What Finance Wants That Marketing Should Never Give

Submitted by Kip on Sun, 08/29/2010

A key issue any marketer must adequately address is “What’s the return on this marketing investment?” It's reasonable for a marketer to provide some type of quantitative measure to ascertain whether the marketing activity for a company is working (and how it should be adjusted so the spending can either be optimized or eliminated).

Problem: There's No Such Thing As A Universal Marketing ROI - What the CFO will always want and a CMO should never try to give is a "universal ROI on marketing investment" to show exactly how much of a financial return marketing is contributing to the business. It's important for the marketer to explain to the finance team (as well as the rest of senior management) why this isn't the right way to think about how marketing is invested in a business or how it should be measured.

As with other marketing-related issues, it’s not an easy, straightforward answer. While some marketing investments are relatively easy to determine an actual financial ROI, such as paid search (i.e. comparing the cost of the keyword to the revenue that keyword generates), mobile advertising (i.e. the cost of the ad compared to the response rate) or direct marketing campaign (i.e. the cost of the campaign, open rate and resulting business generated), other types of marketing are not nearly as easy to measure. This doesn't make them any less worthy or important.

For example, Public Relations and Community Development are often critical investments needed to create awareness and interest in a new brand, but it’s challenging to attribute just how much financial success can be specifically traced back to this type of activity. Field marketing is another critical marketing activity for many brands, but as with PR and Community, it’s complicated to quantify the revenue this will generate (as well as agree on the appropriate time frame to measure the impact of this activity).

Even that favorite of many marketers, television advertising, is really tough to pin down in terms of financial return (unless you're running an infomercial with a dedicated 800 number to track the resulting sales). For over half a century many have tried to calculate a reliable "TV Advertising ROI" and I challenge anyone to prove it's been done. But that doesn't mean we should stop all television advertising tomorrow since we can't adequately measure it.

Your Business Pays A Price For Pushing For A Universal Marketing ROI - The biggest unintended consequence of all of this is there's a strong natural "gravitational pull" for the finance team to continually urge the marketer to put most (if not all) marketing spending in those areas in which an ROI can be carefully calculated (such as paid search). That's a mistake that will hold a brand back from it's real potential in the marketplace.

That's because even though there’s no such thing as a “universal marketing ROI” (even if we all agree this would be highly desirable), there's no “perfect marketing lever” either. The challenge is for the marketer, therefore, is to create the right portfolio of marketing levers that generates the desired level of awareness, trial and loyalty for the brand.

There's A Better Way To Think About "Return on Marketing Investment' - The best a marketer can do in reaching this goal is:

  • evaluate the overall business results to see if the key business objectives have been met with the   allocated marketing budget for a specific time frame (such as one year)
  • utilize the best marketing metrics available (including ROI on a specific campaign when appropriate) to measure each of these marketing activities

For example, the following metrics could be used to measure the success of a marketing program (in addition to how well the overall marketing program helped build the business):

  • Public Relations - Number of overall impressions (M) and resulting consumer sentiment
  • Field Marketing - Number of businesses participating in marketing programs, leads generated
  • Mobile Advertising - Click through rates on ad campaigns, cost per new user
  • Paid Search - Click through rates for keywords, cost per new user
  • Community - Number of community volunteers, level of engagement
  • Direct Marketing - Open rates on email campaigns, cost per new user
  • Social Media - Number of followers, level of engagement 
  • TV Ads - Increase in awareness, intent to purchase, willingness to recommend levels

You Need To Actively Manage This Issue With The Finance Team - While it’s critical the marketing function be held accountable in delivering results in building the business, the specific ways in which this is measured and evaluated depends on the overall business objective and which marketing levers are utilized.

Focusing solely on those marketing activities where you can calculate an exact ROI (such as paid search) might make your finance manager happy (such you've now got "a number" you can all agree on and track), don't sell your customers short of a robust marketing plan just for the sake of a misleading financial ROI that will diminish the impact of a diversified marketing program that includes critical activities that are tougher to measure.