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Find me the money. Some practical thoughts on ROI.

Long before Jerry Maguire stated “show me the money” marketers have scrambled to show a return on investment, advertising, and marketing activities. But how well are marketers showing their stakeholders the money? It’s not a primary component of the marketing budget process according a survey review by Jack Neff of Ad Age. In fact, according to the survey, more CMOs rely on historical spending to set budgets than projected ROI.

But I don’t think that is necessarily a bad thing. A budget after all is just a plan for spending. The amount of spend required for services related to marketing is generally known by way of existing contracts, published price schedules, and yes historical spend.Geek and Poke ROI

So where does projected ROI fit into the budgeting equation? The answer is that the budget can be considered more than an exercise to control costs and plan to spend. It should also consider spend for *return as with capital projects.

Tracking and projecting returns on marketing efforts is not always easy and I’ll argue shouldn’t always be necessary. If the marketing activity is an ongoing event, then there should be some level of tracking available whether by electronic means or post sale surveys. Tracking helps forecast returns. New activities are more difficult because there is no baseline of activity from which to compare.

But digital and social media have muddied the waters on ROI calculations. In part because there is an abundance of data that can be measured and tracked and that creates noise to what is really important. But additionally because digital and social media create a web of consumer touch points that may lead up to a sale. Just how many times does a customer touch your marketing messages before they purchase? So analytics solution providers are increasing their ability to track Channel attribution as the technology creates more touch points before a sale.

So how does a marketer justify spend on activities for advertising, marketing, and engagement? First there needs to be an agreement that a component of marketing is trial and learning.  Sure marketers must eventually get to sound ROI and solid business decisions. But to get there requires some level of test and learn which could mean a negative ROI.

A typical marketing budget should contain three high level items: Advertising and Operations, Labor and Administration, and Trial and Measure (aka R&D).

Advertising in this case is for activities related to existing products and services. These activities are held to stricter standards for producing a return and marketers should use measurement tactics to justify the spend. It’s part of the run-the-business and go-to-market tactics used by the company to meet strategic goals.

Trial and Measure for the marketing department isn’t so much about the expense to develop new products and services for the company. That’s research and development (R&D) in the products area. Trial and measure allows marketers a chance to experiment, measure, learn, and adjust. It’s an important part of marketing and feeds larger money spend in the advertising area. It also helps to create forecast models for larger advertising investments. It’s the trial and measure area where marketers need a bit of freedom from all the pressures of ROI.

A great example of this is usability tests on eCommerce sites. Marketers can see big changes in key metrics by changing words, colors, or button locations on a web page. It requires programming time and thus an investment. But it’s usually these types of simple changes that find a respectable pay-off because they make purchasing easier for the customer.

Another example is merchandising techniques such as image location, image rotation, product reviews, etc. What works for Amazon may not work for everyone. It has to be tested with the specific products and services in the store.

So yes. Show me the money is a solid business principal. But let’s allow marketers to find the money first.