The Real Question Underneath ROI

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Here’s a thought for you the next time someone asks you about the ROI of any given marketing method. There’s a secondary, implied question beneath the question of ROI, and that question is simply, does this marketing method work? Will it help us to meet our business objectives?

When you think about the equation of ROI – (earned – spent)/spent – it’s actually fairly unhelpful for making strategic and tactical marketing decisions. Because it relies on the computation of all value produced down the entire value chain, from audience generation down to closed sales, it’s subject to a lot of interference. For example, you may have an effective marketing program or an effective PR program, but an ineffective sales program. Thus, your ROI can be negative even if you’re doing your job as a marketer superbly.

If you can provide objective, actionable marketing metrics that have a line of sight to revenue and real business objectives, chances are you can make the requestor just as happy. ROI is only applicable in financial outcomes, which means that a lot of marketing activities that are not directly linked to sales will not have a direct ROI, so other performance-based metrics such as lead generation will tell you more about what you have to improve about your marketing.

When is ROI an ideal measure of marketing performance? Simple: when you are in charge of the entire organizational funnel from top to bottom, such as when there’s no sales department. For example, if you run an eCommerce website that is entirely self-serve, meaning that your customer comes to the site, buys, checks out, and pays without interacting with a system that’s not under your control as a marketer, then ROI is a great measure of your marketing skill because you’re in charge of everything, and can make system changes to improve performance.

Another example would be when you’re a sole proprietor, where you’re marketing, sales, service, and PR all at once.

When someone asks you what the ROI of something is, chances are good they’re really asking you if something works, and if this is covered: