by Jim Lenskold
Don’t Forget the Financial Meaning of ROI
There have been a number of webcasts about maximizing the return on marketing investment that fall short of the session topic. One in particular featured very good speakers and was informative. As each person spoke about their marketing programs, the results presented were in the form of response rates, leads generated, revenue generated or enhancement of the customer relationship. These are all important metrics but what about profits generated?
As marketers, we do not always have control or access to sales and profitability data. We often need to assess and decide to implement future marketing programs before actual customer value can be determined. Regardless, there has to be a greater focus on profits generated if marketing is going to contribute to critical corporate objectives and raise its stature within the company. Without analysis of customer value, how can we determine if one marketing initiative generates better customers than another? We’re all aware that roughly 20% of the customers will generate 80% of the profits so we must be looking for quality sales, not quantity.
Here’s a few tips to keep in mind:
- Where actual customer value is not available, use benchmark values and run the complete ROI analysis to estimate your financial contribution to the company. There are opportunities for profit improvements whether you are running below or running much higher than your ROI threshold (read the book to know why high ROI represents untapped profit opportunities).
- In situations where you use estimated customer value and assumptions related to the sales pipeline, such as knowing that a certain percentage of the leads generated generally result in closed sales, be sure to validate these assumptions with actual analysis. The surprises you may find can significantly change your strategies and decisions.
- Set goals for constant improvement in your measurement processes and analytical capabilities. If competitors get ahead of you on this, they will be guiding their investments toward the highest value customers and your assumed values will surely decline.
Think of marketing ROI as financial intelligence that you must use to guide future strategic and tactical decisions.