I have never understood why the marketing budgets are not unlimited. To most of the business executives, certainly those that are on the financial side. That statement is probably sounding like heresy. But really, how is it that the ROI for marketing any different than the ROI for purchasing the capital equipment. That shows a break-even point in two to three years? In fact, the marketing usually outperforms that by far.
Now consider this: A marketing vice president recently had to share a story with me. About when he asked his CEO for a larger trade show budget (obviously it was a pre-pandemic request). The VP was a savvy marketer who have the idea of what was important to driving the business. He did not approach the request as just a discussion about an expense or about a cost to the business, but rather he approached it as a proven revenue generator. He showed the CEO that trade shows accounted for about 40% of that company’s new account sales.
And the CEO then properly replied, “Not only is your request for a larger trade show budget approved, but what else, how much more can I give you?”
In this case, both the marketer and also the CEO have an understanding of the financial payback they were getting. And they would just be foolish not to put as much money as they possibly could find into a tested and proven formula for getting more sales.
Making The Marketing-To-ROI Connection
Recently, we were reviewing the ROI results for several of our client’s digital marketing programs for the prior year. We were then looking at the usual stats on the lead generation, the cost per lead, the program efficiency and even the size of the sales pipeline that we are driving.
Transition From Manager To Leader
However, it is possible we increasingly can take marketing analytics further than that, all the way straight to the final step. Not just marketing ROI for leads and quotes, but also through to final sales ROI. In other words, for every dollar that is spent on marketing, how many dollars in sales has it generated? Not clicks, not the impressions, not even the pipeline deal flow, but actual the revenue? Today’s software tools the marketing automation software linked to a customer relationship management tool. Make this ROI calculation not just only automatic but also very transparent and visible to everyone.
The approach should be to use the analytics to draw a straight line right from the marketing to sales to the ROI. For our clients, with all the different industries and different programs, the ROI ranges from about 10:1 to 25:1. Some years it has been as high as 40:1. But in most of the cases, for every dollar spent on the marketing, the software analytics point to definitive returns of about $10 to $25 in revenue. This is not a payback over the two to three years, as in a capital equipment investment, but also an ROI-to-sales result for that same year. A pretty enviable financial return for any chief financial officer.
That is of course just a one year of payback. It does not account for the total lifetime value of any customer acquired.