Determining your marketing ROI

It is a dilemma as old as business itself: "I could cut my marketing expense in half if I knew which half to cut." With most businesses focused on driving fat out of their operations, it is time to figure out which marketing efforts are working and which need to be cut.

The days of spending untold billions on "building brand equity" and "increasing customer awareness" are quickly coming to an end.

Increasingly business owners and executives want to know how effectively their companies' marketing dollars are being put to use.What is the company's return on its marketing investment (ROI)? For hard-driving businesses, ROI means nothing less than accountability.

If I give you $100, I expect $150 in return.

A marketing expense should be no different.

By looking at marketing more as a quantifiable science instead of a short-lived art, businesses can start to determine marketing ROI.

Here are five tips that can be applied to make your marketing pay off.

Tip No.

1.

Do a "marketing audit".

Look at your marketing efforts objectively and pinpoint where you excel and where you have work to do.

Start by reviewing some of your key statistics: Who are your customers? What are they buying and how much are they buying? What do customers think of your products and services? What past marketing programs worked and didn't work? Why? Talk to your customers, employees, and vendors to get a quick snapshot of what your marketing efforts look like.

Take action on what you learned.

Tip No.

2.Quantify every marketing program.

Set up a simple monthly marketing scorecard to track each of your marketing programs.

You can use this to evaluate past efforts if you have the data, however this is the cornerstone for quantifying all future programs.

Here are some areas to include when setting up metrics or measurements: Customers: Determine whom you are trying to reach and the goal of the effort.

Are you trying to capture new customers? Upgrade potential customers from prospects to clients? Maintain existing customer relationships? Message: Identify each specific message used to reach these customers.

Track different messages separately.

Channel: Track all marketing channels where your company expects to generate results - websites, sales collateral, TV, radio, print, event

sponsorships, direct mail, etc.

Design: Note design elements that are specific to this marketing program.

Costs: Tally all direct cost associated with the program.

Results: Calculate both tangible (sales) and intangible results (awareness).

Example metrics include direct mail response rates, web site visits,

specific product/service sales, response rates to specific messages and/or sales promotions, in-store traffic, number of new and repeat customers, awareness by channel (how did you hear about us?), profit per customer, customer acquisition cost, etc.

Tip No.

3.

Link marketing to financial performance.

Add a final metric to your marketing scorecard - ROI for the specific marketing program.

To be sure, calculating marketing ROI is not as easy as figuring out ROI on a new machine.With hard assets, such as machines, it's relatively simple to look at the incremental costs and revenues associated with specific assets.

Marketing costs are easy to determine, but associated revenues or sales are less straightforward.

This is the critical part of determining what is working and what is not working.

You need to connect to the financials.

Just like an income statement, a marketing scorecard will let you know if you are in the black or the red.

If your scorecard returns a campaign that is consistently in the red, has a negative ROI, or has no way to track revenue ... see Tip 4.

In addition to selecting measures and determining ROI, selecting the right timeframe is also important.

Many marketing expenditures don't have an immediate impact.

It can be about 18 months before some marketing programs might result in measurable changes in consumer attitudes and behaviors.

Tip No.

4.Test, track, and optimize.

If properly set up, you run a marketing program for a set time period, tracking on a monthly basis, and optimize the program as you go.

At the end you have real results.

This channel works; this one doesn't.

Change one variable at a time, keep testing, and tracking.

But never, ever implement a program without first having a method to track its effectiveness.

Tracking is never an easy feat and it can be a creative challenge to figure out how to measure some programs.

But ask yourself, are you willing to commit to an expense with no obvious return? It is worth the effort to determine a measurement of effectiveness.

Tip No.

5.

Maximize programs with high ROIs.

Use data from the monthly marketing scorecard and the marketing audit to brainstorm new marketing ideas.

Then, look at the ideas realistically and acknowledge that, within budgets and time constraints, you can't implement every idea.

Instead, prioritize and implement a few ideas you can do well based on the highest possible ROI.

Use existing metrics to estimate results.

In summary, your marketing programs need to pay off instead of being a black hole.

Implementing these tips will dramatically change your view of marketing programs - moving from emotional to rational.

But like any management function, managing your marketing requires experience and knowledge to set the vision and the measures to make it a reality, combined with the process and the patience to learn and adjust.

Erica Olsen (erica@m3planning.com) is a strategic marketing and strategic planning consultant.

She writes periodic column for Northern Nevada Business Weekly.