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Measuring the ROI on marketing activities – What your CEO really needs to know

I prepared thoroughly and during my preparations found an interesting nugget of information that I am pleased to share.

“If you can’t measure it, you can’t manage it”

Peter Drucker – Management consultant and author*

When asked to prepare for this interview – this quote was the first thing that came into my mind. I’m sure you have heard it before, as had I, but I didn’t know the origins of the quote, so I thought it best to investigate… more on that later!

Inbound marketing experts “HubSpot” (I am very likely to mention them again – am a very big fan!) claim that there are  “6 marketing metrics that your CEO actually cares about”. These are highlighted below:

1. Customer Acquisition Cost (CAC)
2. Marketing % of Customer Acquisition Cost (M%-CAC)
3. Ratio of Customer Lifetime Value to CAC (LTV:CAC)
4. Time to Payback CAC
5. Marketing Originated Customer %
6. Marketing Influenced Customer %

As with almost all of HubSpot’s content this is pretty accurate (I’ll let you read their blog to find out the details), The “Customer Acquisition Cost” really is a no-brainer, especially when you use their inbound marketing platform (which I am lucky enough to use).

The problem I have with their suggestions is that they are just not practicable – in my 10 years of marketing for SME’s I can’t think of a single instance when I have been in a position to truly identify what the CAC figure would be.

In my experience working with small to medium sized businesses, whilst the bottom line is always sales / revenue / profit. The practical and meaningful ROI measurements (for marketers and business leaders) are always those based around activity.

These help identify successful activities and help assess where resource / effort should be committed. Whilst they may be less definitive, more often than not, these are what make the CEO sit up and listen:

  • Cost per activity – if you show how much you spend on events versus email, their opinion will soon change.
  • Leads per activity – demonstrate how many leads you are getting from each social channel or (I’ll whisper this…) your print advertising!
  • Sales per activity – if you have the systems in place, show true sales results – these can be erratic and misleading, but they are always interesting and can help inform decisions and opinions.

Use indicative measures, or more general targets:

  • If we get more website visitors then we will get more leads
  • if we generate more leads, we will generate more sales

These are just examples, although they are less measurable, they can help drive decisions and as long as your assumptions are correct, they will deliver results.

Ultimately the measurements for marketing activities should be based upon what you want to achieve – if these aren’t SMART – don’t be afraid to state this – whilst most things can be measured in modern marketing, that doesn’t  mean you have to or that it is productive to measure it.

Which brings me nicely back to my howling contradiction….

“If you can’t measure it, you can’t manage it”

Peter Drucker – Management consultant and author*

Upon investigating the origins of this statement, I found that *Peter Drucker never actually made this statement (although he is widely attributed to this statement). He was an advocate of measuring business performance, but his actual views were that metrics alone shouldn’t be used to assess success.

What did he mean by this?

Druckers basic views were that other factors are just as important to success but not necessarily ones that could be measured using ROI, some of these examples are below:

  • Following business strategy – if your aim is to talk to more people, this can’t be related directly back to ROI but could be equally as important to your CEO.
  • Building a profile – a classic, “we want to improve engagement” – not always measurable, but almost always important!
  • Networking – maintaining key relationships, this has nothing to do with ROI and everything to do with the bottom line. It is easier to keep customers than gain new ones and maintaining key relationships is vital to success.
  • Raising awareness – print advertising / public relations. As previous flippant comments may have highlighted, I am not a fan of print advertising but it can be an important  tool for raising awareness. Dependent on the sophistication of the tools you are using this is unlikely to be measurable against ROI but as with other factors, it can be a vital objective.

 

Demonstrating ROI to your CEO is critical to your career success – if your CEO is looking for results then you can do a lot worse than follow HubSpot’s 6 metrics. However, if you want to truly deliver great marketing you need to (and need to convince your CEO to) look further than ROI and how marketing can deliver on key objectives too.

Read more of my posts at http://methodinthemarketing.com/