Marketers are under more and more pressure to show a return on their activities. However, it is often unclear exactly what this means. Certainly, marketing spending is not an “investment” in the usual sense of the word. There is usually no tangible asset and often not even a predictable or quantifiable result to show for the marketing spending, but marketers still want to emphasize that their activities contribute to financial health of their organizations or their clients’ organizations. As defined in the book Marketing Metrics: 50+ Metrics Every Executive Should Master, MROI (or ROMI) is the contribution attributable to marketing (net of marketing spending), divided by the marketing “invested” or risked.
Recently, I engaged a panel of marketing executives, my fellow graduates of the internationally ranked Penn State Smeal College of Business Executive MBA program and fellow Brand and Marketing Integration Coaches designated by the Institute for the Study of Business Markets, in a discussion on marketing return on investment (MROI). I posed several questions and asked the panelists to provide insight based on their own experience.
Meet the panelists:
Jody L. Jacobs, B2B Marketing Strategist/Partner, Wavelength B2B Marketing. Jody provides strategic marketing consultation to clients, helping them to align business objectives to marketing strategies. She has more than a decade of experience serving global companies in their efforts to achieve global brand integration and local relevant messaging. Jody’s passion lies in helping firms both large and small deploy relevant marketing strategies that develop their brand as an asset that creates value for their stakeholders – and the bottom line. Among her many specialties is ROI planning and analysis.
Lance Baird, Vice President, Sales and Marketing, Godfrey. Lance oversees Godfrey’s business development and outbound communications programs. When he’s actually in the office and not traveling the trade show circuit, he works diligently to understand client needs in order to offer solutions that are relevant and highly effective.
Teresa J. Avery, experienced marketing and public relations leader. Avery worked in a marketing and PR agency environment for over a decade, leading campaigns for clients from large pharmaceuticals to small clothing manufacturers.
Do you feel it’s possible or worthwhile to quantify the effect of marketing spending in terms of marketing return on investment?
AVERY:
Selecting appropriate objective measurements and tracking them carefully is critical to the success and continued relevancy of any marketing initiative. The marketing department exists in order to allow the company to bring its goods and services to consumers. In order to do that effectively, we must have solid knowledge of the impact of our campaigns. This is important not only to “sell” our existence to the front office, but to ascertain our work is achieving real results for the entire organization.
BAIRD:
MROI can – and should – be calculated to the best extent possible. Of course, that’s the trick, isn’t it? At Godfrey, we take a big picture view at calculating MROI, being sure to break things down tactically and very specifically. It’s only in doing so and measuring the KPIs (key performance indicators) that have been mutually agreed upon on the front end and by both parties involved (agency and client), are we able to say to our clients, “our collective actions have produced X leads for you.” From there, it’s in their world. But that’s (eventually) real money.
JACOBS:
It is both possible and worthwhile to quantify the effect of the marketing investment to impact to the business. In fact, it is this very premise from which my company, Wavelength B2B was founded. When I begin to work with my clients, the conversation starts with the objectives of the business. This is because a strategically-centered marketing program must tie both upstream marketing (branding efforts) and downstream marketing (marketing efforts that help the sales force add value) to the company’s business goals. If marketing does not impact the achievement of those goals, then why do them?
At the Institute for the Study of Business Market’s (ISBM) annual meeting this past September, the director Ralph Oliva challenged that “marketing should be the engine that PROPELS the growth of a company by defining its future. That philosophy positions the marketing function at a very pivotal role within the success of a firm. With that responsibility, measurement is essential.
Does your organization or do your clients value and/or use MROI calculations to justify marketing spending, and does this impact decisions about marketing strategy?
BAIRD:
To us, marketing ROI is more than a single view of investment versus “bottom line” sales or demand generation. We believe it is important to show and measure how each step leads to the next in the sales and marketing process. Also, analytics offers us the ability to continually improve all aspects of our programs. As data comes in and is analyzed we will want to change, test, improve and measure again.
JACOBS:
Absolutely. Although, clients are now approaching MROI measurement as a tool – and not a method by which marketing tactics are flat out cut. More often, we are collaborating with clients to determine what needs to be improved within a program to make results even better.
