Why is it still hard to put a number on marketing ROI?
Even though marketing data and technology have come a long way, a lot of businesses still say they have trouble figuring out ROI. In the fall 2023 CMO Survey, CMOs said that the CFO was putting more pressure on them to report marketing ROI correctly and make it better.
ROI in marketing is an easy problem that is hard to solve. A lot of marketing leaders know how to get things done in marketing. But they don’t sell to their own employees or don’t know how to do it. There are two main things that make it hard for most marketing units to do good internal promotion and come up with ROI measures that the CFO and CEO will agree with.
1. Find the right metrics.
Martech is helpful, but it can also get in the way of measuring ROI. Most marketing KPIs and the technology that goes with them don’t give a good picture of ROI. Adding more martech might not be the answer. Addressability, identity mapping, and identity resolution have come a long way, but it’s still hard to get a clear picture of marketing ROI, especially in B2B or B2B2C business models.
1:1 attribution is getting better, but it’s still not perfect, and it’s always a balance between user privacy and progress. Even though practical marketing metrics and better attribution are important for growing and improving the marketing function, most people outside of the marketing group don’t really understand what they mean.
It doesn’t matter if you can perfectly attribute all of your sales (direct and indirect), that’s still not earnings or profit, and you can’t always keep track of all of your marketing contacts. Metrics from the marketing cycle, like click-through rate, cost per acquisition (CPA), cost per lead (CPL), or cost per sale, are important and can be used to show that marketing is becoming more effective. A lot of marketers think that these numbers are ROI. But they’re not ROI; they’re close to ROI.
Earnings, cash flow, and profit are what real ROI is all about. Lastly, improvements in martech are helpful and powerful, but marketing leaders should be aware of how they can get in the way of telling other company leaders how effective their marketing is.
Basically, marketing ROI should show how much more money was made because of marketing expenses. But core profitability measures like gross margin, cash flow, and lifetime value aren’t talked about much in marketing. These are the exact measures that can turn marketing from a cost center into an important growth engine.
2. There is too much art and not enough science in branding.
Developing or branding a brand is an important task that affects the long-term health of a business. That being said, this is also the part of marketing where figuring out ROI is the hardest.
Getting your brand known can cost a lot, from researching your customers to buying ads and making materials that reflect your brand. It costs a lot of money to build a brand. We usually don’t hear anything when we try to guess the returns, though. Also, people in charge of branding are always talking about the benefits of their work that can’t be seen or touched, which makes figuring out ROI seem pointless.
It doesn’t have to be this way. At the end of the day, branding is meant to improve customer loyalty, raise consideration, and lower the cost of acquisition. These brand metrics directly connect to core profitability metrics.
How to fix it?
When trying to figure out marketing ROI, the biggest problem is that people focus too much on marketing performance and not enough on company performance.
The two are linked, but it’s not easy to see how they are related. Often, it takes specific action and continued work. Leaders in marketing can be smart, intuitive, and creative. In this way, they are great at promoting the company but bad at promoting the marketing function. People in charge of marketing need to wear two hats.
Management of marketing
The first hat is about leadership in marketing management. This means overseeing the tasks that produce the measurements and key performance indicators (KPIs) that lead to better and more efficient marketing. This group includes things like channel strategy, marketing strategy, branding, and making KPIs better, like cost per acquisition, cost per lead, and so on.
Great marketing leaders know how to make the most of their funds and resources to get better results from their marketing. Data, and now AI, are making that work easier, but marketing leaders need to pay more attention, spend more money, and concentrate more on it. The tasks of marketing management take up a lot of time and, to be honest, are a good fit for most marketing leaders’ skills and abilities.
Leadership from within
The second hat is about leadership in corporate marketing. Here, the first thing that needs to be done is to admit that most marketing numbers and jargon are not enough and might even be getting in the way of telling the rest of the C-suite how important marketing is.
The truth is that most C-suite leaders don’t look at the business through the lens of most marketing data. Key marketing data may sometimes impress them. For instance, if the cost of purchase goes down by 25%, the CEO might be very happy. “What does this mean for my bottom line, earnings, and cash flow?” is the next question that will be asked.
To answer the CFO’s questions correctly and make a good impression on other top leaders, marketing leaders should spend some time and money analyzing the finances of their activities. These days, most marketing teams see marketing finance as a budgeting task where the “I” in ROI gets the most attention. There are a lot of different KPIs and measures that can make people doubt the “R,” or return. This is true even for the most positive C-suite leaders.