Among the many challenges facing Marketers today, there is continued struggle to measure Marketing ROI in a quantifiable way that is meaningful to financial management including CFOs. Recent surveys of CMOs and Senior Marketing Executives confirm the issue:
- 93% of CMOs say that they are under more pressure to deliver measurable ROI. Ad Age Maureen Morrison
- On tracking ROI, only 5% of CMOs feel they are “very successful” and another 16% feel they are “somewhat successful”. B2B Content Marketing Trends-North American Content Marketing Institute
- Nearly 75% of CMOs say proving ROI and understanding effectiveness are their most pressing challenges. CMO Club/Cvent Study
- Just one-third of CMOs say they’ve quantitatively proven the long-term financial impact of their spending. Duke University’s Faqua School of Business
And what do CFO’s say about measuring Marketing ROI?
·Recent research conducted by Ernst & Young found that:
- 59% of the 652 CFOs surveyed make measuring marketing ROI and important priority- and 20% classify it as a very high priority
- Just 13% of the CFOs said that the agendas of finance and marketing were completely aligned on the issue of measurement methodologies
What CFOs want in Marketing ROI calculations that is most often missed
CFOs and other C-level management don’t necessarily correlate typical marketing metrics and terminology such as “followers”, “web visits”, “leads”, “conversions”, etc. with financial value. Their focus is all on the bottom line to make decisions on where the companies resources will yield the highest return. To use a non-marketing example, when considering a $2M investment in a plant improvement, CFOs use solid data that can predict what type of financial impact that improvement will make.
They also consider the cost of money – comparing how much money financial products or infrastructure improvements will yield versus spending it on marketing or advertising. Marketing budgets on the other hand are often perceived as non-quantifiable “branding” and CFOs tend to smell smoke and mirrors when Marketers try to defend budgets.
I’m sure your organization has no shortage of marketing data, but the real challenge is to associate sales dollars generated, (or even better, profit), to every dollar spent on marketing.
A good chunk of this challenge is the difficulty in getting accurate sales data. In many cases, sales data lives in separate databases that requires tons of “glue and screw” tasking to conduct even some “kinda-sorta” Marketing ROI calculations.
And the degree of difficulty is especially high for those who sell through Partner Channels, as sales data is typically only available on what Partners purchased – disconnected from the Marketing expenditure focused on the cost to push End-Buyers through the purchase journey. Without End Buyer sales data (and don’t count on your Partners or Sales team to give you bullet proof sales outcomes) it’s almost impossible to get a accurate picture of Marketing ROI that your CFO will take to the bank.
Accurate ROI Calculation – Simple Version
These steps should be applied to individual campaigns, media types (Google ads, digital ads, trade shows, etc.) and other primary segments to enable a clear view on how various expenditures and factors contribute to ROI and profit.
- Calculate actual sales generated from a particular marketing expenditure
- COGS subtracted from actual or projected sales = incremental profit
- Campaign costs subtracted from profit
- Campaign costs divided into incremental profit
- % of return compared with cost of money
- Sales amounts need to be based on incremental sales NOT on estimated annual customer revenue values
- The goal is that the ROI % is higher than what the company would have profited from if they had not spent the money on the campaign, but instead left it in the bank or didn’t borrow it. (Average cost of money)
- Future decisions on where marketing dollars are spent should be based upon historic ROI views (messaging, products, media, etc.)
Here is an actual example of a Demand Gen budget after the simple ROI calculation has been applied
Building off Simple ROI
Once the capability to automatically calculate basic or simple ROI is in place, there are multitudes of ways to build on it using different variables like offers, campaigns, Partners, nurturing treatments, etc. Your CFO doesn’t necessarily want that level of detail, but to make financially sound marketing decisions and measure improvements, you need it. After a period of time historical ROI information can be used to develop reliable predictive models that are extremely beneficial to the budgeting process.
NitroMojo and ROI
NitroMojo was developed to support reliable Marketing ROI calculations like the one depicted in the example above. The technology automatically collects sales information from End Customers and applies it to marketing campaigns, media types, venues and costs. For more information, request a demo or contact us at 866-314-MOJO (6656).