Do you waste money by not measuring web marketing ROI?

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Over the past 18 years I have had the good fortune to work with start ups, SMEs and some of the Britain's best biggest. I have seen marketing activities that have delivered outstanding results where the marketing investment has more than paid for itself with improved sales and profits. I have also seen other activities that have been a complete waste of money. It's surprising, but too many companies fail to measure their marketing activity and don't know what's working, what isn't and why.

Ask yourself this question. Is your marketing performing as well as it could be or are you wasting your marketing money?

How do you know?

Getting more for less

Everyone wants to get a good deal and to get more for less money. This universal desire applies both in business and personal lives. In business you want your marketing budget to achieve the best possible results for every £ spent. This concept can be known by different names in different businesses such as :

• Marketing Return On Investment (Marketing ROI or MROI) - which is the term I will use
• Return on Marketing Expenses (ROME)

Whatever you call it, it's all about getting the best possible return or results, for every £ spent.

It's your choice

Marketing is all about choice. You can choose how much to spend (or invest) on marketing. You can choose: who your target audience is; how to reach them; what to say; and when to say it. You can choose to invest in a price promotion (discount) or an advertising campaign. You can choose to improve an existing service or product, or develop a new one. How do you make the best choices for your business?

Making the best choices for your business

All of these choices will have different costs (or levels of investment) and deliver different results (or financial returns). What works for one business may not necessarily work for another. To get the best financial results for your business you need to make the choices that deliver the highest Marketing ROI for you. You need to move money from investing in low Marketing ROI activities and invest it in high Marketing ROI activities.

What are the causes of poor Marketing ROI?

Apart from the obvious "sending the wrong message to the wrong people at the wrong time", here are 5 key reasons why Marketing ROI can be poor:

• failure to focus on customer value
• failure to have a SMART objective for the marketing activity (Smart, Measurable, Achievable, Relevant & Time related). An example of a good objective would be to generate X new customers with an average order value of £Y within 2 months of the campaign start date
• failure to measure web marketing performance
• failure to grow customer lifetime value by considering the value of repeat sales or the halo (multiplier) effect from other activities over the customer life term
• failure to measure the right things

An example of not measuring the right things would be a business testing 2 advertising campaigns with different headlines.

Cost per customer - Campaign 1 costs £1,000 and generates 100 new customers giving an average cost per customer of £10. But Campaign 2 costs £1,100 and generates 105 new customers at an average cost per customer of £10.48. Although Campaign 2 generates 5% more customers, it cost 10% more. Using "Cost per Customer" as the measure, Campaign 1 is the winner generating customers at the lowest cost, but this fails to take into account the sales revenue.

Sales revenue per customer - If Campaign 1 generates £900 of sales from the 100 new customers, the average revenue per customer is £9.00 but it cost £10.00 to get the customer. If Campaign 2 generates £1,200 of sales from the 105 new customers, the average revenue per customer is £11.43, which exceeds the £10.48 it cost to get the customer. Using "Sales revenue per Customer", Campaign 2 is now the winner and the revenue it generates exceeds the cost of the campaign.

As to whether Campaign 2 is ultimately profitable would depend on the sales margin and other associated costs included in the Marketing ROI calculation.

Why doesn't every company maximise its Marketing ROI?

There are 2 major problems to be overcome in order to maximise Marketing ROI:

• not knowing how to do it
• not seeing the wood for the trees

The first challenge is to find a Marketing ROI specialist who knows how to transform Marketing ROI. Make sure they know the right questions and make sure they also know how to get the right answers.

The second challenge is to provide marketers with the ability to simply look at their data, analyse it and to develop targeted campaigns. Most companies have the data but often it's hard to access and to make any sense of it. But it doesn't have to be that way. Although a large corporation may have a Customer Relationship Management system, a small business could use a simple spreadsheet to keep track of customers and to calculate Marketing ROI.

But whichever solution you go for, beware of vendors who make the whole thing too complex and too hard, to try and justify their system and high costs. Keep it simple. Focus on answering the question 'Which marketing activities attract and keep my high value customers and give me the highest profits (after I take out the costs of the activity)?'

How to transform Marketing ROI?

If you start thinking about answering the following questions you will be on the road to transforming your Marketing ROI:-

• who should I market to, when and how often?
• what level of incentive is required to achieve the desired response?
• who are my most valuable customers?
• when I am most at risk of losing a customer?
• is my business getting stronger or weaker?
• what are my future sales and profitability forecasts?

Don't delay - time is money

If you are not sure if your marketing is giving you the best possible return, you should implement a web marketing ROI programme now. If done properly, it will quickly pay for itself and give you greater confidence that your business is healthy and your marketing investment is not being wasted on low ROI activities.

Published 1st December, 2004

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