Why is putting a figure on marketing ROI still a problem?
While advances in marketing analytics and technology have been made, a significant portion of businesses still report facing difficulties in calculating ROI. In the fall 2023 CMO survey, CMOs report Increased pressure from the CFO to properly report and improve marketing ROI.
The problem of marketing ROI is simple, but it’s difficult to solve. In essence, many marketing leaders know how to drive marketing results. However, they do not focus on or do not know how to market internally. For most marketing functions there are two primary roadblocks to effective internal promotion and to developing ROI measures that the CFO and CEO can buy into.
1. The right metrics
Martech is an asset, but also a distraction from ROI measurement. Most marketing KPIs and related technology have an underdeveloped view of ROI the solution may not lie in more martech. Even with advances in addressability, identity mapping, and identity resolution, perfect evaluation of marketing ROI remains elusive, especially in B2B or B2B2C business models.
Advances in 1:1 attribution are still imperfect and in a constant balance with consumer privacy. While the operational marketing metrics and improved attribution are critical to growing the marketing function and making it more efficient, they rarely have visceral meaning outside of the marketing group.
Even if you achieve perfect sales attribution (direct and indirect), it still is not earnings or profit and not all marketing exposures are trackable. Marketing funnel metrics such as click-through rate, cost per acquisition, cost per lead, or cost per sale are important and can be used to demonstrate growing marketing efficiency. Many marketers believe these metrics are ROI. But they are not ROI, they are ROI-adjacent.
True ROI is focused on earnings, cashflow, and margin. Finally, while advances in martech are empowering and important, marketing leaders should also recognize their distraction value when it comes to communicating marketing effectiveness to other company leaders.
Fundamentally, marketing ROI should demonstrate incremental profits due to marketing expenditures. However, core profitability metrics such as gross margin, cash flow, and lifetime value are rarely discussed in the marketing departments. These are the very metrics that can elevate marketing from the cost center to a critical growth engine.
2. Branding: Too much art, not enough science
Branding or brand development is a critical function that drives the long-term health of the business. However, this is also the area of marketing where quantifying ROI presents the biggest challenge.
Significant costs go into branding, from customer research, brand strategy and branding materials to ad buys. The costs of brand development add up. When it comes to estimating the returns, however, we generally hear crickets. What’s more, branding leaders constantly promote the intangible benefits of their brand work, making the effort to calculate ROI seem futile.
This does not have to be the case. At the end of the day, branding is designed to grow customer loyalty, increase consideration, and lower the cost of acquisition and these brand metrics have a direct path to core profitability metrics.
Dig deeper: Marketing attribution: What it is, and how it identifies vital customer touchpoints
The solution
The biggest challenge facing the quantificaion of marketing ROI is the focus on marketing performance at the expense of company performance.
While the two are related, making the connection is not trivial. Often, it requires specific initiative and ongoing work. Marketing leaders can be brilliant, intuitive and creative. This makes them great promoters of the organization but terrible promoters of the marketing function. Marketing leaders need to put on two hats.
Marketing management
The first hat focuses on marketing management leadership. This involves managing activities that drive the metrics and KPIs that drive greater marketing effectiveness and efficiency. Under this category fall activities such as channel strategy, communication strategy, branding, and improving KPIs such as cost per acquisition, cost per lead, etc.
Great marketing leaders know how to manage their budgets and allocate resources to improve marketing results. The role of data and now AI is making that work easier, but requires greater and greater attention, resources, and focus from marketing leaders. The marketing management activities take up a lot of bandwidth and are frankly aligned with the skills and talents of most marketing leaders.
Internal leadership
The second hat focuses on internal marketing leadership. Here, responsibilities begin by recognizing that most marketing metrics and jargon are not sufficient and may even be a distraction from conveying the value of marketing to the rest of the C-Suite.
The reality is that most marketing metrics are not the lens through which most C-suite leaders view the business. Occasionally, key marketing metrics may impress thm. For example, the CEO may be very impressed if the cost of acquisition is lowered by 25%. However, the subsequent question eventually comes down to: “What does this mean for my bottom line, earnings, and cash flow?”
To properly address questions from the CFO and impress other senior leaders, marketing leaders should dedicate a portion of their resources to the financial analysis of marketing activities. Today, most marketing departments think of marketing finance as a budgeting exercise that places the greatest focus on the “I” in ROI. When it comes to the “R” or return, it is often a hodgepodge of KPIs and metrics that spark some cynicism, even among the most sympathetic C-suite leaders.
Opinions expressed in this article are those of the guest author and not necessarily MarTech. Staff authors are listed here.
