Sunday, August 21, 2005
ROI: Bottom-line it for me
byI remember when ROI was “easy.” Finish your project on deadline, come in under budget, win an award, and if the company president liked it (or his photo), then you had great “ROI.” Well, the times have changed and now you’re wondering how to really prove ROI, let alone even define it. And the scary part is, we as marketing types better figure out the ROI deal, because when there is a downturn in business, what tends to get scrutinized first? The marketing budget. Why? No quantifiable ROI, at least in the eyes of the finance department.
It’s not that marketing types don’t want to do ROI. In a July 2005 study of 135 US marketers and Association of National Advertisers (ANA) members by
But “doing ROI” is just one of the issues. Another one is that marketers still don’t have a consistent way in which ROI is defined or measured. An earlier ANA/Forrester research study revealed that CMOs define ROI in the following ways:
“Incremental sales revenue generated by marketing activities; change in brand awareness; total sales revenue generated by marketing activities; changes in purchase intention; changes in attitudes toward the brand; changes in market share; or number of leads generated.”
(Source: Association of National Advertisers/Forrester Research, as reported in CMO Magazine, September 2004)
So what’s getting in the ROI way?
The recent Forrester® survey found that only 25% of marketers developed budgets based on knowledge of the spending required to meet corporate goals. Only 15% agreed they could forecast the impact of a 10% budget cut and only 25% said senior management is confident or very confident in forecasts of marketing impact on sales.
[Source: Page 11 of “Moving along the marketing accountability curve,” by Jim Nail, Ed See and John Nardone, Forrester and Marketing Management Analytics report,]
Obviously, this speaks to the need to change marketing’s approach and to rebuild confidence in its role in the organization. Too often marketing measurements are focused on tactics or output rather than on effectiveness and results. On the other hand, businesses, shareholders and analysts are focused on the bottom line like never before. Understandably, marketing departments are feeling the pressure.
So what to do? Remember, it is not about winning awards. It’s about how marketing can be aligned with the company’s goals and objectives to directly or indirectly move the proverbial needle.
As the industry literature and trade press highlight, confident marketers use their company’s financial data, strategic and operation plans, and marketing and sales metrics and measures in order to gather data for modeling, analysis, reporting and decision-making.
And that equates into better marketing results and bottom-line accountability.
And the bottom line for marketing types? That can only be a good thing.
