February 14th, 2018 | By: Kazu Takiguchi | Tags: Development, Return on Investment (ROI)
When we think of marketing it can sometimes be hard to look past buzzwords like “engagement” or “virality.” However, these factors don’t get at the true objective. The real factors to be considered are those directly impacting the company’s bottom line in a clear and measurable way.
To put this into perspective, in a study conducted by Econsultancy, only about 22 percent of businesses were satisfied with their conversion rates from online marketing campaigns, indicating that standard factors, such as clicks, likes and shares, do not necessarily translate to earnings. Moreover, another study found that if marketers had a greater ability to track return on investment (ROI), over 75 percent would increase their marketing spend.
Therefore, in order for a business to run a successful marketing campaign, it is important to identify what it is really looking to achieve and how it can accurately measure its success. This will lead to a clearer measure of your digital marketing ROI, understanding where the money is going — and whether you are getting the most bang for your buck. With that in mind, here are three steps to help you to identify the true — and often elusive — ROI of your marketing campaign.
Understanding what you are looking to measure might seem inherently difficult given the intangible characteristics of marketing. While some marketers might claim to be able to track online and mobile marketing campaigns, a worrying 54 percent admit difficulty when tracking traditional channels, and a further 50 percent express difficulty tracking cross-channel ROI.
Likes, shares and views might be considered indicators of a campaign’s success, however, ROI is the true measure of a campaign’s success.
To get an understanding of a campaign’s true return, those within marketing should identify clear goals with the aim of achieving objective results. For example, opposed to an elusive goal of “Increase awareness,” set a more measurable goal such as “Increase aided recall of our brand (offering) to 20 percent by December 31.” Another example: take the generic goal “Create conversions,” and make it “Convert 30 percent of inquiries to face-to-face meetings.” These results are more measurable, consequently allowing marketers to gain a clearer understanding of how the their work translates into sales and profit.
SMART objectives are a great standard to use in order to assess the quality of measures implemented by a marketing team. The key is to set goals that are specific, measurable, actionable, relevant and time-bound. By doing so, marketing teams can better understand what their work is achieving, and ultimately, how their work is directly impacting sales and ROI.
Not all customers are equal in terms of digital marketing ROI. Some will be shining examples, coming back for repeat business, spreading the word of your great service. Others will consume a huge amount time and energy, giving back very little in return. By distinguishing between these types of customers, it is possible to recognize those who will undoubtedly result in a higher ROI. This division between customers can most easily be described using the 80/20 principle, which essentially means roughly 80 percent of sales will come from your top 20 percent of customers.
Upon acknowledging this, a marketing team can understand that it is not the number of customers reached that is important, but the type. And certain key characteristics such as average transaction value, loyalty and how often they ask for discounts, can help identify the most valuable ones.
For example, if you look at a customer’s transaction value, you can quickly identify if they are using you for smaller ad-hoc purchases, or you might find a much longer and more consistent relationship. The same can be said for the other factors. The number of years your customer has been with you might be a strong indicator of loyalty, and the number of discounts the customer requests, such as free shipping, may indicate how much their business is really worth.
Holding on to these top customers is invaluable — especially considering that acquiring a new customer is anywhere from 5 to 25 times more expensive than retaining an existing one. Furthermore, according to Frederick Reichheld of Bain & Company, the inventor of the net promoter score, increasing customer retention rates by five percent increases profits by 25 percent to 95 percent.
In light of this, the best course of action for marketing would be to identify who their most profitable customers are, where they can find them and how they can hold on to them. These customers are the ones which will prove to have the highest positive impact on ROI, resulting in repeat business and higher profits.
If implemented correctly, creating measurable objectives and obtaining the right customers can be an excellent recipe for promising results. Though this method might prove promising for future campaigns, it is vital to understand how much was first invested into marketing before celebrating the results. Failing to do so is a common problem, as many marketing campaigns overlook certain hidden costs, distorting its true ROI.
Take this example: according to DM News, everytime one dollar is spent on promoting and distributing advertisements and other marketing content, roughly 67 cents is spent on the combined uber-line items of creating that content and measuring its effectiveness. This ‘non-working spend’ often consists of expenses related to creative and design teams, technology teams, legal teams, and to some extent relevant in-house employees, too.
Non-working spend is a crucial factor that marketing teams of all sizes must consider when evaluating ROI. According to a study by Percolate, as marketing budgets grow, advertising costs, and non-working spend in particular, begin to increase, consuming a disproportionate number of resources as the business grows. For example, a company with a $10 million marketing budget might spend 18 percent on advertising production costs, whereas a company with a $1 billion marketing budget will spend 27 percent on the same.
For companies that are witnessing rapid growth, this is an important detail to consider, especially given that this issue shows no sign of disappearing. In fact, 61 percent of marketing executives reported that non-working spend increased from 2014 to 2015, and 56 percent stated that they expected their non-working ad spend to rise yet higher in 2016.
For a company to accurately measure its ROI, it must consider all expenses used to produce a successful marketing campaign. In doing so, a company can see where it started, more accurately understand what it has achieved, and ultimately develop greater clarity surrounding its ROI. When this is combined with objective measures and a solid understanding of who the company’s most valuable customers are, a marketing team can truly begin to understand the financial value that they have brought to their business.
Kazu Takiguchi is CEO and Founder of ReFUEL4, Winners of Facebook Innovation Awards and Global Innovator of the Year 2016
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