Measuring Marketing Expenses (ROI)

When I was asked to jump in and contribute on an article that shows how to “measure the effectiveness of marketing” I felt like it was a trap.  I mean, isn’t this the holy grail that marketers have been chasing for years?  But when Harvey asks you to jump in on a discussion, you can “bank” on the fact that I will jump in!

What are we measuring?

One of the challenges that marketers, salespeople and entrepreneurs have had for years is determining what they are actually measuring.  So let’s start with determining what type of marketing you are actually trying to accomplish.  Are you doing Brand Marketing or Direct Marketing?

Brand Marketing is the type of marketing you do when you want to continually raise awareness for your brand or product.  You want to create “top of mind awareness” in your customer or prospect.  You are not actually asking them to take an action right away.  For example, a Super Bowl ad from Coke is Brand Marketing.  They don’t actually think you are going to leave the Super Bowl party to run to the store to buy a Coke right then.  They do hope that the next time you are in the grocery store, you are “top of mind.”

Direct Marketing, on the other hand, wants you to take an action right now.  This is the email blast that asks you to “click here” and “buy now.”  Direct marketing is more immediate and action oriented.  It is more single project focused, and therefore, easier to measure.  

Neither kind of marketing is right or wrong.  But the biggest mistake I see is when we try to measure Brand Marketing based on Direct Marketing metrics.  What are you trying to accomplish?  Then we can talk about how to measure it.

Enter the bean counters.  From a purely financial perspective, calculate all of your marketing expenses.  Initially, just divide that by total sales to get a fixed percentage. How does that stack up to industry standards or published numbers?

Now for the moving target.  If you plan on increasing marketing costs, are you prepared to measure the corresponding revenue increases?  A simple example, you hear a radio ad that says use this code… Clearly the advertiser can measure a portion of the revenues.  They cannot, however, simply measure brand awareness or top of mind.

Bringing it closer to home, GEMPIRE may try to measure the value of a specific trade show.  The expenses are easy to calculate. For the revenue, do we just measure new sales from that territory?  Do we use a coupon with redemption to track sales? Or do we just capture every name that attends to follow for future sales?

But what if they are existing customers?  Did the show generate the sales? Or how about the value of top of mind?

If you want to measure ROI, make sure that you are using the correct metrics.  Just as in accounting, with the matching principles, the same holds true in measuring ROI.