Why I don’t measure return on investment. And neither should you.
To decide whether a marketing activity is ‘working’ we look for a return on investment (ROI). But as Amanda Westphal points out, the concept is swiftly becoming redundant.
Whether you’re going to run some Facebook ads, pop some flyers in gift bags, or splash cash on a big PR campaign, the first question you’ll always hear is: “What’s the ROI?”
The ROI, or Return On Investment can usually be arrived at via some very simple maths. It’s the cost of the activity divided by the number of sales you anticipate to make immediately as a result of that activity, in a percentage or a ratio.
So if you’re spending $1,000 on marketing, and you expect to get 20 customers at $100 then the ROI is 2:1. That’s a great Return On Investment!
"Unless we’re talking about a very specifically targeted Facebook campaign, I think ROI is now redundant. "
It’s simple and used by most small business owners to justify spending more money, or cancelling marketing activity. But, unless it’s a very specifically targeted Facebook campaign, I think the concept of ROI is now redundant.
There, I said it!
I don’t use Return On Investment for my business, and I recommend my clients don’t either.
It’s the opposite of what every small business or marketing guru is telling us, but let’s look at the business environment at the moment.
Marketing has evolved, particularly in the last 24 months to be a true relationship builder. The days where you ran an ad and then people gave you their credit card details have long gone. It’s been replaced by activity that builds trust with your tribe, over a longer term.
The latest statistics from Google outline that it takes at least seven impressions from a brand before a new customer will purchase from you. What can this actually look like? Here’s a case study from my own business.
- A potential client sees our logo as a sponsor or partner of a business event.
- They then hear me speaking at the event.
- They view my website on their phone whilst I’m on stage.
- Pixels on the website target Google re-marketing ads to them.
- They click on the ad, return to the site and sign up to the e-newsletter.
- Weeks later, they click our Facebook link in an e-newsletter and follow us on FB.
- They then click on a targeted Facebook ad and register for our services.
At this point if I called this client and asked, “How did you hear about us?” their response would be “Facebook!”.
But as you can see, it’s a much longer story than that. This customer’s journey included PR, brand awareness, advertising, speaking engagements, and email marketing. Just one Facebook ad wouldn’t have resulted in a sale on its own.
It’s also important to keep in mind how long this can take. The above example is a real life one and it was over 12 months from the first impression to the final sale.
If I was focused on the immediate ROI of any of the activities that preceded the sale, we’d never have actually gotten to the sale because I would have canned those earlier touchpoints.
So here’s what we all need to keep in mind in this day and age:
If you’re going to be doing marketing for your business, you need to have multiple streams running; it’s your marketing mix that puts your future customer on a path to you.
If you work out the ROI of each activity in isolation, you’re leaving money on the table and cutting off your customer’s journey when it’s just started.
Where do you stand? Do you agree that Return On Investment is becoming increasingly redundant?