency (shortens buyer journey time or sales cycle, etc.)
- Remove emotional opinions from the discussions around marketing ROI. Don’t get caught in the trap of tracking “ROI” for a tactical event. Don’t measure pure activity. Tactics are not campaigns. Campaigns are big and supported by tactics.
- Great marketing doesn’t require a massive budget. Think Navy SEALs versus an entire Army Division. Small and focused can be incredibly effective with the right objectives.
- Measure the right things that help Sales generate revenue, which leads to profits. Measure the full customer lifecycle that leads from pre-awareness, sales-won, and post-sales.
- Build a demand generation strategy that measures the right outcomes.
- Use technology to measure the right things. Without measurement, management is impossible.