ROI is the typical measure to evaluate the attractiveness of a new investment. It is not surprising therefore that is often front of mind when considering new marketing projects.
In practise ROI often proves a difficult, frustrating and inaccurate way to evaluate marketing performance.
Why is Marketing ROI problematic in B2B?
The fundamental reasons that in B2B markets it is often not easy to effectively measure ROI on marketing projects are:
- Extended sales cycles. Highly complex or considered B2B purchases may take significant time from the initial engagement to convert into revenue. Marketing or lead generation activity may only start to generate returns a up to year or more after the initial investment.
- Long term customer revenues. Many B2B relationships extend over a long period of time and in order to gain a clear perspective on the value of a new customer it is important to factor in the revenues that will be delivered over the entire relationship. Initial contracts are often limited but become broadened, extended and more profitable over time – so the returns generated increase beyond the initial contract value.
- Multiple touchpoints. The attribution of how a particular marketing activity influences a buyer decision is difficult when prospects are influenced in many ways, and are likely to interact across multiple channels over time.
Is ROI a useful measure?
ROI is certainly a useful measure however its limitations need to be understood clearly.
It can best be used as a long-term measure to assess the total investments being made in both Marketing and Sales. The reason that both should be assessed together is that generating ROI requires effective performance from both areas.
Sales cannot deliver ROI without effective support from Marketing in generating high quality opportunities; while Marketing cannot deliver ROI without effective conversion of leads into customer revenue.
Business Leaders do of course still need to understand how changes to their marketing (and sales) mix impact overall ROI. The volume, conversion rate and value of leads generated should therefore be assessed over time. An understanding of how these elements are influenced can then be developed by assessing detailed metrics of underlying marketing and sales activity.
How can marketing performance be measured?
The purpose of marketing activity is often to generate valuable new business enquiries that convert into revenue. If this is the desired end result then we need to be assessing what might lead up to this point; such as the interactions between a member of our target audience and our marketing assets.
In the short term this is of far greater importance than ROI for making decisions about whether a particular approach is proving effective.
Often multiple metrics need to be considered together to optimise activity and identify exactly where improvements can be made. Without this detailed analysis a marketing channel may be dismissed as ineffective; when the channel itself is not the problem – only that it has not yet been refined to make it effective.
The performance of an email lead generation programme for example should be evaluated across many metrics in order to optimise it. Consideration will need to be given to open rates, click through rates, where clicks are made on the email, web traffic generated and various A/B testing of subject lines, message, images, or layout.
Digital marketing in particular offers the ability to track many different performance metrics, but in B2B markets buyers often undertake multiple activities over time prior to engaging with Sales and then converting into revenue. This makes Return on Investment a difficult measure to use for marketing activity.
ROI remains a useful measure for overall long-term effectiveness but over the short and medium term each marketing channel should be optimised and assessed using a range of appropriate measures.