I shouldn’t say that most B2B businesses get ROI measurement wrong.
But I will, because they do.
Why? Because too many see ROI solely as a reporting metric. But it’s a reporting metric that they often misunderstand without realizing it. That’s because the results are skewed and their respective values are distorted. This, in turn, means that the business decisions based on that evidence is also flawed.
ROI measurement tactics should be an integral component of a marketing campaign from the very start. Not an afterthought that is bolted on the end of a campaign to justify either the outlay or provide (flawed) evidence for future campaigns.
So, that being the case, let’s start at the beginning by defining what ROI is.
Put very simply, ROI is a ratio that is used as a performance measure to evaluate the efficiency or profitability of an investment or to compare the relative efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to that investment’s cost.
The problem is that many companies measure ROI in such narrow terms that they fail to consider a great many others that give a more detailed, comprehensive, and, ultimately, more accurate picture of a campaign’s profitability.
B2B
For example, B2B sales cycles are typically more complex and protracted than B2C cycles. They usually require the involvement of multiple layers of decision-makers, extended negotiations, and substantial lead nurturing to get there in the first place. That requires time and of course money. So, if you base the ROI of a specific marketing campaign on a single or limited number of sales without factoring in the ancillary time and effort that went into converting that sale, your actual ROI calculations will be misleading at best.
B2C
If you’re a B2C (business to consumer) marketer, you may ask, “Why?”. The answer is that landing a B2B customer requires many more touch points than traditional B2C conversions. So B2C rules don’t necessarily apply in the B2B world. B2B marketing is not “one and done” like B2C. Measuring results solely from the bottom of the sales funnel is actually a pretty poor indicator of the effectiveness of the overall tactics you’ve used to drive awareness. In other words, you’ve probably spent a lot more than you realize to achieve your campaign results. That’s why it is so important to invest time in thinking through and establishing what constitutes “success” for a campaign before you start.
Budget
It goes right back to factoring ROI into a marketing budget as part of the overall campaign from the beginning. Not as an afterthought, but as an essential and ongoing component. It may surprise you that a lot of B2B companies don’t set their marketing budgets based on achieving positive ROI. But, they typically plan a campaign to work within a fixed budget that includes no provision to measure ROI.
Frankly, my view is pretty simple: “Identify activities that generate more profit than expenditure and keep doing more of that.” The difference is that you need to identify those activities and what they will cost while also factoring the cost of ROI measurement into the equation. The nimbler SaaS companies do this pretty well, but large engineering companies, for example, are usually much more old-school with rule-of-thumb fixed budgets, which is why they so often end up scratching heads and gnashing teeth when the post-campaign bottom line doesn’t add up.
What I’m ultimately getting at is that calculating ROI is not as straightforward as many think, and a lot of poor decisions for future campaigns are the direct result of miscalculating and, therefore, misinterpreting results from previous campaigns.
That’s why ROI measurement must be moved firmly into the internal silo of strategic planning. For those who want a more in-depth look at what I’m referring to here, I encourage you to have a look at the ROI calculator that we developed and use. Feel free to apply it to how you map conversion rates in each step of your campaign from start (and I emphasize start) to finish.
There are a lot of other “secrets” to ROI that they didn’t teach you in business school, but lucky for you, I’m in a tell-all mood.
Factor ROI into your planning.
Most companies don’t. They just use it as a determinant of whether the campaign was good or bad after the fact (often with bad information), which tells you almost nothing about why a campaign worked or didn’t.
ROI isn’t linear!
The ratio of success changes in direct proportion to the amount invested. Too little and the campaign will have no impact. Too much and you could over saturate the market. Investing $100 and getting a $200 profit does NOT mean a $200 investment will result in $400 profit.
Think very carefully.
About how your investment is spent. Use ROI measurement as a way to determine whether or not you should do more of what’s working and divert funds from what isn’t.
ROI can be hard to define.
Although ROI is often defined as “net income”, it can be very difficult to rationalize the impact of a single campaign based on net income alone. There are a great many factors that impact profitability, so isolating the effect of a single campaign is almost impossible without well thought out measurement metrics.
ROI.
It is very often over-estimated. Tying sales to a particular campaign is misleading because that campaign will typically target and reach customers that would have bought anyway. If a prospect click on an email to buy, it doesn’t necessarily follow that it ultimately increased sales. there is a huge difference between attributed sales (what you say you believe is the result of a campaign) and incremental sales (the actual sales increase achieved).
ROI is like catfish, a bottom-feeder.
It can only be truly measured if lured from the depths with the right bait.
Reducing spending does not necessarily increase ROI.
Because ROI is a ratio there is a tendency to minimize spend to maximise profitability, e.g., running a direct marketing campaign using email rather than postal mail. But this is often the wrong approach, particularly in B2B where sale values are high. You should therefore always focus on maximizing the effectiveness of your investment rather than minimizing its cost.
What has the greatest impact on ROI?
Optimizing conversion rates. There, I said it.
So, how should you use ROI metrics to run better direct marketing campaigns?
- Build a model of how you want your campaign to work and then look at how you can optimize each individual step of the customer journey. Using formal marketing framework can also be very helpful at this stage.
- Focus from the start on making your investment as effective as possible, not as cheap as possible.
- Don’t just increase the volume of activities. Look at expanding into other activities, particularly if you have a very focused audience. Remember, ROI is not linear!
- Finally, don’t assume that ROI is the final arbiter of the performance of all campaigns, especially if you’re measuring from the bottom of the sales funnel. Although top-of-the-funnel activities are very difficult to measure without carefully constructed ROI criteria, they ultimately contribute to more sales.
