Monday, March 19, 2012

The Bottom Line On ROI

There is a lot of talk about how important ROI is these days.

Yet a recent article indicates that 57% of CMO and other marketing executives don’t establish their budgets according to ROI measures.

What’s the problem?

Perhaps it’s in defining what the hell ROI is these days.

It used to be value returned for marketing dollars spent (costs). Value was defined by sales.

In broad strokes, this is still the case. But what has changed recently is how we can better define, measure and monetize individual marketing costs.

There are two main costs in any marketing budget—media and creative. And each of these costs have their own ROI.

If you wanted a formula, it might look something like this.

Marketing ROI = Media ROI + Creative ROI

Media ROI could stand for Return on Impressions. Obviously, the impressions the brand is receiving need to be relevant, demographically targeted, etc. But if that is the case, how many impressions did the brand receive for the dollars spent?

More would be better.

Creative ROI could stand for Return on Involvement. How well did the commercial involve the viewer? If the opportunity to involve the viewer was thirty seconds, was the Return on Involvement 10 seconds or 28 seconds?

Again, more would be better.

By making marketing ROI a combination of media ROI and creative ROI, the advertiser would have a better idea what is working and what is not.

If both media and creative ROIs are high, chances are the marketing ROI would follow suit.

If one is low, the advertiser can change it.

If both are low, the marketer can change agencies.

To put it simply, advertising is a two-stage process.

1. Getting the horse to water.
2. Making it drink.

Media is accountable for number 1.
Creative is accountable for number 2.

By working off a total marketing ROI (i.e. sales) advertisers can’t separate what works from what doesn’t.

Which means the advertisers can’t assign accountability.

Maybe that's why 57% of advertisers don’t establish their budgets according to ROI measures.

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