What is a good ROI on marketing? If you can increase net income by 50 cents for every dollar spent on marketing, that’s good, right? The more you spend, the more money you make.
But what if you learned your primary competitor was getting $1.50 in income for every dollar spent on marketing? 3x the return you are getting on marketing! All of a sudden your marketing looks pretty ineffective!
Marketing ROI, whether it is labeled good or bad, is judged relative to your expectations. No business would accept a 50% ROI if there is a 150% ROI available with no additional risk, but that same 50% would look great when you were only expecting 20%.
Our expectations are a function of our historical measured ROI, our business requirements and what we see from others around us. And our measured ROI is also a function of the type of marketing we engage in. Even though all marketing can be measured, it is never measured perfectly.
We see this impact in action when we discuss objectives. Here are two common examples scenarios.
1. Setting Partner Objectives
Going back to our example, if your marketing currently delivers a 50% ROI, and you tell each potential partner your goal is a 50% ROI, that is based on your current knowledge. If you then learn you can do better, 50% will no longer be good enough to win your business.
When working on media programs, media partners will often ask for a goal, and many meet it in their proposal. Then they wonder why they aren’t in the final plan. The answer is simple: competitors had better offers. Meeting the goal, when there is an opportunity to exceed it, isn’t enough.
As you learn more, what you once considered a good ROI will quickly become just average, in your view. This will move your marketing to new partners and new tactics over time. But is that always the best decision? Consider this second scenario.
2. Comparing Apples to Oranges
Have you been running an advertising program to set meetings for years and now want to test outbound telemarketing?
The measured cost to set an appointment should go down significantly.
Almost the entire value delivered by your outbound calling program is the meetings that you set. The program reaches a small number of people and, outside of those who schedule a meeting, it doesn’t make a strong positive impression.
However, your advertising program reached far more people and (ideally) shifted the perception of some of those that did not respond. The perception shift delivered a portion of your return, but since you were not measuring it, telemarketing will look like a tremendous success on paper.
Does that mean your advertising program is now ineffective and should be scrapped? How will your new perception of ROI change your future marketing investments?
How does your ROI measurement impact your program mix over time? Do you put controls in place to ensure your expectations aren’t misleading your marketing? Share your response in the comments below or with me on Twitter (@wittlake).