A Priority Again in 2018
Again in 2018, Marketing ROI is a strategic priority for marketing leaders! In fact, it has been a top five priority every year since 2014. When the same priority shows up for five years straight it must be a big deal and must be hard to do. At its core, figuring out marketing ROI seems pretty basic. When you get into the details, however, it quickly becomes complex. This blog post will identify these complexities and provide insight on how to handle them. Let 2018 be the year for Marketing ROI, so you can take it off your list in 2019.
How do you calculate Return on Investment (ROI) for your marketing programs?
A marketing program’s Contribution is defined as the Total Revenue, derived from that marketing program, less the Total Cost to execute it. The marketing Program ROI is defined as the Contribution divided by the program’s Total Cost. When all programs are added together, we get the overall Marketing ROI. On the surface, this appears to be straightforward. However, the complexity lies in the details.
What steps are required to calculate Marketing ROI?
The major steps need to determine your Marketing ROI are outlined below. The major assumption is that your company has a Customer Relationship Management (CRM) system (i.e. Salesforce, Dynamics, Zoho) and a Marketing Automation Platform (MAP) (i.e. Marketo, Eloqua, Hubspot). These systems provide the data you need to perform the steps outlined below.
- Connect Leads to Wins – In order to calculate Program ROI you have to be able to tie leads to revenue. To do this you have to connect a sales opportunity to a marketing lead based on the opportunities account and the marketing activities of that lead. Here is where the CRM data comes into play. You need to know the opportunity’s account, the date it was created, the date it was closed, and its outcome – Closed Won or Lost. The account is used to match which leads could be matched to the opportunity. The create date is used to align the timing of an opportunity to the marketing activities on each of the potential leads in your MAP. We recommend only connecting a lead to an opportunity if there has been meaningful marketing activity in the 6 months prior to the opportunity being created. In the event there is no significant activity to justify the connection, then no connection should be made. That sales opportunity should be designated as Sales Originated. Both the activity timeframe and the definition of significant activity should be tailored to fit your company.
- Program Attribution – Lead to Program attribution is the next step in the process. Leads that progress to Marketing Qualified (MQL), Sales Qualified (SQL), and Win will be part of multiple marketing programs. Typically, the number of programs will range from five to 15. This attribution is needed to understand which programs were executed on the leads that progressed to MQL, SQL, and Won.
- Revenue Attribution – To determine a marketing program’s Total Revenue, a revenue attribution methodology needs to be defined. This methodology is used to allocate the revenue generated by wins to the programs that were executed on the leads tied to the win. We recommend that revenue should be allocated to each of the lead’s programs based on their influence level. For example, attending a Webinar is more significant than opening a generic email.
- Define Program Cost – You must define the cost of each marketing program. Each company does this differently. We recommend allocating to each program its direct cost. In addition, we recommend allocating all of marketing’s indirect costs to all of the marketing programs based on effort required. For example, assume it takes half a day to write an email campaign, but two days to produce a webinar. You would allocate four times more indirect cost to the webinar than to the email campaign.
- Contribution ROI Calculation – This step will provide the total contribution in dollars for each program and the return on investment based on the formulas above. Once you have completed the steps outlined, you have the data to complete the calculations. A program’s Contribution and ROI becomes the foundation for program investment optimization.
It is time to get Marketing ROI off your priority list and into practice. This is the key to an optimized marketing spend. It will also demonstrate that marketing is an investment and not a cost center. At ORM we specialize in the implementing marketing ROI and using it to optimize your marketing program spend. We will maximize your revenue by selecting the programs that deliver the highest returns in the time frame you need them. If you would like more information or would like to know how ORM Technologies can assist you, send us a note at firstname.lastname@example.org.
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With over a decade of experience with advanced technologies, Pete leads both the Sales and Marketing teams at ORM Technologies. Previously, as the VP of Engineering, he led the technical development of ORM's advanced analytics and optimization solutions.
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