How to ensure your marketing delivers ROI

Marketing often gets a bad name because marketers fail to demonstrate ROI. There are two parts to this issue: one is in the planning and the other is in the post-campaign measurement (which I'll cover in a future blog).
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In this blog I'd like to share how I work out whether a campaign is going to deliver ROI. If I can't demonstrate that it has a high chance of success then it's scrapped. Even if it sounded like an amazing idea when it was first floated.

This process applies for almost all marketing activities and campaigns, whether it is advertising, email, direct mail, an exhibition or event, PR, or social media. Here's what you do...

1. Work out how much this activity will cost you to execute and administrate

​This needs to take into account everything related to the promotion, including planning time, creative costs (e.g. graphic design), printing costs, sales people’s time or lost opportunity cost etc.

2. What is your objective?

What is your objective for this activity? Where in the buying process does this activity aim to work?

I've blogged before about setting your strategic objectives: now is the time to set your tactical objectives. These objectives are the specifications for each of the "subassembly" marketing activities that make up your marketing machine.

Don't make the mistake of thinking that a promotional activity is all about raising awareness. Many activities are more effective at driving loyalty in existing customers or supporting people who are already aware of you but are not yet customers. In most cases, an activity will act in more than one stage of the buying process.
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Your objectives for an exhibition, for example, might be to

1. generate awareness
2. help people who already know you to move forward in their buying decision
3. build stronger relationships with your existing customers at the event and drive loyalty

For every marketing activity, you need to define:

• The end result you are hoping for
• What you want people to do, think and feel as a result of coming into contact with your marketing

Let’s take the example of an email campaign.

• End result: more visitors to your product page
• What you want people to do: click through to your website
• What you want them to think: “that sounds like it could help me”
• What you want them to feel: that they can trust you

Now we know that our priorities for this campaign are to look professional and reputable, to allude to the customer’s problem and show how this product will solve it, and to lead recipients to the website link.

Consider the process from the buyer's point of view. Why would they take the trouble to click through? What's in it for them? How will your email get them to take action?

A good specification for a tactical marketing activity should include:

• The audience for the activity – is this for your entire market or a segment?
• The emotional messaging you will use – aim this at your ideal customer persona and their emotional reasons for buying
• The logical information you need to include (e.g. the features and benefits of the product, the price, delivery information, etc.)
• The images and graphics that need to be included
• Which customer testimonial you will include
• The call to action
• Measurements and the timescales you will want to measure across (e.g. click-through's might be measured after a week; sales might be measured across several months depending on your audience their buying timescales)

​This list isn't exhaustive as it'll depend on your activity. However, you’ll need all of these in most marketing activities.

3. Work out the value of achieving those objectives

To do this, first you need to calculate the value of customers at each stage of the buying process. This is easier than you might think.

1. Take a snapshot of how many people you have at each stage. If you've never done this before, and you don't have accurate measures in place yet, start with a "gut-feel" estimate. You can improve on the estimate iteratively later.
2. Calculate the conversion-rates between each stage in the buying process.
3. Estimate (or calculate if you can) the average lifetime value of a long-term, loyal customer ("customer lifetime value" or CLV). There are several ways of doing this but the simplest is to calculate the profit margin per new customer in a given period (e.g. annual net profit), divided by the number of new customers in that period. If your business services a small number of high-value clients then you might prefer to estimate this based on an average profitability of your current client-base.
4. Work back up the stages of the buying process, using your conversion rates, to calculate the approximate value of a customer at each stage of the buying process.

​Here's a worked example: 

Stage of the buying process	Number of people (estimated)	Conversion rate	Value
Awareness	10,000		£0.40
Interest	1,000	10%	£40
Evaluation	300	30%	£133
Trial	100	33%	£400
Adoption	80	80%	£500
Loyalty	40	50%	£1,000 (customer lifetime value)

​In this example, if my marketing activity cost £400 and its objective was to generate awareness (at a value of £0.40 per person), then I would need to make sure it reached at least 1,000 people for it to deliver a return on my investment. This is your break-even point. Your marketing activity must exceed this value to deliver a return.

4. Model different scenarios

In your calculation above, see what happens to your profit under different promotion scenarios. What happens if, say, you put two people on your exhibition stand instead of one? You would incur a higher outlying cost but you would reach more people. Would it be worth it?
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Play out a few scenarios and work out how much you need to spend in order to maximize your profit.

Need help?

If you want to use this process in your business to see robust, sustainable sales results, I'd love to help you. I usually start with a free 30-minute consulting call, like a "test drive", so you can see what I'm like to work with. Then we'd talk about what you want to achieve in your business and see if I'm the right person to help you.

If this sounds interesting, please drop me a line. I'd love to see if I can help.

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This blog is part of the "How to Engineer Your Marketing" series and will form part of my soon-to-be-published ebook of the same name. If you'd like to receive a copy when it's ready, please sign up to my newsletter.

Many of my blogs draw on elements of the Watertight Marketing™ methodology. These remain the intellectual property of Watertight Marketing Ltd and are used with permission and under license.