Categorize Marketing's Investments
Many CMOs are in search of best practices for measuring the ROI of their marketing investments. They're not easy to find -- in a 2006 survey of nearly 800 firms conducted by the Lenskold Group and MarketingProfs, just 4% of respondents said that their firm's ability to measure marketing ROI was a "source of real leadership." More than 40% said that their firm was a "long way from where it should be." Over the next few days, I'll post some ideas for how CMOs can improve how they measure -- and importantly, communicate -- marketing ROI. Part 1 is about categorizing investments by the type of return they're supposed to generate.
Among the firms that Lenskold/MarketingProfs surveyed that measure marketing profitability, incremental revenue was the most prevalend measure of return. But not all of marketing's investments are made to directly generate revenue. CMOs should categorize their marketing investments by each investment's primary objective. Keep it simple -- start with four categories:
- Brand equity. Traditional and new media advertising investments go into this bucket, with CPM and effective reach used as appropriate measures of return.
- Lead generation. Don't just the number of leads generated -- measure the quality of leads, by tracking leads generated by age, geography, and other relevant demographic of value attributes that can be identified with the leads generated.
- Direct sales. Investments that are supposed to directly generate incremental revenue of sales volume are slotted into this category.
- Profitability. Investments that improve marketing efficiency, or that make customer behavior more profitable to the firm (e.g., using online self-service) often get overlooked in marketing's (and management's) zeal to demonstrate incremental sales.
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