ROI: Marketing needs to get serious

For anyone who missed it, here is my inaugural post on PROFIT Guide - all about Marketing ROI. I'm reposting it because the message is important.

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Marketing has a crummy reputation in the business world, especially among small and mid-sized B2B companies. I see presidents of SMBs roll their eyes at the mention of marketing all the time.

While the skepticism stings, I know where they’re coming from. They’ve seen all sorts of wacky advertising and gimmicks over the years, lots of it that is ‘creative’, but hasn’t done a thing for their bottom lines. As a result, only 18% of CEOs rate marketing’s effectiveness as better than good, and 36% rate it fair to poor.

That’s a problem, because marketing - true marketing – has a lot to add to business. Some brilliant business minds (Warren Buffett included) think marketing is key to success.

So how can marketing regain its rightful place at the Board Room table? It’s got to start by focusing on ROI measurement and reporting.

Like any business function – customer service, IT, sales – marketing needs to prove its worth. Marketing can be tough to measure, but that is less true today than it was 20 years ago. There is simply no good reason that marketing shouldn’t report on its level of investment and the results it achieves each year.

If you want to bring credibility to marketing in your business, here’s what to do:

1. Put a marketing scorecard together

• The scorecard should track the costs of marketing; hard costs, like tradeshow registrations and pay-per-click advertising; and soft costs like staff time.
• Track the outcomes of marketing; the activity levels (like the number of case studies produced) and the results, like new business secured
• Track the value that marketing delivers to other departments. For example, marketing is often responsible for creating sales support tools like case studies and presentations – ask the relevant departments to put a reasonable value on those items

2. Each year (or quarter, whatever makes most sense for your organization), calculate the ROI of marketing (gross profit divided by total cost)

3. Refine and adjust the scorecard as you learn more about how marketing achieves tangible results in your business

An example might look like this:

Marketing ROI Calculation

Costs (hard costs and soft costs) $60,000
Value delivered to other departments (eg sales) $40,000
New business secured $340,000

Average Gross Profit for the business 50%
ROI Calculation [($40,000 + 340,000)*50%]/$60,000
ROI (Profit divided by Cost) 317%

The ROI that marketing should achieve will vary widely based on the industry, the company, the target market and other factors. But achieving an ROI of at least 150% (generates $1.50 profit for every dollar spent) is a reasonable minimum. In many industries, marketing achieves an ROI of 700 -800%.

Not everything that matters can be measured, but measuring marketing is more feasible than it used to be, and given the poor reputation of marketing in most SMBs, we’ve simply got to start measuring and reporting Marketing ROI.

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Also available at Marketing ROI.