Marketing ROI: It goes beyond the bottom line. By Dean Del Sesto
These days, the most commonly misunderstood phrase in the world of marketing is “Return on Investment” (ROI). Most marketing agencies proclaim they can deliver it, most clients say they never get it. Hmmm? Actually, there’s reality in both cases. But the real truth is that Marketing-ROI must be fully understood before bent, folded, spindled or mutilated.
In this article, I’ll reference a company’s brand – which is created through effective marketing and customer care, and I’ll make reference to the brand creating ROI. The brands I reference are clear that the cornerstone of their brand development is ensuring the back-end of the business is delivering what the front-end is promising. In short, the brands I speak of have the whole package: exemplary production, incredible service, and highly aggressive marketing.
To understand ROI requires opening our minds more than our spreadsheets.
To most CFOs and CEOs, ROI resembles spending $10,000.00 on marketing and receiving $20,000.00 back. This seems to be the box ROI is stuck in. This CEO believes differently. There are numerous factors and components to Marketing-ROI. Hence, it is virtually impossible to measure every one let alone tracking the marketing expense to profit ROI that 90 percent of companies don’t measure. Measuring ROI is part philosophy, part science and part instinct.
It’s no surprise when a company invests marketing dollars it expects a return on those dollars. But when the dollars return is a critical issue. Most companies actually believe that Marketing-ROI should happen immediately. Pure fantasy, in most cases. For example, let’s say I spend $1 million on marketing and in the first year I receive $800,000.00 in profit from 10 clients. Is it a loss? Some would say yes. However, if I keep eight of the ten clients I acquired and expand their business flow, perhaps I’ll get a conservative $600,000.00 in business from those clients for a two year return of $1.4 million with no marketing costs associated. That makes a return of 20 percent per year with every following year, in essence – free money. The original million invested based on long-term value will turn into millions if client retention ratios are high. The point is marketing should be viewed “like” the stock market” in that long-term growth, not shortsighted thinking is the key. Sensitive example, but you get the point. Long-term value of a customer, (LTVC) is nothing new. But in a world where instant gratification is paramount, LTVC is but a vapor in today’s impatient marketing minds. How about Brand-ROI created through committed marketing? E.g. your visibility, your voice, your reputation in the marketplace. What value does that have? Again, difficult to measure. But consider for a moment the worth of the Microsoft brand vs. Linux brand. Both are operating systems. Hypothetically, if both companies were doing the same volume with the same profitability and both companies went on the auction block today, which would sell for more? Linux? Wrong. Microsoft’s brand is worth several times its profit multiple and in the mind of the market it’s the obvious choice for equity value. Nike and Puma are another example. The value is that the principle holds water all the way down to the small business. Stronger brand equity, greater ROI. No brainer!
Marketing-ROI shows up in people, in loyalty, in productivity, in ease of business and in stronger relationships, all which affect the bottom line.
ROI investment measurement can show up financially, relationally, and emotionally.
Another overlooked ROI principle is what I call the “Credibility ROI” of world-class brands with strong marketing disciplines. When a representative from a name brand company calls a prospect and a representative from a no-name company calls that same prospect, who has the path of least resistance, whose job is easier, and who would the prospect rather hear from?” The answer is obvious. It’s certainly better to hear a positive, “Oh yeah, I’ve heard of you guys” than it is to hear, “I’ve never heard of you, what do you do?” Ouch! The fact is, presenting is easier, phone work is easier and closing deals is easier when you have a world-class brand. Asking a client for a referral is easier and the results far superior when your brand is strong. Does this translate to ROI? You bet it does. People want to do business with market leaders. It makes them feel better and some cases, they’ll pay more for it creating even more ROI.
How about employee performance and Marketing-ROI or Employee-ROI. It’s a commonly overlooked fact that employees who work for companies that are respected in their industries have a higher productivity ratio then those that aren’t respected. They take more pride in their work, they take their job more seriously, and their passion for promotion has them working harder and longer. Not to mention tenures of employment are known to increase across the board minimizing costly hiring and firing. The result? Better service and quality securing greater long-term client loyalty. Any ROI here? Absolutely!
Do companies with better brands attract better talent? Well let’s see. Considering that you like the industry, would you rather be an employee of Mercedes or Kia. Nike or Saucing, Rolex or Timex? Point? Hot companies attract hot talent. In fact, well-branded companies don’t have to seek talent, talent is knocking at their doors… daily. Is there such a thing as Talent-ROI? Mention the name Jack Welsh to General Electric stockholders, Stephen Jobs to Apple shareholders, and you’ll have your answer.
Will better brands attract stronger, smarter investors and board members – those with valuable contacts who bring more business possibilities to the table? Do more investment dollars create possibility for greater ROI? Can a better board of directors create more ROI?
Here’s an obscure one. Let’s call this one Vendor-ROI. If Nike or a no-name shoe company were to place a first time order for shoelaces and the dollar amounts of the transaction were the same for both; and the vendor, due to production constraints could only deliver one of the orders, who would get the order? Who would get better service and who would ultimately be the priority? Also consider that companies that have marketed themselves into larger companies buy more, get better pricing and garner favorable terms, sometimes without even asking. It doesn’t take a brain surgeon to figure out the ROI here.
Now here’s a real stretch to consider. Barring the workaholic type, might, just might, an executive who is impassioned about their company brand come home excited with a bit more energy to bring more Relational-ROI to the family? I’ll let you answer that based on the “executive that comes home to their family who has just left a job they hate only to have to go again in 12 hours.” What type of ROI draining baggage do they carry around at work?
In the same neighborhood as Relational-ROI, there’s something called Emotional-ROI: the overall feeling or emotions of each employee in the company. Or in other words… the culture of the company, what many consider to be in the top three most important aspects of any business, any size, anywhere. We all know it’s better to work for well-marketed companies with strong brands than to work for those that “choose,” yes choose to “play to play,” not “play to win,” in the marketing and branding game.
The ROI of this article is to create the paradigm that Marketing-ROI goes far beyond the bottom line into areas of a company that wind up back in the bottom-line. With aggressive, strategic and consistent marketing and brand building, ROI will show up at every level in your organization, or your competitors’ depending on your commitment to brand.