The Real Question Underneath ROI

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:

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(in case it’s not obvious, that’s a donkey, or in other parlance, an ass)


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How do you know when you’re overanalyzing marketing data?

Tableau_-_Bollinger_Bands_example

During last week’s MarketingProfs B2B Forum, Tim Washer asked forgiveness on stage from me and other analysts in the crowd for lambasting over-analysis of data as one of the top obstacles to creativity in business. The thing is, he didn’t have to apologize: he’s totally right.

The logical followup question then is, how do you know when you’re overanalyzing marketing data?

The answer to this comes from what I call the Marketing DAIS.

Data is the stuff.

Analysis tells you what happened.

Insights tell you why.

Strategy tells you what to do next.

You are overanalyzing when you keep going back for more data, and more data does not change the analysis substantially.

You are overanalyzing when you know what happened and you haven’t made progress on knowing why.

You are overanalyzing when you haven’t made the transition to what to do next.

That’s it in a nutshell. You are overanalyzing when you keep treading water, when you fail to move forward beyond the data and the story it tells you. We all love a good story, but if that’s all you ever do, then you’re overanalyzing.


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Economic outlook for marketers, 4Q 2014

One of the things I like to do from time to time is check in on a variety of different leading economic indicators to get a sense of how the overall economy is doing. That knowledge lets me know – within a certain amount of error – what marketers can expect their quarter to look like. How much should we push our customers? How much should we challenge pricing?

B2C

The consumer is the heart and soul of B2C. If the consumer doesn’t shop, the B2C company doesn’t sell – and the B2C marketer has to work doubly hard just to tread water.

So how is the consumer looking?

Employment:

All_Employees__Total_nonfarm_-_FRED_-_St__Louis_Fed

Nonfarm payrolls are expanding, and fairly significantly. We’ve technically got more people employed now than ever. Of course, some portion of that is natural because as a nation, we have more people than ever.

Unemployment:

Civilian_Unemployment_Rate_-_FRED_-_St__Louis_Fed

U-3, the general measure of unemployment, is below 6%, a place it hasn’t gone since before the Great Recession. If you look in the data, even U-6, the total labor pool across the board, is down to 11.8% underemployment. That’s a far cry from the peak of the Great Recession, when we were pushing 20% underutilization of labor.

Initial Claims of Unemployment:

4-Week_Moving_Average_of_Initial_Claims_-_FRED_-_St__Louis_Fed

We’re back to almost the first dot com bubble, and the height of the boom times before the Great Recession, in terms of the number of people who are filing for job losses. While there are still a whole bunch of people without work, it could be much, much worse.

Real Disposable Income:

Real_Disposable_Personal_Income_-_FRED_-_St__Louis_Fed

2012 was a much better year for income, but we’re approaching it in a much more sustainable way as we head into Q4 of 2014.

Overall, there are a lot of macroeconomic potential shocks out there waiting in the wings. Instability in the Middle East. The Russian-Ukrainian war. Ebola. But the bigger picture, at least for the general US consumer, is that 2014 is ending on fairly solid footing. What does that mean for you as a marketer, if you’re a B2C marketer? You probably don’t have to overhype the low cost message quite as much as you did last year – the consumer overall probably feels a little bit better than 2013, which means slightly looser purse strings for the holiday season.

B2B

For the world of B2B, we look to things that are going to impact companies’ ability to buy from other companies. This means looking at leading indicators from shipping to what it costs to run a business.

PPI:

Producer_Price_Index__All_Commodities_-_FRED_-_St__Louis_Fed

PPI, the Producer Price Index, is the general cost of doing business. What’s unusual here is that business got really expensive during the Great Recession, then prices dropped as the economic shocks rippled up the supply chain, and then for a while things got back on track. But in 2011, PPI plateaued, and it’s been holding there ever since. While you might think it’s a good thing that production costs have leveled off, the reality is that level pricing means that companies of all sizes aren’t making more money on average.

BDI:

BALDRY__1041_00_UNCH__0_

The Baltic Dry Index, BDI, is an index of what it costs to put a bunch of things on a container ship and ship it overseas. This is a great B2B leading indicator because companies don’t buy shipping containers unless they have product to sell. It’s not something you buy just for the heck of it. Again, we see that things went crazy int he run up to the Great Recession, BDI crashed hard at the beginning of 2009, and it really hasn’t made a huge lift since then. We also see the softness in 2011 extending out to today.

VIX:

VIX_Index_Charts_-_CBOE_Volatility_Index_Interactive_Index_Charts_-_MarketWatch

The CBOX VIX, or volatility index, looks at how volatile the markets are. It’s an indicator of how safe or risky investors feel. The VIX hit the roof during the Great Recession and had a few aftershocks in 2011 and 2012, but has calmed down considerably since then. A major portion of that has been the Federal Reserve Bank effectively handing out free money for years to investors via TARP and the Quantitative Easing programs, as well as holding interbank interest rates near 0%.

Do you see the pattern here? In each of the three charts, B2B leading economic indicators show that the B2B economy is in a holding pattern. The sky isn’t falling by any means, but the pie isn’t getting any bigger, either. If you’re in B2B, maybe you’ve noticed this already. Leads are probably becoming sales opportunities at a slower pace. Sales opportunities are probably taking longer and longer to close. If that’s the case, then there’s a good chance you’re caught in this economic plateau as well.

The good news is that a strengthened consumer will eventually ripple upstream to B2B, in general. As you can see from the charts above, the consumer face-planted in 2008, while B2B took as long as two years to fully feel the impact. Thus, as the consumer gets back on their feet, we should expect B2B to do the same. When will that be? Assuming the consumer continues to heal up and get back in the game, probably B2B will feel it in late 2015 or early 2016.

So overall, a merry holiday season for the consumer B2C marketer; B2B won’t get any coal in the stocking, but Scrooge’s ledgers will still be a bit thin.


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