Marketing's ROI: How much is enough to win more investment or avoid a cut?
Mark Stouse
CEO, ProofAnalytics.ai | Causal AI for GTM Risk Mitigation | Named to “Best of LinkedIn | Causal Analytics and AI Professor | Forbes | Columnist | MASB | ANA | GTM50
Last week, I met with a CMO who asked a very pointed question.
"How much ROI is enough to justify the company's marketing investment?
If you Google "Marketing ROI," you'll see about 4.1 million results, including definitions, calculators, and tons of thought leadership articles. What you don't see is an answer to this CMO's question.
That's because ROI usually is not a magic multiple. It's about what you have to earn in order to win the battle of opportunity cost.
When marketing or any other part of a business proposes investment, it must compete with all the other potential uses of a finite amount of time, money and effort being proposed across the company. If you're a business leader trying to decide who wins and who doesn't, you'll want to know the answers to three big questions:
What much money can we expect to make if we make this investment that we wouldn't make if we don't? If you can make a credible case for significantly better attributed ROI than other parts of the business can deliver with that time, money and effort, then you represent the better investment. But to have a chance to be at the top of the stack rank, you have to be able to credibly compute the ROI.
How long will it take us to get that sort of return? You've heard the old phrase that time is money. There's a big difference between spending $100,000 to get a return of $500,000 in 90 days, and spending $100,000 to get $500,000 in five years. The former is a lot more valuable and compelling than the latter. So, if you can deliver the promised return on marketing investment a lot faster than the ROI time line promised by another part of the business, you'll get the money.
What's the risk that we won't get that return? The risk-reward ratio is very important in managing the opportunity cost decision. Think of your own 401k portfolio -- if the risk is too great, you probably won't make the investment, even if the potential returns are extraordinary. So if getting your promised return is less risky than other investments the company might make, your likelihood of getting to "Yes" is much higher.
Mark Stouse is CEO of Proof Analytics, a powerful new business impact analytics platform that helps you and your organization prove and improve your business impact. For more information, visit www.proofanalytics.ai.
Product Management | Innovator | Marketing Management | Salesforce and Funnel Analysis | High ROI Marketing
6 年Mark, I think there are many other aspects, and I would add to "opportunity cost" just a few to consider: 1) I think there is a Crossing the Chasm aspect to marketing, in that going from 0 to 1 is incredibly difficult. This may be even truer when businesses move from "marketing is a cost of doing business" to "marketing is a profit center". Thus, running the first marketing program on $10,000 and seeing your first 2:1 ROI can be more valuable to a company than running the 200th and seeing yet another 3:1 ROI. 2) Quite often I have encountered executives who start shouting ROI, ROI, ROI from the rooftops. This often kills the creative environment of serendipitous experiments and tethers experimentation to rigorous criteria that have often not yet been proven to be attainable. This is a serious double-edged sword that brutally cuts those who wield it poorly. 3) How about "prove your ROI is truly incremental"? This was one of my hardest challenges and took years to develop a good answer.
CEO, ProofAnalytics.ai | Causal AI for GTM Risk Mitigation | Named to “Best of LinkedIn | Causal Analytics and AI Professor | Forbes | Columnist | MASB | ANA | GTM50
6 年Kelly J. Waffle