When it comes to measuring the value of business marketing campaigns, businesses are right to focus on the quality and timeliness of their marketing deliverables (website, printed materials, SEO campaign, TV commercial, etc). Additionally, these businesses should calculate their marketing ROI (MROI) for each and every business marketing campaign before reaching a conclusion on the success of their marketing efforts. We will explore “what is MROI” and other essential questions that will help your business focus attention on maximizing your return on every marketing investment.
What Are Deliverables in Marketing?
Deliverables are products needed for marketing, such as the tv ad that you want aired for the next few months or the seven new pages your business is adding to the website. They are often what both marketing agencies and businesses tend to focus their energy and attention on. This is because deliverables are easy to measure tangibly: Did our agency finish and activate a beautiful and well functioning website? Were our new signs and the booth delivered to the convention on time and within budget?
Deliverables fall under the category of second-order ROI. They focus on the completion of projects rather than on their marketing outcomes. They get measured tangibly and visually because they are easy to measure that way, they are important and they are exciting and attractive. The only problem is that deliverables don’t tell your business anything about the financial outcome of a campaign. Because deliverables (like your new website pages) are not part of a measurable campaign KPI in most cases.
A deliverable-based response to a friend who asks how your business marketing campaign turned out would sound like this, “The Convention booth was a great success, it arrived with all of our signs, printed materials and swag in plenty of time for our team to set up. Everything, the colors, logo and materials looked fantastic and were just what we wanted!” This response reveals that the marketing agency did a great job delivering the agreed upon goods and services. You have shown that you can answer the question, “what are deliverables in marketing?”
But the question still remains, how did the campaign work? How many potential customers did the booth attract, how many email addresses did you get, how many people have used the QR code provided in their brochures to go to the tracked website page? Even more importantly, what Sales-Qualified Leads (SQL) did you achieve and did they meet your projections? What kind of bump did you see in website traffic, inquiries and/or overall sales? These questions get to the heart of what really needs to be measured in order to determine marketing return on investment (MROI).
What is Marketing ROI?
MROI = (Business sales from Marketing – Marketing Investment) / Marketing Investment)
This equation will be further broken down in the second part of this publication. For marketers, the challenge they frequently encounter is how to consistently define and put numbers to the variables within the equation. They need to know how much they spent on marketing and how much money they made in the sales of their products or services.
Beginning with marketing investment, we need to decide what must be included. If we continue with the convention campaign, what needs to be included? Certainly, the complete cost of the marketing agency’s work for the event. Creative work, printing costs, delivery, whatever went into producing the necessary materials. Also, a prorated share of the company’s FTEs for the hours they took to set up, take down and staff the company booth, pass out brochures, collect email addresses, answer questions, etc. What about meals for the meetings you had with the agency? What about per diems for your staff? It can be difficult to know what should count and what shouldn’t. But it is not hard to understand how each additional cost will raise the denominator and therefore lower the ROI.
The more difficult variable to determine can be the numerator or the business sales from marketing. Tracking revenue seems like an easy way to determine business sales. But do you measure as one-time revenue or as lifetime value (LTV) of a new customer? If you are measuring services, then bookings value is a good measure, but tracking actual revenue from those bookings – whether using a formula based on previous data, following up on true sales or a combination – is necessary.
How do you measure further up the pipeline? What about opportunities? Positive impressions? Brand awareness? For every step you go further up the marketing funnel, your numbers are less tangible. Even though these marketing activities are vital influencers of future revenue, they do not provide quantifiable data and should not be included without thought when you calculate marketing ROI.
Formula to Calculate Marketing ROI
[(Value of business sales – Cost of marketing spend) ÷ Cost of marketing spend] x 100.
