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del.icio.usHow the Heck Do You Determine Payback on Your Marketing?
by Reid Neubert
What is your company getting for all the marketing dollars it is spending? This is a common question, and a fair one. It is also difficult to answer directly. In a gross sense, determining payback on marketing seems easy: we spent X dollars on marketing this year and got Y dollars in sales. But that really doesn't give a full picture.
The problem is, there are so many things to try to measure. What kinds of marketing are most effective for your business? Should you advertise … and in which publications and which media … participate in events, emphasize PR, spend more online, etc.?
On a more fundamental level, how do you gauge the effectiveness of the individual elements of a marketing strategy or campaign such as,
- the message,
- the offer or promise,
- the visual elements?
Which of those is working well, and which isn't? (Candidly, I have seen many concepts that were poorly executed, and even more clever executions of lousy concepts.)
Confused? I don't blame you. These are ongoing issues in marketing management. The quantitative folks feel better if they track metrics and crunch numbers. But, as we said above, it's not that simple.
When we try to directly track individual elements of marketing, advertising, and PR – online and off – determining payback is anything but simple. The ROI for each separate campaign or event continues to be highly problematical to calculate, because they are all interrelated.
Where there is a longer sales cycle, such as in many business-to-business sales, measurement is made even more difficult. Your marketing (hopefully) generates prospects who then enter the sales funnel. Some come out the other end as buyers, but that may be a year or two down the road.
Some hurdles to overcomeMarketing research tells us that it takes an average of seven exposures for someone to even remember your name, your brand. So, if you launch a new brand, start a new company, or a new professional joins a firm, for instance, marketing efforts can seem completely ineffective at first. Then, as exposures add up, the sales start to build.
How quickly they increase will be impacted by many factors, including how effective the branding and marketing is … or isn't.
Consider this: However effective your marketing, only a percentage of the prospects it reaches will be ready to buy now. Timing is everything, as they say. That's just a fact of life. Another percentage of the audience will be future buyers, and others will never want or need what you offer … or they will work with someone else.
As you continue to market, the universe of prospective customers increases – these are people who now know about you and at some point become ready to buy. You may even get word-of-mouth referrals from people who don't become customers.
Lifetime valueOne way some companies try to paint a more complete picture of marketing ROI is to figure the "lifetime value" of a customer. Let's say by crunching the numbers we find that the average customer remains a customer for five years, and during that "lifetime" spends an average of $1000 with your company.
If we only track current sales, and new customers spend an average of $40 initially, the yield your marketing brings in look very different than if you figure the lifetime value.
Made to measure?Some types of advertising, such as direct-response, can be measured … at least partially. Only the ready-to-buy-now people will respond, so only those will be measured. But what about those who see your ad and buy next quarter or next year? They don't get measured, at least in terms of the return on current spending. They are still important though, to future results.
You can measure the lift you get when you add something to the mix, such as a new offer, advertising in a new publication, or participating in a new event. You have to use caution, though. A mistake often made, especially in a down economy, is to heavily promote a discount. If it's not done just right, it may increase current sales, but have a deleterious effect on the brand image and future sales.
The Internet is a medium that can provide metrics, but with at least as many measurability problems as other media. Tracking software can tell us how many people clicked through from an ad to a Web site, and (sometimes) if they made a purchase. We can track how many people visit a Web site – in fact each page of the site – what terms they search for to find the site, what the most popular pages are, which are the main entry and exit pages, and so forth.
What the software can't tell us, though, is how many people visited the site and later telephoned. It doesn't say how many people looked at the site then bought through the mail or in person.
What works and what doesn't?You've probably heard the infamous saying, "I know half of my advertising budget is wasted, I just don't know which half."*
The truth is that most marketing and advertising really isn't very good – see "Warning: Your Marketing Probably Sucks" for more on that subject. Large companies spend millions each year on advertising and other marketing, but how are they to know if their marketing managers and agencies are doing a good job? Other than asking me (couldn't help throwing that in), all they can do is try to measure the results they are getting. And we have seen how problematical that is.
What is a company to do? You know you have to market, but which parts work? It is a quandary.
Digging out of the quandaryIf you stand on the street corner and ask everyone who walks by, "You wouldn't want to buy any soap, would you?" sooner or later, someone will stop and say, "Actually, I need some soap, what do you have?" But that is a very inefficient way to sell.
Obviously, the better your pitch is – your marketing message – the more people who will stop and buy. Also, the better your location – where you market – the more passersby who are likely to need soap. If you have marketed in other media as well, so that they have heard of your brand before and have a good impression of it, they are much more likely to buy.
So how do we get there? First, you have to make sure your marketing doesn't suck, otherwise more than half of your marketing budget is wasted. Your brand and your marketing message should resonate with prospects so that when they need what you sell, they want to buy from you.
Second, it is important to market in numerous ways and in various media. The more ubiquitous your brand becomes, the more people are likely to think of you first.
In order for that to work, consistency across media is crucial. Since each exposure helps build your brand recognition and acceptance, the more consistent your visual and verbal messages are, the more effective it all is.
Finally, it is also important to remain visible in good times and bad. Companies that pull back and don't market during down times miss out on the prospects who are ready to become customers then or as things turn around. If you disappear and your competitors remain visible, who do you think is going to get the business? Your competitors, of course.
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