by Barry Silverstein
If you make just one business resolution this year, let it be this one: Don't do anything in marketing for which you can't measure ROI. Gone are the days when you could put out a press release, place an ad, or launch a website without accounting for results. Today, experienced senior executives at large companies and wise owners of small companies look at every marketing initiative as a Return On Investment (ROI) proposition.
But the real issue is that different marketers measure "Return" differently. For example, suppose an online video you post gets thousands of views, or an offer you make on Facebook generates hundreds of "Likes." Some marketers would analyze what it cost to elicit these responses and compute what would appear to be a pretty favorable ROI based on creating "awareness." Unfortunately, views and "Likes" just scratch the surface. The true ROI for a business should be determined by whether or not an initial contact converts into a prospect and, eventually, a customer.
That's why you need to force yourself to look for the hard ROI numbers, not the easy ones. You need to be able to track the action of a prospect, and the interaction of your organization with that prospect, from the very beginning of the contact cycle.
Why? Because as Mike Volpe, CMO of marketing systems vendor Hubspot points out, there are marketing metrics a CEO "actually cares about," including:
- Customer Acquisition Cost: This is what it costs to acquire a customer. It consists of the total sales and marketing spent in a particular period, divided by the number of customers acquired in that period
- Customer Lifetime Value: This represents the current value of a customer. To compute it, writes Volpe, "take the revenue the customer pays you in a period, subtract out the gross margin, and then divide by the estimated churn % (cancellation rate) for that customer. "
- Ratio of Customer Lifetime Value to Customer Acqusition Cost: This ratio tells you the ROI of your acquisition efforts. According to Volpe, "a higher ratio means your Sales and Marketing have a higher ROI. Higher is not always better though; when the ratio is too high, you might want to spend more on Sales and Marketing to grow faster, because you are restraining your growth by under-spending, and making life easy for your competition."
Barry Silverstein is a brand marketing expert. He has written numerous 123 eGuides on branding, product launches, and sales leads, available here. He also teaches an on-demand online course, Big Brand Strategies for Small Brands. Regularly $39, the course is available until January 31 at the special price of just $19. Simply visit www.bigbrandstrategiesforsmallbrands.com and use the code newyear to take advantage of this offer.