“Let’s go over the marketing expenses for last month.” But they really aren’t expenses, are they? It’s time to remove the E word from our marketing lexicon. An expense is something you buy and depreciate over time. The value will never be as much as it was when first acquired.
Successful marketing doesn’t depreciate. It generates revenue. By virtue of this definition, marketing is an investment, not an expense. Marketing – if done right – creates future wealth. Sure, we know this, yet we continue to refer to the money we spend on marketing as “expenses” or “costs.” A thing becomes the words we ascribe to it.
If you took your marketing budget to an investment company, the first thing your adviser would do is determine your financial horizons, your growth expectations, and your appetite for risk. The advisor also would want to figure out how much of your budget will be necessary for maintenance as opposed to growth.
There’s the matrix of maintenance and growth overlaid on top of risk. How much of the budget must be spent on proven marketing avenues, and what can be used to experiment?
These implementations are then tracked to measure returns. This is straightforward when it’s stocks or other financial instruments. It gets kind of fuzzy when applied to marketing. Or does it?
Marketing return on investment (ROI) is not the simple equation of subtracting money put in from the sales generated. Some marketing is not directly attached to revenue generation, it’s for awareness-building. You’ve got to get prospects into the marketing funnel so you can guide them along the buyer’s journey.
It’s easy to measure money spent cultivating future customers by conversion marketing or looking at the amount of money spent on lead acquisition. You can determine cost per conversion or cost per lead – but you won’t be able to calculate a return on investment unless you dig deeper and determine a customer’s lifetime value.
Let’s say it costs you $200 to accompany a customer along the journey that pushes them through the funnel from lead acquisition to conversion to a sale. And then the customer makes a purchase that results in a $100 net profit. That’s not a positive ROI.
However, if you know based on history that the average customer stays with you for 10 years, making 10 purchases during that time, you can determine the customer lifetime value. It’s the net profit of your entire future relationship. In our scenario, you have invested $200 to gain a customer who will provide $1,000 in profit to your company over the course of time.
The ROI on that $200 is 400 percent, and the annualized ROI is 17.46 percent.
So, measuring ROI is a piece of cake because – Google – or whatever digital search platform you’re using. It turns out that only one in four B2B marketers surveyed by Nielsen is highly confident of being able to quantify ROI.
Why is it so difficult? It could be because you have to clarify your measurable results. Yes, you do have to increase awareness and create more conversions. Clear, measurable results require timelines. You can’t determine ROI with an open-ended trial.
Warning: acronym alert. Measurable marketing goals that can help you determine ROI are SMART. Specific, Measurable, Achievable, Relevant, and Time-Bound. Just because you get really specific on a timeline doesn’t mean you can skate past achievability or relevance.
Select goals that offer you the ability to define key performance indicators (KPIs) that are directly related to your goal. Choose a KPI that’s quantifiable and tied to a business goal. You can’t ignore marketing efforts that increase awareness, but measuring the number of new Instagram followers from sponsored posts will not allow you to determine ROI. The number of new Instagram followers that make a purchase during a 90-day campaign gives you a quantifiable KPI.
Diversification is a smart way to see an improved ROI. Test your marketing so you can glean insight that you can apply on a broader scale. It’s the only way to know how to improve engagement.
To an outsider, the money you spend on marketing can look like an expense. That can certainly be the case when you look at inbound marketing efforts such as content creation. We can help you demonstrate how this crucial part of the sales funnel is an investment that pays handsome returns. Learn more.