Yes, it’s exciting; your team scored. You had the good fortune of being the one to carry (or catch) the ball in the end zone. You get to spike the football. Congratulations.
But, it’s not all about you.
If it weren’t for the player that received the kick (or recovered the turnover, etc.) your team wouldn’t have the ball. If nobody called a play, your team would be standing on the offensive line looking at each other like kindergarteners trying to understand algebra. If not for the blockers, you would have been pummeled. You get the point – it’s not all about you. A lot of work went in to scoring the touchdown. You just happen to be the one that gets to bask in the limelight.
The same is true in marketing.
While we at Spoke are guilty of having an obsession with return on investment for our clients, it’s important to see the big picture and understand all the marketing tactics that contributed to the sale.
Hint: it’s not always the final marketing touch.
Last Click Attribution
The rise of digital marketing and search engine marketing (or pay-per-click advertising) has exacerbated many marketers’ desire for a short-term solution – a quick fix. Because it’s so simple (and so measurable) many mistakenly believe that the final click that closes the sale is the star player. They see that click spike the football and believe it’s the only player they need.
It’s understandable. The clicks are easy to track, and the back-of-the-napkin math makes the return on investment appear easy. After all, it was the last click the prospect took before they converted to being a customer.
“I only spent $100 on AdWords and got $500 in profit!”
“My cost-per-click is just $2 and my conversion rate is 10%. This is great, I want to move my entire budget to search engine marketing!”
The problem is, they’re only seeing the football being spiked. Unless you’re selling a commodity, there are a lot of steps that lead up to that click and ultimately the sale. In marketing terms, this mistake is called ‘last click attribution,’ and the problem is just getting bigger.
So, how do you know what’s working?
Measuring Your Marketing Return on Investment
We say it all the time. Marketing shouldn’t cost you money; it should make you money. If you invest a dime and make a quarter – it’s a no-brainer, right?
We still focus on finding your fastest path to cash™, but coming up with a solid equation to measure the return on your marketing investment can be tricky (at best). The formula for measuring marketing return on investment (MROI) is pretty straightforward:
MROI = incremental sales from marketing – cost of marketing cost of marketing
MROI is a helpful metric for a lot of reasons. If the number is accurate, it can justify and optimize marketing expenditures. If the measurement separates each tactic and execution, it can dictate how and where the budget is spent. Perhaps most importantly for CMOs, it serves as job justification and allows management to measure performance.
Now the hard part. Measuring the return on investing in marketing isn’t that simple (sorry, just being honest…please don’t shoot the messenger).
Measuring incremental sales
To get a true measure of incremental sales you need to know (with certainty) what your sales would have been in the absence of marketing.
Good luck with that.
The best method we’ve found for this purpose is good old-fashioned A/B testing. While this clearly isolates the effect of marketing, it can artificially inflate the cost of marketing (because sales attributed to the cost are cut in half). Additionally, in the absence of any marketing, customer loyalty and brand awareness can decline. Depending on your sales cycle, the impact of this loss may not be immediate (or measurable).
What actually rung the register?
There’s often a lag time between cause and effect with marketing. Just like last click attribution, with the fractured marketing landscape marketing messages can come from anywhere (no, I don’t care if it’s National Cat Day, sorry). How many times do you think you have been exposed to McDonald’s golden arches? Each one of those impressions builds up and creates brand awareness that’s too big to be cast aside by pink slime (remember that?).
The risk is a hyper-focus on short-term ‘wins.’ Marketing is a marathon; every brand touch builds on the last one. That’s why it’s imperative that each message work together and build on each other.
Play the long game
Yes, marketing expenses show up on the P&L in real-time. Unfortunately, the corresponding sales might not.
What’s a customer worth?
One of the best things to come from the dot-com bubble was the focus on the concept of the lifetime value of a customer. For better or worse, I’m an Apple guy. I haven’t ever bought a computer that wasn’t an Apple. And, since the introduction of the iPhone, I’ve been brand loyal (perhaps irrationally).
But when Apple got me, they got me. I’ve been worth thousands to Apple, and they’re not done with me, yet.
Sure, I see their ads. I read about them in the news. I’ve seen their products in shows and movies. I’ve seen celebrities with their products. I’ve listened to my nerd friends debate the true value of Apple products.
What’s the true impact of all of these impressions and exposures? I can’t measure it, and I doubt Phil Schiller (Apples CMO) is smart enough to measure it, either.
When putting together your marketing budget, kindly remember that there will hopefully be an immediate boost to sales. Just know that every dollar you spend will strengthen your brand and the relationship with your customers for years to come.