MROI doesn’t impact strategy per se, but it does impact tactical direction. What is great about measurement now is that the process by which you determine if you are hitting the mark or not is tied to analyzing data that can become strong intel for the sales force. Previously, the marketing department would be begging sales for insight on the customer. Marketing now has the ability to respond in kind – providing intel and tools that help the sales channel add value to the customer.
AVERY:
While communications and creativity are important attributes of a marketing department, they may in fact pale in comparison to the importance of careful analysis of objective measurements. Marketing is as much about the numbers as it is about the message.
What do you think is the best approach for calculating MROI (e.g., what components should go into the calculation)?
JACOBS:
The best approach for calculating MROI is to begin by identifying the firm’s goals. One common denominator is the impact to the relationship to the customer as it impacts the bottom line. Common to all firms, MROI should include the cost of customer acquisition and the cost of maintaining the relationship with the customer in relationship to the revenue generated over the customer lifecycle. Other factors should be included, but they should be tied with outcomes that are specific to the firm or the firm’s specific market dynamics.
BAIRD:
Beyond “pure” measurements, there are “indicators” that can be tracked that give a short-term view of trends. They are not true measures, but if tested they should be able to detect patterns that reveal where the overall trends are going. Some methodologies we use for measurement based on objective:
Objective — Building Awareness:
Indicators: search engine rankings, website traffic (macro and targeted), editorial presence/mentions.
Objective — Generating Interest:
Indicators: PR coverage in markets, responses to communications focusing on relevant issues, search engine results, visits to market section or application or case history web pages, time spent on a site, downloads, newsletter and e-newsletter signups.
Objective — Creating Desire:
Indicators: Visits and downloads of informational materials that pay off values and differential; subscriptions to e-news; membership in real-life or online community.
Objective — Producing Action:
Metrics: website downloads, Contact Us form or expert help inquiries, literature fulfillment, leads from all sources (800-number calls, business reply cards, PR inquiries, literature requests, etc.), sales appointments.
Objective — Prospect or Customer Cultivation via targeted Marketing
Metrics: e-news delivery, open and response; website visits, pages viewed, time spent, movement (if possible), downloads, forms/inquiries, sales activity.
Objective — Competitive Comparisons, Share of Voice, etc.:
Primary methodologies: measurement of competitive ad spending and PR activity, using publisher resources and independent resources; search engine (SEO and SEM) activity, investment and effectiveness comparisons (our Google-certified staff has access to more tools than publicly available); broader Internet advertising studies.
One challenge in measuring marketing returns is estimating the incremental revenue, contribution, and net profits attributable to marketing. What do you feel is the most difficult challenge in calculating MROI?
BAIRD:
Having access to the [client’s] sales channel such that I can quantitatively prove my ROI in dollars rather than leads.
JACOBS:
The biggest challenge in my experience, is getting focused on measuring the “right things” and choosing the correct measurement to determine MROI. Today, there are numerous results and customer behaviors that can be tracked. (Web traffic, conversion statistics, etc.) These results more often than not are indicators of the impact of individual tactics within the larger sales and marketing program. These are clues we as marketing professionals can and should utilize to measure if we are on track with reflecting the voice of the customer, to provide intel to the sales channel, to test our messaging, and so on. These are not measures of MROI.
We also know that it is not one mere marketing tactic that is going to make or break your marketing program. This is because it is the BLEND of experiences that a customer has with your marketing communications that impacts the brand experience for the customer. So, for example, if your firm has a top notch public relations program, and your offering is receiving tremendous editorial – and let’s say that the PR program has been very successful at communicating your company’s competitive differentiator, which is that you are “easy to do business with.” If your web site isn’t easy to navigate, or if the customer encounters a gruff sales or service contact – you’ve proven that you are not easy to do business with, and the customer therefore compares his/her experiences to what was written about this claim.
To respond to that challenge, I counsel my clients (the contacts in the C-suite) to select a few, key measures of the program’s success. These are typically tied to sales results: Cost per lead, cost per acquisition, cost to achieve conversions with downstream activities, etc. For example, one of my client firms is shifting his offering from a product offering to a SaaS offering. In doing so, we have helped them with both upstream (branding) and downstream (sales funnel) support. What is key, is that the client is focused on measuring distinct, key KPIs to determine if the collective efforts of the sales and marketing functions are providing ROI: 1. Cost of new customer acquisition, 2. Revenue over the life of the customer relationship, 3. The number of subscribers/number of users.
