How Do I Measure the Effectiveness of Marketing?
People often ask me about measuring their marketing effectiveness and ROI (return on investment): How do I know it’s working? How can I make sure the investment is making an impact? How do I ensure I don’t spend $20,000 with little or nothing to show for it?
I used to hear, “I know half of my advertising/marketing spend is wasted. I just don’t know which half.” Those days are long gone. They’re a remnant of the pre-digital world, and often referred to traditional media campaigns such as TV, radio or print. The good news is marketing isn’t an art anymore. It’s a science.
The metrics and analytics have never been better for marketers and executives in the digital world. It’s important to note your marketing strategy and tactics must be directly linked to your metrics and analytics. With these measurements in place, you can optimize and make adjustments to improve the performance of your KPIs (key performance indicators).
For most businesses, especially B2B, the website is the locus of all marketing activity. Typically, your prospects will visit your website long before picking up the phone or submitting a contact request. Research from Corporate Executive Board (CEB) suggests that the average B2B buyer is 57% through the purchase decision before they engage with a supplier sales rep.
The Right Numbers
So what are some key metrics you should be looking at to gauge effectiveness? I always start with the big three: traffic, leads and sales. There are plenty of key supporting metrics to give insight on how we’re doing on these three:
1. Website Traffic
• “Non-flirt” visits (visitors that consumer three or more pages per session)
• Time on site
• Conversions: People who convert on your website, i.e. give you their name and email, usually in exchange for some premium content
• MQLs: Marketing qualified leads are people who show additional engagement and interest
• SQLs: Sales qualified leads fit your target customer and persona profile
• Opportunities: SQLs who present a real opportunity to close in the short term and sales is actively engaged, working the deal with the prospect
• New customers
• Average deal size
• Total revenue
4. Conversion Rate
• Leads/website traffic, calculated for your website as a whole, as well as on individual forms, offers and your Contact Us page
5. Social Reach
• Number of followers, connections, YouTube views, reviews, etc. across your social media platforms
• Your marketing should be actively cross-promoting and encouraging engagement across your various platforms
• People who subscribe to your blog or other content, and receive it automatically when it’s published
• Number of offers on your website, such as e-books, how-to guides, checklists, research, whitepapers, etc.
• Generally, the more offers you make available, the more leads you have
8. Contribution Margin
• Also known as Gross Margin, this is the amount dedicated to covering your fixed costs
These metrics are a good start. Track these weekly and pay attention to the trends you see developing over weekly or monthly periods. Then make adjustments as needed based on what you find.
Marketing ROI: Campaigns and Overall Efforts
Okay, so how do you calculate marketing ROI? This should be done on both a campaign and overall basis. A campaign basis is typically easier and more straightforward.
Our formula for ROI is:
Let's look at an example of a marketing campaign and use the formula to determine the ROI.
Example: Calculating the ROI of a Direct Marketing Campaign
• Send direct marketing (DM) pieces to 10,000 recipients at a cost of $2,500
• A response rate of 5% = 500 leads
• A 3% customer conversion rate = 15 new customers
• An average deal size of $1,000 in revenue = $15,000 incremental sales
• Gross margin of 50% (of incremental sales) = $7,500 in contribution
When we plug this example into our formula, (Contribution – marketing spend) / marketing spend = ROI, we get (7,500-2,500) / 2,500 = 2.00, or 200% ROI.
This type of calculation is also relatively straightforward for digital campaigns, such as Google AdWords, Facebook, etc., but it often gets a bit more complex online since prospects typically will be exposed to multiple touchpoints. In this case you need to determine the contribution of a given online campaign to closing the sale.
Overall Marketing ROI
You should also track overall marketing ROI. This is the total number of new customers gained from marketing activity divided by your total marketing costs over a period of time. This can be done on a quarterly, semi-annual or annual basis, depending on the type of business, the length of the sales cycle, the size of the team, etc. I’ve seen this done including the people cost (i.e. the cost of your employees) and without the people cost. I typically do both.
Connecting marketing ROI to real world business objectives, an area where many marketers stumble, is key. Calculating marketing ROI without any connection to the business objectives context is like trying to keep a game score without even knowing what sport you’re playing—a fruitless endeavor to be sure.
For example, some level of marketing investment is necessary just to run the business. Somehow, prospects need to find out about your company and its products or services and how it can potentially solve their problems. This could be very modest—a website, business cards, a sign, whatever—but the cost is certainly not zero. And if the business is primarily sales-driven, then this is an investment in getting customers, albeit in a more focused, one-on-one way.
Calculating Overall Marketing ROI
This approach is similar to the tactical ROI. The first step is to determine your marketing spend. These are the costs associated with your marketing activity. Some costs may include but are not limited to the following:
• Content development
• Marketing automation, CRM and other martech (marketing technology) tools
• Promotional/advertising spend
• Direct mail
These are then applied to the formula:
ROI on Specific Events
Lastly, I also like to calculate marketing ROI for specific conversion events that are not yet closed deals but contribute to moving prospects through the buyer’s journey. These are especially helpful in B2B businesses that have longer sales cycles. For example, suppose I have an e-book available for download on my website. A very high percentage of prospects who become customers download this e-book. So it’s valuable to me to have this in as many qualified prospects’ hands as possible. This activity has a value. But what is that value?
Don’t get too hung up on this. With more data it will become more clear over time. You can look at average deal size and contribution margin, and put a stake in the ground on the value of an e-book download. Let’s just start by saying it has a value of $100 to the business based on these parameters.
Now I have at least one yardstick to measure the relative efficacy of different marketing tactics (Google AdWords, Facebook, LinkedIn, SEO, direct mail, etc.). If my cost to acquire a download is less than $100 for any of these channels, I’ll continue to invest there. If it’s above $100, I’ll stop (or pause until I have even better data on the value of the download).
This is a good way of determining which acquisition channels to include in a diversified portfolio. It is very dangerous to rely solely on one channel, so you want to add as many as prove effective.
With all this great data, we’ll also soon be ready to jump into LTV (lifetime value of a customer) and CAC (customer acquisition cost).
But the main takeaway for today is this: Get started and measure!