We see all sorts of weird and wonderful ways of measuring marketing success and ROI, various combinations of responses, qualified opportunities and weighted or unweighted pipeline values calculated in a plethora of different ways. What do we really mean by the term ROI these days?
The term ROI is commonly misused – marketing should focus on revenue.
What is Return on Investment (ROI)?
In the world of investing, a return on investment will allude to performance measurement to evaluate the efficiency of an investment of compare the efficiency of a number of different investments. So the ROI is how much benefit you receive in return of the investment you made.
The slight iteration of that is in the marketing world the ROI on your ad spend is referred to as ROAS return on ad spend.
What is Revenue?
Revenue is the income generated from normal business operations. So isn’t necessarily tied to investments. This can be reoccurring or stand alone revenue but goes straight to your company’s bottom line.
Ultimately we all know the only thing that really matters is revenue, money in the bank, closed deals. So when did all these other indicators become measures of success instead of tools to help us predict revenue? Has ROI lost its real meaning through our attempts to micro-measure our marketing activity?
Marketers have long been under pressure to show return for each budget line as soon as it’s spent, resulting in us trying to measure early indicators that should ultimately lead us to revenue and to prove success of the campaign. Also, too many attempts at creating demand generation programmes without the right skills and tools has resulted in these various measurements being used as excuses for lacklustre revenue figures from poorly planned and executed campaigns. So often we have been forced to use these early indicators followed by complex pipeline calculations to predict revenue that they have become acceptable and common practice to talk about in place of actual revenue as a measure for success.
Where sales and marketing agree
Where marketing and sales agree is that it is difficult to predict the impact our marketing investment today will have in three, six, 12 months’ time and beyond. The trick is knowing when to measure revenue and how to attribute it to the activities that influenced it. It takes multiple touches to convert a cold prospect into a customer and they will move through the sales cycle at their own pace. Therefore we should measure costs against the individual customer or deal, as their journey has been unique. Stop measuring individual campaign output, start at the new customer and work backwards, attributing costs for each of the touches that got them to that point.
‘But I already know my cost per acquisition’, I hear you shout! It’s time to stop treating every new customer the same and assuming that you have just one CPA for each of your products/services. Your buyer’s journey from being unknown to you, to becoming your customer is changing rapidly so you need to change the way you measure the cost of moving them along that journey.
Create a long-term strategy for measuring revenue
Investing time and budget in developing a marketing measurement strategy upfront will allow you to measure real revenue. It will allow you to increase the activity that works and plug those leaks in the sales funnel, ultimately increasing sales. It will also help you to set realistic expectations for measurement of revenue and CPA across your business.
So the next time your team or your agency presents results from your demand generation programmes and tells you your potential ROI based on responses and estimated pipeline value, ask them why they’re not measuring actual revenue and why they don’t have a long-term strategy for tracking it.