Return on Investment is the big business buzzword that we’re all familiar with, and though it’s an important metric, it doesn’t tell the whole story when it comes to marketing.
My name is Susan Laplant-Dube, and we’re going to talk about the difference between marketing return on investment and marketing effectiveness.
Return on Investment Versus Marketing Effectiveness.
So let’s start with some definitions. Return on Investment (ROI) is really talking about efficiency. So how efficient is this particular program in delivering results? If I make Investment X, what’s the financial return I receive?
Marketing Effectiveness is actually talking about reach. So, what is the reach of this particular program? How important is this program at producing the outcome that we’re hoping for?
Marketing and Return on Investment Are not Always Linked
Let’s put this in perspective: Marketing is not like making a capital investment. If I had a new manufacturing line, I can tell you it costs X to produce that many more Widgets. But in Marketing, we’re not really trying to produce widgets, so there’s not always a direct line to the return on investment.
If you have an email marketing program that is really good at generating sales for you, you know the metrics: if you send a certain number of emails to a certain number of people you can see an increase in your sales over time.
But, if you have a small database of people that you are actually marketing to, and you decided that what you want is to create a program that drives more subscribers, there’s really no return on investment for that.
Instead, you have to look at the effectiveness of each marketing tactic: which tactic delivered which results; which tactic grew subscribers fast. So that’s really why effectiveness is important in the total equation of marketing.
Calculating the Value of a Customer
So many times if we talk about customers and say “a customer is worth $10,000”, people will often balk and say, “wait a minute, marketing is not responsible for generating customers, sales is responsible.” That’s a concept you have to get out of your head. What we want is to make sure the sales and marketing are working together and everyone is responsible for generating leads and creating customers and retaining customers.
Let’s say we have a customer that’s worth $10,000 to us and Marketing Program A delivers a customer at a cost of a thousand dollars per customer. It’s a simple math equation: we have a $9000 profit. Marketing Program B delivers a customer at a cost of $3500 per customer, and in a simple math equation, we have a $6500 profit. So on paper, if you’re really looking for a return on investment, people are going to say, “we really need to run Marketing Program A over Marketing Program B.”
But, what we have to do is look at the bigger picture. If Marketing Program A is producing one customer at the cost of a thousand dollars, but Marketing Program B actually delivered 10 new customers for $3500 each, the effectiveness of that program – the reach, the number of people brought in – was much greater than Program A. If you start thinking about lifetime value of a customer and total overall profitability, it becomes very clear that you need to make sure that you’re focusing on Marketing Program B.
Measure ROI with Effectiveness
The bottom line takeaway is: measure and understand ROI. But, don’t do that in a vacuum. In order to really understand the success and results of your marketing program, take a look at the big picture and make sure you include effectiveness as part of those metrics.