ROI: we all talk about it, but do we know what it means? Not some far-out goal to seek, but a tangible measure we can apply to everyday decisions.
We can help you master ROI, control your budgets, and invest in impactful marketing programs that drive your strategy forward.
ROI allows marketers to understand their investments and turn assets into profit, but it comes in many forms. We’re going to break down the mystery of ROI one metric and definition at a time. So the next time marketing investments come into question, you already know the answers.
What is ROI?
Beyond the expanded acronym, Return on Investment, it’s a performance metric aimed to measure efficiency. Every time an investment is made, there’s an expected result or return. But ROI is more than a simple equation that subtracts profits from asset costs. It can keep your marketing investments aligned with strategic goals.
Let’s talk metrics.
ROI comes in all shapes and forms: investment dollars, spend against strategic plans or objectives, influenced pipeline, and influenced revenue to name a few. The secret is, there’s no right way to do it, rather a choice of many approaches that best suit your organization’s goals.
That being said, ROI isn’t the only metric your company should consider. But it is considered the ultimate measure of business impact, seen quite literally in our marketing metric hierarchy pyramid. Below falls other measurements addressing core investment performance, tactical results, and advanced (marketing performance) measurements. ROI is the culmination of all of these levels of measurement, combining to form impact measurement and answer the question of where our marketing dollars should be spent.
These metrics provide a clear line of communication from marketing to any other area of the business from finance to sales. Everyone speaks revenue growth.
5 Common Problems with Tracking Marketing ROI
61% percent of marketers attribute a lack of confidence in marketing data to challenges in calculating ROI, 46% of marketers also have a lack of internal proficiency that prevents them from utilizing ROI.
Marketers struggle to measure ROI, it’s an unfortunate truth that we are seeking to address. In response, we have identified common issues and how to avoid them. Start your ROI journey by understanding what you’re trying to answer and finding common goals before you jump into how you’re going to get there.
Let’s go over some challenges marketers commonly face when attempting to measure ROI.
- Calculating ROI Requires Consistent Metrics
The first problem is consistency – unfortunately, it’s a common practice for marketers and other departments alike to have siloed metrics. Put simply, different departments are speaking using different metrics and don’t have a standard set.
This is a problem because ROI doesn’t occur in a vacuum. There needs to be communication and coherent numbers between teams to properly use return measures. If your CMO heads into a board meeting with one set of performance metrics, they need to be aligned to the performance metrics sales is bringing to the table. Chaos is bound to ensure if there isn’t common ground between teams.
- Defining Success Before Trying to Measure ROI
The next issue is defining success. As mentioned above, different organizations measure ROI using many metrics, but there must be one determined nonetheless.
Marketers and executives must be unified on KPI’s and strategic goals before marketing investments occur. Unification and alignment should happen during the planning process to make success measurable when plans are enacted and dollars are spent.
- Different Departments Have Different Ideas About ROI
Defining success isn’t a task solely to be taken on by marketing teams. Finance and marketing must also be aligned on what entails ROI and the ways that investment returns are measured.
From our own study on ROI, 43.4% of marketers don’t have alignment between marketing, finance, and sales on what is successful ROI, this results in unforeseen roadblocks in both planning and execution.
Without communication, marketing and finance can’t be expected to look at success through the same lens. To Finance, success might look like an increase in market share, while marketing is more focused on building brand awareness. Once these viewpoints are reconciled, communicating ROI is no longer a guessing game, rather a unified effort.
- No Control Over Investments Makes It Impossible to Get to ROI
Once success has been defined and metrics determined, the next roadblock to navigate is controlling your marketing budget. Unlike pre-set measurements, budgets require constant overview and change as they adapt with your shifting marketing plans. To keep a firm grip on budget control, marketing teams must have a clear structure for their budgets and how to optimize their marketing investments.
Along the same lines as budget hierarchy, transfers and reallocations must also have a set process to make sure that budgets are as agile as marketing plans ought to be.
- Your Marketing Budget Isn’t Agile Enough to Execute New (Optimized) Plans
Speaking of agile marketing plans, the final roadblock revolves around adaptability. Your plans have to be able to pivot, but this is only possible if your marketing budget is primed for agility. We have an entire page of content on this issue for you to reference.
A marketing team that isn’t agile is incapable of reaching its fullest potential, let alone measuring it. Changes in markets and situations require changes in measurement. Think of a shifting target market, previously determined ROI measures may no longer be effective in measuring success.
Solutions to Better Measure Marketing ROI
Now that we’ve defined ROI and laid out the challenges to properly measuring it, it’s time to address them. Spoiler alert, the secret is communication.
Consistent metrics allow for easy communication between marketing teams and other departments such as finance. This is done by defining a constant structure for reporting ROI, and deciding whether it revolves around pipeline influence, investment dollars, or revenue influence is dependent upon your team’s goals and capability.
This structure should be intuitive; strategy-oriented decisions should take place in marketing leadership and actions should be brought down to second-level marketing leaders. Even further, this structure should be communicated across departments. Ideally, finance and sales should use the same measures or be aware of them at a bare minimum.
How do you align with sales and finance? The secret lies in addressing common goals and building connections to support them. If your company has identified ROI as revenue growth, then any programs run by sales or marketing need to be measurable against that goal. And finance, holding the purse strings, needs to be kept in the loop as each department measures performance.
Obstructions between the two must also be addressed. For example, an overly optimistic short-term target on a program designed to influence the pipeline may result in more of a hindrance than an inspiration.
Finally, budget visibility is essential for communication between finance and marketing. Software such as Allocadia’s marketing planning and budget management platform allows finance to see and understand how marketing budgets are being used to pursue ROI.
Putting it all together to Find Your ROI:
With a culmination of alignment and consistent metrics, being able to define your marketing ROI is vital. So how do we define success? A great starting point is making a S.M.A.R.T goal and choosing a metric and hurdle rate that corresponds to it.
This metric then must be communicated all the way down the chain of command. Defining success doesn’t only require coherence between departments, but also between levels of marketing. The team carrying out return-driving actions must be aware of the return they’re chasing.
As we discussed above, controlling budgets is essential for measuring ROI. Determining return is impossible without knowing how much you spent on assets. Truly controlling budgets requires observation. We recommend a daily review of budgets in order to maintain control of all your investments. This ensures that every dollar driving ROI is measured and none are left out.
Forecasts are also vital in ROI measurement, the standard to which we compare targets and performance. As such, they should be updated weekly to ensure accuracy in measurement, especially when ROI is measured against forecasted numbers.
Just as challenges are often formed from a lack of agility, properly measuring ROI is dependent on it. Scenario planning around strategic goals and KPIs ensures that no matter the situation your team has both a plan in place and a method to measure it. Strict plans are far too stringent to allow for ROI to be measured properly. Agility allows marketers to make and measure ROI through easily shifted targets and accurately pivoted metrics.
For example, during the pandemic, marketers had to re-evaluate priorities. Some decided to focus on brand awareness while others sought to drive short-term demand. The result? Changing KPIs and new metrics. Measuring brand awareness with a revenue growth-based metric is inefficient so agility was required to switch metrics when priorities changed.
Controlling your marketing investments may seem harder than ever with changing landscapes and markets. But with properly defined plans and metrics, constant communication, and agility through it all, ROI is just around the corner.