Are there any external factors not usually considered in calculating MROI that should be considered when trying to justify marketing spending or when trying to quantify the effect of marketing spending on revenue?
JACOBS:
For our purposes here, I’m going to define “external” as anything outside of the pure marketing department of the firm. So yes, there ARE external factors not usually considered, but marketers should prepare to be measured on the function’s impact to other functions within the company: impact to the sales function, impact to the R&D function, and impact to the supply chain (supply chain was most recently tackled in a recent 2011 issues of Industry Week.)
I’m already seeing evidence of that today. A recent online marketing campaign to drive orders for a particular component product line is such an example. The goal of the campaign was to drive orders for components that were produced in the U.S. versus those that were manufactured elsewhere. This campaign was to solve both a manufacturing problem (validating capital investments made for in-country manufacturing) and to resolve a supply chain problem (At the start of the year, the company originally thought it had enough orders for these components to make manufacturing quotas. It turned out there was an error in the enterprise system, and we had to act quickly to turn this around.) As we monitored the success of our marketing efforts in driving demand, we discovered intel that was helpful to the sales organization. This included a line card challenge in the channel that the regional sales manager was then able to proactively resolve, as well as discovering growing demand for these components in an emerging market, which aided forecasting activities.
This is incredibly interesting and to me, a natural evolution of holding marketing accountable for its key role in the success of the firm. In the 1980s and 1990s, the movement within marketing was to make marketing tactics and functions “integrated.” Today, that’s the cost of entry. Watch for emerging efforts to break down the silos between corporate functions and for future MROI to include elements that indicate the impact marketing has on driving the success of other corporate functions.
What else would you like to point out or discuss pertaining to MROI?
BAIRD:
Reporting of results can range from daily, weekly, monthly, quarterly or annually, depending on the type of project or program. We generally recommend that brand awareness and perceptions be measured every 12–24 months, depending on the situation. Advertising programs leading to web destination pages are generally reported on a monthly basis. Ongoing program elements, such as PR programs and e-news campaigns, are usually reported on a monthly basis. Targeted marketing campaigns and events such as trade shows, webcasts or press conferences are reported as soon as possible after the event.
According to the Wharton Executive Education institute, a recent McKinsey survey, presented at the Chief Marketing Officer Summit at Wharton, found that CEOs expect marketing leaders to cut costs and increase contributions to growth. At the same time, the rise of new channels, such as the Internet and wireless communication, and the increasing importance of word of mouth and sponsorship, make marketing resource allocation decisions much more complex. Both marketing and finance executives are under incredible pressure to make every dollar count.
What comments do you have on this panel discussion, or would you like to pose any follow-up questions to the panelists? Also, if you have anything to share on your own experience with measuring the impact of marketing on financial results, I’d like to hear about it.
Wavelength B2B is an award-winning agency whose mission is to help companies use marketing to drive top-line growth. The Agency works with foreign-based companies entering the U.S. Market, international and national marketers as well as select regional companies and government/non-profits. The Agency’s most sought after services include strategic marketing program development, Customer Engagement Strategies, Lead Conversion Strategies, Integrated Content Development, Sales and Marketing Alignment Programs and Mobile Phone Apps that improve sales and marketing alignment. Traditional services also offered include branding, advertising, public relations, interactive, direct, illustration and trade show support.
Godfrey is one of the leading business-to-business marketing communications agencies in the United States. The agency offers research, strategic consulting, brand management, digital marketing strategy and execution, advertising, public relations, digital marketing solutions, lead management, measurement and the ability to implement cutting-edge technologies.
Penn State Smeal College of Business Executive MBA program. Located in Metropolitan Philadelphia, and serving executives from Connecticut to Washington, D.C., the Penn State Smeal Executive MBA program is one of the top ranked MBA’s in the world. Available only to business professionals, the Smeal EMBA meets every other weekend over 21-months.
The Institute for the Study of Business Markets (ISBM) is a center of excellence in the Smeal College of Business Administration at Penn State. ISBM is networked with researchers, educators and practitioners in business-to-business marketing in companies and universities throughout the world. If your focus is business-to-business marketing—marketing from one business or “value chain” to another—the ISBM is a valuable resource for you and your firm.