Measuring Marketing As An Investment                                      Home

Most people like to know what they get back from the effort that they put into something. It is a natural instinct, and one that is usually quite well developed in business owners and managers. You would be surprised then, if you were me, and spent a lot of time with businesses who had no idea what results they got from their marketing investment. Since I believe that more and better investment will lead to higher profitable sales, my first task is to persuade them to get measuring. It is really quite simple.

Every activity needs a purpose

Every piece of advertising, direct mail, PR, should have an explicit purpose. It should be as specific as to generate sales leads, or sell a product, or keep a customer loyal. You can promote your range, or build awareness of your business at the same time, but do something specific as well. That way customers and prospects are clear about what you want from them and can make up their minds. You wouldn't go on a sales call with no purpose in mind or you would be seen to waste the customers time. You also wouldn't leave without asking for on order. On this level marketing is no different.

Find ways to measure the outcome

Once you have decided what the specific purpose of you campaign is, you need to find a way of tracking results. Let me give a couple of practical examples.

If your objective is to sell a product, then position it as a special once-off offer only available in your campaign. Assign a special product code to the offer which links to the original product code, but which applies any discount or other incentive that you are offering. Explain to customers in your campaign that they will only get the special offer is they quote the new code. You can then track sales volumes using the new product code.

It your objective is to keep customers loyal, the practical measure of this is their frequency of ordering. Suppose you identify a group of customers who have not placed an order for three months, but used to order every month. If you mail that group and monitor the number who respond to your campaign in the next month, that will give you a measure of your success. In fact to do this test properly, you would need to split the group and to mail some of them and not mail others. However in smaller businesses this is often not practical.

Measure your campaign gross profit contribution

In the first example above you can quite simply track the sales and the gross profit of the product that you offer. If your business has many products, it is possible that customers were prompted to place and order by your offer, but that they also ordered other products at the same time. It is worth looking at the average order value to see if it is higher than the value of the product. You can then decide based on your business knowledge whether to count these sales in your campaign totals as well.

The measure of campaign gross profit contribution is:

    ( Campaign Sales) - (Cost of Goods Sold) - (campaign costs) = Gross Profit Contribution

In other words, this is the additional gross profit generated by your decision to run the campaign

Measure your Marketing Return On Investment (ROI)

True ROI takes into account all the costs in your business and needs a lot of data to calculate. Marketing ROI is simpler and easier to calculate. You can use is to compare different marketing methods. For example, direct marketing can produce very high gross profit contribution, but it is relatively expensive. Email marketing will produce less spectacular results, but it does not cost as much to operate. Marketing ROI gives you a comparison measure of which gives a better return.

The measure of MROI that I use is:

    (Gross Profit Contribution) / (Campaign Costs) * 100 = MROI %

Using the data for marketing decisions

Once you have started to measure the success of your marketing activities, you are in a powerful position of control of your business. You can forecast sales accurately. You can invest your money in the most effective campaigns and you can make sure that you are focussed on profit as well as sales.

Two words of caution. Firstly, don't invest all of you money in area that gives the best return. Marketing is always about a mix of activities and these measures do not tell you how your mix of activities is interacting. If you stop something completely it may have an impact on your results elsewhere, so unless something you are doing is loss making, think carefully before radically changing your mix.

Secondly, if you increase your investment significantly, you may encounter the law of diminishing returns. You may have the potential to double your investment in the activity that produces your best return, but there is a limit to how much you increase your investment.

In spite of these words of caution, you would be amazed at the difference these quite simple steps can make to the marketing and financial performance of business that we work with. Try it today...you won't regret it.

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