What most businesses and marketers struggle to do consistently is to define and capture the data they need to complete all of the variables in the equation. We can parse the formula a bit by breaking the equation down into its parts. Let’s start with the easier of the two variables:
Cost of Marketing Spend
The easiest piece of the formula to determine is the cost of marketing. If your business uses a marketing agency you can look at their bill. If you do it in house you will have to think about what should be included? If you think of a digital campaign, should the media buy be included? And the creative agency that created the content used in the campaign? Yes, and yes. Do you include a prorated share of the contracted content writer? How much time did she charge for, and what is her hourly rate? Do you include a prorated share of the company FTEs? What about corporate overhead? Meals for the meetings you had with the agency? Should you include a portion of the SEO optimization you have done recently to make the campaign more productive?
When determining costs, it can be difficult to know exactly what is included and what is not. What you need to remember is that every additional expense lowers the profit and adds to the denominator which lowers the overall marketing ROI.
Value of Business Sales
Revenue from sales is a clear indicator of the value of a campaign to the business. Determining whether to measure one-time revenue or customer lifetime value (LTV) will require different data driven calculations. The simplest and clearest is overall sales. Measuring bookings value can also be a good measure, but to determine revenue accurately will require a formula based on an average conversion rate of previous bookings to sales.
Pipeline? Opportunities? Impressions? Brand perception? These are valuable sometimes intangible metrics within the marketing funnel. And, although the future sales numbers will remain nebulous, we know that these activities do influence overall revenue down the road. However, in the end it is best to stick with the measurable results and try to focus marketing targets on overall measurable ROI.
If your marketing campaign led to an increase in sales of $50K and the whole marketing spend was $4500, this would mean that your marketing ROI was:
[(50,000 – 5000) ÷ 5000] x 100 = 900% MROI
– a 9X return is a very healthy ROI that you will likely want to repeat!
Does Your Marketing Just Produce Deliverables or Does it Improve ROI?
Businesses and marketing agencies should both use and understand the value of calculating MROI. It is no longer good enough just to be happy with the quality and timeliness of your business’s marketing deliverables. It’s not good enough to plan and carry out a campaign only to wonder what the value of your marketing efforts were. Marketing agencies calculate marketing ROI for their business marketing campaigns by collecting all kinds of data on each campaign and crunching the numbers. Over time working with a client campaign they get really good at accurately predicting their target ROI for almost any campaign. From that point they can even use target sales projections to determine each business’s marketing spend budget as well.
Whether your business or your marketing agency does the calculations (or preferably you both do your own calculations and compare), the end result is a marketing budget for a campaign that will produce an expected MROI. By identifying the exact financial targets and ROI targets, it is simple to calculate your campaign’s target marketing budget.
If marketing agencies place importance primarily on producing only their marketing deliverables on time and to their clients satisfaction, then it is easy for the more critical financial value of their marketing campaigns to become fuzzy. And, while all results do not have to be financial, campaigns should demonstrate measurable ROI results that benefit their clients bottom line.
Campaigns can be designed by your marketing department or your marketing agency that will meet the financial target while also staying within the appropriately-sized budget. For this reason marketers are learning to calculate MROI and are using their calculations to pre-determine marketing budgets that will provide an agreed upon MROI for their clients. When this kind of process becomes normal it will make the industry much more transparent and effective.
Historically, marketers have focused on deliverables and have measured all of the numbers they could to show measurable returns on investment for their clients. Oftentimes, because outside marketing agencies have not had access to actual sales numbers, their tendency was to focus on the second-order metrics of what is MROI (impressions, views, likes, downloads, attendees). These second-order metrics definitely are valuable and important MROI that lead to greater brand awareness, positive publicity and future sales growth. However, what mostly matters to business clients is whether their marketing efforts produce tangible financial value for their business.
What this means for businesses and marketing agencies is that they need to work together ahead of time to determine a marketing budget that fits with a desirable and attainable MROI. When marketing ROI is grounded in financial targets, marketing departments can better justify their benefit within the business and marketing agencies can better communicate the real value of their marketing to their clients. This kind of communication only serves to build credibility when making budget requests and explaining results. And, it is achievable, but it may require looking at how to calculate marketing ROI in a new way.
If you have further questions on this topic or are in need of expertise in any area of today’s rapidly changing world of marketing, just go to zö.agency and let our team work with you and welcome you to our tribe!
