What a lot of business people don't understand is the difference between marketing and marketing tactics. Tactics are elements of marketing - the visible stuff that first comes to mind when you say the word marketing. It's the ads, billboards and posters, social media, emails and newsletters. These elements will have absolutely no meaning or result if they have no clearly defined goal or purpose. ALL businesses should be working towards one common goal - improving their bottom line. To market successfully you need a yard stick, there needs to be a measure of what success looks like - this, is your return on investment, or ROI.
Small business vs. large corporates
Small businesses often have smaller marketing budgets and large corporates often have matching large budgets - it's (mostly) a sliding scale. Quite often a large organisation will have budget for a product trial or some research that is larger than an entire marketing budget for the year for a small business. For an SME the business needs transparency at all costs, a detailed breakdown of results and regular updates on if the approach is working so that the marketing team can monitor and amend their plan to reduce wastage. The focus on visibility is much the same for a large business, but the stakes are often a lot lower and the cost of failure is far less damaging.
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Large businesses spend a fortune on brand awareness campaigns, which is a luxury for a small business. Small businesses generally need to focus on building their brand identity and generating immediate sales in order to show an immediate ROI. It is difficult to know what metrics should be measured and how ROI can be demonstrated.
Measuring marketing ROI
Return on any investment is customers, preferably long-term ones. So the key is to start with the 'R' and work out the necessary 'I'.
Start with the lifetime value of a customer and work backwards to determine the necessary, and appropriate investment required. An example: Winning a five-year contract with a single client worth R200k per year is a total customer lifetime value of a hefty R1mil. It would make sense then to spend R100k on winning the business - because of the high return. But spending the same investment on winning a once off R200k contract would make no financial sense.
Marketing ROI is not quite so black and white and it often requires a journey back up the sales funnel because a customer of this size will rarely be generated from a single lead.
There are a few questions you need to ask yourself:
- How many leads do I need to generate to get one sale?
- How many contacts do I need to gather to get a lead?
- How much web traffic do I need to generate to gather x amount of contacts?
- How many blog posts do I need to publish? How many inbound enquiries do I need?
The answers to these questions will determine the best route to getting this customer on-board, and determine where this £100k (or however much) is best spent. Your investment is the total sales and marketing expense required to acquire this new customer - including the salaries of both the sales and marketing personnel involved.
- You may like our full article on this topic: What is Marketing ROI and why does it matter?
How regularly should you be reporting?
A campaign should run it's full course before a detailed and full analysis - but whilst in progress it's performance should be monitored carefully so that it can be tweaked along the way. Reporting frequency should be relevant to the duration of the campaign. For example, a three month campaign should be monitored at least every month, whilst a two week campaign needs daily monitoring.
Metrics used in a report should be relevant to the type of campaign in progress. For example, email campaign reports include click through rates and inbound inquiries generated by the campaign, and this data paints a picture of the campaign's performance - and shows whether changes are needed to improve performance and maximise ROI. Our team of part-time marketing directors often see the response rates to new business emails drop substantially over time. Many switch to inbound, rather than outbound, marketing strategies as a result.
What you do and DON'T need to know:
Measuring and reporting can involve reams of reports that aren't relevant, or can sometimes just gloss over the details without showing anything of substance:
- “We generated 48 million impressions” - Impressions mean nothing if those who have seen your campaign are never likely to buy.
- “We printed 20 000 beautiful leaflets” - They may have been printed - but were they distributed, to the right people? Sales teams often request printed marketing collateral for use on the road, but leaflets and flyers are useless if they are not used.
- “I sent out an email campaign to our database of 20 000 people." - Fantastic, but how many of those emails bounced? How were the bounces handled? How many clicks did you get? How many responses? And how many 'unsubscribes'?
A business leader or owner needs to ask the same question for every piece of information in the report - "can i calculate the return on investment for this activity?" None of the above situations impact the bottom line, and whilst they may be interesting, and good to know, they shouldn't be in a marketing report.
By understanding what marketing ROI looks like, how it is measured and what to expect from the outset, non-marketers can get a clear picture of the success of a marketing campaign, without needing to delve into the nitty gritty. The important thing to remember, though, is that marketing is a cumulative activity: a series of many moving parts. The only way to ensure return on investment is to understand and document what each element of your campaign does, the required results and how it links to the bottom line, in order that you know where your money is going.
The Marketing Centre works with businesses to ensure that every element of marketing activity is aligned with the overall business goals.
