The Need for Marketing ROI
While we are bombarded by the effects of corporate marketing nearly every minute of every day, from email to TV to search-based ads to Facebook, the average consumer is unaware of the complex cost calculations behind every digital billboard smacked in their face (and the consequences if that billboard yields no influence on the customer’s future decisions). Truth is, companies spend a lot on marketing communication. An expected $2.1 trillion in total media spend in 2019 to be exact. With these massive investments, companies need a way to hold their marketers accountable: how do we measure the impact on customers? Is the investment worth it? This introduces the fundamental, highly intuitive metric for value investing: marketing ROI (Return on Investment).
When defined theoretically, MROI is exactly what it sounds like: a measurement of the return on investment from marketing expenditure. For marketers operating in the murky space of loosely defined metrics, MROI offers the benefits of:
1. Holding Marketers Accountable:
Resource allocation, effectively distributing funds, labor, and R&D, is vital to keeping a well-balanced company. MROI metrics coerce marketers to make wiser funding decisions and to think about and justify every dollar before they spend it, using more tangible methods.
2. Comparing Marketing Efficiencies:
Tracking MROI and comparing across competitors in the industry helps evaluate overall market standing and points to areas of improvement for your company’s funding allocation. While MROI may not always be publicly available, marketers can interpolate from published financial statement data to estimate competitors’ MROI.
3. Justifying Marketing Spend:
As put by Jill Avery, a senior lecturer at Harvard Business School, “Marketing is a significant expense for most companies, and leaders want to know what they’re getting for it”. By presenting MROI stats, marketers can meet the demands and qualms of the C-Suite with concrete evidence for returns on investment.
The Pitfalls of Marketing ROI Calculation
Traditional calculations of MROI have involved the blunt subtraction of cost from profit and division by total cost as performed below:
A mere calculation of how much sales increased after a certain “marketing investment”, however, doesn’t tell the marketer anything about what segment of his/her marketing campaign yielded the best results. Thus, there is no clear path forward with barebones MROI. However, with new revolutions in data collection and analytics technology, marketers are able to segment the generated value of each individual’s interactions with a brand leading up to the final purchase. This approach, known as “attribution modeling”, allows for marketers to narrow down and attribute returns to each part of the customer decision journey. In other words, a well-designed attribution model should show precisely which ads or search keywords are most associated with actual purchases.
The main reason marketers shy away from attribution modeling, however, is because of the complex statistical models it employs such as multivariate regression analysis and Bayesian estimation. While these methods offer in depth insights into what advertisement touch points to invest more heavily in, they involve more complex calculations than simple addition of revenue and subtraction of costs.
Common Mistakes in Marketing ROI Interpretation
When managers and the C-Suite deal with MROI, they often look only for the immediate profits in the short-term and fail to recognize the benefits marketing efforts bring to long-term brand value. Because CFO’s are often under pressure to deliver consistent and growing quarterly earnings, their objectives often lie in contention with those of CMO’s who want to invest in branding and image-building campaigns.
Here, the concept of Customer Lifetime Value (CLTV) comes into play for marketers. By showing managers how investments influence a company’s ongoing relationship with a customer and how marketing dollars expedite customers along their respective decision journeys, marketers can justify lower returns in MROI with gains in CLTV.
How Marketing ROI Affects You as a Restaurateur
As you go about finding the perfect new way to adopt your marketing strategy to keep up with the trends in CRM platforms, AI and predictive analysis, and customer data management, you first want to do some MROI analysis of your own, pre-investment. There are plenty of marketing cloud vendors out there who offer all the bells and whistles you “need”, but firstly consider which vendor will work with you to ensure you are fulfilling your ROI objectives, and help you make sense of your results. Our dedicated team of Implementations and Customer Success managers here at Punchh works for and with your brand day and night to ensure you are on the right track to see the returns in your Punchh investment, both in marginal MROI and long-term branding and customer life-time value. Thus, we work to efficiently allocate your marketing funds, ensure that fund pool grows steadily to increase and magnify outreach, and build positive brand influence that increases the longevity of customers’ experience with your brand.
For more information, please visit https://punchh.com. Schedule a demo with us at https://punchh.com/contact-us.