Measuring and improving the return on investment generated by marketing activities is a major issue for both marketing executives and marketing service providers. CMO's are expected to deploy marketing budgets in the most effective and efficient ways possible, and marketing ROI (when properly calculated and used) is a powerful tool for informing marketing decisions and guiding marketing investments. Marketing service providers are feeling increasing pressure to provide sound and persuasive ROI estimates in order to win business. To put it bluntly, prospective clients are increasingly telling MSP's to "show me the numbers!"
A recent research report by the Lenskold Group provides some interesting insights regarding the use and importance of marketing ROI. This report is based on a survey of 601 marketing practitioners that was conducted earlier this year. The "2009 Lenskold Group/MarketSphere Marketing ROI and Measurements Study" published last month reports that about one quarter (24%) of firms say they calculate return on investment or some other type of profitability measures for at least some of their marketing activities/campaigns. Another 35 percent of firms say they calculate some financial metrics such as cost per lead or cost per sale, but not profitability measures such as ROI or net present value. Lenskold Group says the number of companies reporting the use of marketing ROI and/or other profitability measures has remained steady compared to 2008.
While the actual use of marketing ROI appears to be steady, there is no doubt that marketing practitioners are under increasing pressure to measure marketing ROI. According to the Lenskold Group study, almost two-thirds (65%) of firms report that their CEO/CFO's are making greater demands that last year to show ROI as part of the marketing budget approval process, and three out of ten marketers say that the demands are much greater.
This study also suggests that measuring and managing marketing ROI helps improve business performance. Fifty-eight percent of firms that report using marketing ROI metrics say they expect to grow more than their primary competitors in 2009, while only 43 percent of companies using traditional marketing metrics expect to outperform their competitors this year.
The growing demand for accountability in marketing means that measuring marketing ROI will continue to be a major issue for marketing executives. Marketing service providers should make creating persuasive ROI estimates a core part of their selling process.
Discussion
By Michael J on Jun 01, 2009
The headline for me is "that about one quarter (24%) of firms say they calculate return on investment or some other type of profitability measures for at least some of their marketing activities/campaigns."
So that means less than 1 in 4 marketers are using ROI metrics to make investment decisions. It also might mean that the real opportunity may not be a good ROI, but rather the ability to gather the metrics in the first place.
Given that every marketing person is getting lots of heat from CEO's about "metrics", I would think that if a printer came in to say " I can give you metrics to show your CEO, the traction might be pretty good.
By Ralf Schlozer on Jun 03, 2009
... and no surprise - the Lenskold group sells ROI tools.
Still it would be good if printers can provide ROI numbers to their clients, but these numbers are notoriously difficult to get. The customer would need to tell the printer how much he is spending on all marketing activities and how much profit he is making on returns.
By Michael J on Jun 03, 2009
. . .And that's the flaw for everyone to think they can sell on ROI.
If a company doesn't have a customer acquisition cost and a lifetime customer value metric and a thought model with appropriate metrics to predict what interactions will turn a prospect into a customer into a lifetime customer, how is it possible to sell anything but response rate ROI?
The idea that most printers can do what companies cannot do for themselves just doesn't make sense to me. Very, very expensive consultants focus on customer science for the globals.
I think the challenge is to develop customer science for SMB. Does the Lensko group sell these kinds of tools that is accessible to SMB? It would be awesome to have this available as some kind of SaaS offering.
By Michael J on Jun 03, 2009
Ralf,
Thanks for the point to the Lenskold Group. My question is do they have a program partnering with printers to approach clients together?
I think many printers would love to have them at the table with a CMO.
By David Dodd on Jun 03, 2009
Ralf - Actually, it may not be all that worthwhile for a printer to expend a lot of effort attempting to determine the ROI of a marketing campaign. A printer may not even have a direct relationship with the organization that is running the campaign. The same is not true for a marketing service provider. An MSP must be prepared to estimate the ROI of the programs they advocate. Without such an estimate, neither the client nor the MSP can make a rational judgment about the value of the program.
