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ROI MARKETING

Calculating your return on investment (ROI) is simple in principle but sometimes difficult in practice.  It's the process of figuring out which portion of your cash flow is generated by the investment you made in a given marketing initiative.  

Some marketing disciplines like online marketing or direct marketing can measure the bottom line impact with precision, making it fairly easy to determine the program's ROI.  More typically though, companies spend large sums on marketing without any real way of knowing how much the resulting "brand equity" or "consumer awareness" filters down to the bottom line.

Companies that create the tools, systems, and most importantly, the corporate culture to support a ROI approach gain key marketing insights that allow them to allocate marketing resources most effectively.  When instituting an ROI approach to marketing, consider the five guidelines to the right.







 
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In today's tough economic climate, marketing budgets are being scrutinized more than ever.  Accountability is critical.  In many cases senior management is asking how efficiently their marketing dollars are being put to use.  If you can't quantify the bottom line impact of your marketing programs, your marketing budget could be slashed.
5 Tips For ROI Marketing


1. Start at the Top
Developing an ROI approach requires a company-wide commitment that starts with senior management.  Gathering the necessary data to track ROI cuts across departments and getting everyone on board can be challenging.  At some companies, a quantitative orientation to marketing may represent a fundamental shift in philosophy, something best accomplished with an executive mandate.

2. Define Your Target and Objectives
Is the marketing program targeted to acquiring new users or existing ones?  For current users is the intention to encourage repeat purchase or to up-sell to other products and services?  Defining objectives upfront establishes the parameters of the program and helps identify the kind and source of data that will be needed to calculate the ROI.

3. Set Up Customer-Centric Metrics
A customer-oriented perspective can help identify business-building opportunities.   For example, when Michael Eisner arrived at Disney he didn't focus on how a division's profitability could be improved.   Instead he asked: How much did a typical family spend on a vacation and what portion of that expense could Disney go after?   Disney had to move from product-centric metrics to customer-centric metrics.  Establishing the right metrics for ROI purposes can help to positively realign some fundamental strategic assumptions.

4. Rally the Troops
To come up with the right metric for a given marketing program, companies must be willing to spend the time and energy on special studies or projects that zero in on the problem.  This may entail pulling together a lot of cost data and determining profitability measures.  Historical purchase data may be used to set up statistical models.  In other words, input from a variety of internal resources is essential and getting that level of cooperation means a shared vision has to be communicated.

5. Don't Become a Slave to Data
Using ROI as an analytical tool can help you wisely allocate your marketing resources.  But it should never become a substitute for good judgment.   There are times when a negative ROI is unavoidable in the pursuit of business growth, such as a new product launch.   Beyond that, creativity is essential to effective marketing and a consumer's emotional connection to a brand is an intangible that cannot be quantified.
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