Michael J - In most cases, lifetime customer value is not the appropriate profitability measure for calculating the ROI of an individual marketing campaign. For an individual campaign, the appropriate profitability measure is the incremental profit (actually the incremental gross margin dollars) that the campaign produces. And I would emphasize that response rate alone does not constitute ROI. All that being said, it's certainly true that data is required to calculate ROI. Given the growing demand for more marketing accountability, marketing service providers who can measure the performance of the campaigns they manage have a significant competitive weapon.
By Michael J on Jun 03, 2009
David,
It makes sense. So another way of saying it is that you are measuring increased top line revenue. Fair enough. In fact Lee Gallagher at TransPromo-Live makes exactly the same point.
My confusion is that ROI always meant bottom line revenue. I guess it does make sense to look at it the other way.
On the other hand, if you can really get into an organization that has customer life value numbers, then you build a very long term relationship. That's when print is just a normal part of doing business.
In any case, it's still hard for me to see how any of the 95% printers on the ground have the ability to make the pitch or gather the data.
If you are going to talk ROI to CMOs you really have to have it very buttoned up.
By David Dodd on Jun 03, 2009
Michael J - Your earlier impression was correct. Marketing ROI needs to be calculated based on incremental profit improvement, not incremental revenue increases. Suppose, for example, that you are the manufacturer of a particular type of industrial machinery. You have a machine that retails for $1,000 and your typical gross profit margin on this machine - selling price less cost of goods sold - is $300. You decide to run a direct mail campaign to acquire new customers. Your offer to these prospects is a 10% discount off regular retail price. The offer is good for 90 days. After the ninety day period, you determine that you have sold 30 machines to new customers. Because of the 10% discount, your gross margin on each of these 30 machines is $200. So the direct mail campaign produced $6,000 in incremental or "new" gross profit. If the cost of the direct mail campaign was $5,000, then the ROI for that campaign would be 20%. The basic formula is (incremental gross margin - marketing investment) divided by marketing investment. So, in this case, ($6,000 - $5,000)/$5,000 = 20%.
By Michael J on Jun 03, 2009
I have some problems with that metric.
1. Marginal profitability assumes that the customer has a good handle on the all in cost of their gidget.
2. The greatest value of transpromo or other of the newest Print techniques is in customer relationship management. Not for selling a widget now.
3. To take advantage of the real value add of multichannel marketing you have to have a number for lifetime customer value. Otherwise the cheapest cost of widget sale is the web. No contest over the long run.
As long as you can send 10,000,000 emails for essentially no cost, the cost of marginal sales is $0. That's why spam is such a problem.
As the search engines move to charge for click through,CPC instead of CPM, how can anything else compete with a lower cost per sale.
How can any print based program compete with $0? or pay for click?
By Arie on Jun 03, 2009
Michael, there are SaaS-based solutions that provide transparency to track marketing ROI across multiple channels. Moreover, firms like MindFireInc also train and support printers to help them "make the transition" into an MSP. You can learn more by going to www.growprintbiz.com.
By Michael J on Jun 04, 2009
Thanks Arie. I will check it out.
By Michael J on Jun 04, 2009
Just took a quick run through.
Nice, but I didn't see an offering that easily collects ROI to make the business case to the person that write the check.
Although the ease of implementing a Purl based data driven response strategy is very neat. I'm not surprised at all the awards you've gotten.
Just a suggestion, (you know I can't resist) don't try to sell this printers. Sell it to desginers. The designers will want to do it to increase their perceived value to the people who write them the checks.
But they won't want to do it themselves. But you take any printer, present him with a customer who wants to spend money, and they'll be using MindFire in about two days, with no further training required.
It worked for Adobe. Eventually they destroyed Quark's place in the trade by focusing so much energy on desginers.
I can't see why it wouldn't work for you.
Discussion
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