Octavia DrexlerOctober 7, 2020

The Problem With "Marketing ROI"

As marketers, we walk a fine line between being too entrenched in data and being too high-level with our marketing results.

On the one hand, the high-level end, what matters most is ensuring our marketing is converting into sales. Bottom line.

On the other, how we spend our marketing dollars really should be optimized to get the most bang for our buck. Every. Single. Buck.

So, which is it?

The High-Level Marketer vs the Granular Marketer

In a data-driven world, is there such a thing as too much data? The answer might surprise you…

There are two types of marketers: those who look at the funnel as a whole and those who see it for the sum of its parts. As you can predict, the high-level marketer is the former and the granular marketer is the latter.

It’s every marketing manager’s job to understand her/his customer’s journey. From awareness to decision, from pain to solution; if we can understand where our customers are coming from and why, then we can help guide them to making the best informed decisions.

When you assume there are no “middle stages,” like interest, consideration or intent, you forgo so much opportunity to improve your bottom line.

Why? Because what happens in those interim stages can make or break a purchasing decision. That is, understanding the metrics within those stages can not only improve your marketing ROI, but it can improve all your other reporting metrics. And as a SaaS marketer, that should be extremely enticing.

Since most of our SaaS marketing efforts are performed online (if not all of them), then it stands to reason we, as marketers, should be invested in optimizing our results.

So why wouldn’t you want to be as granular as possible when it comes to your marketing ROI? It feels like the easy way out. The digital data is there for the taking and numbers never lie.

The numbers never lie for calculating your Marketing ROI

The Growth-Hacking Marketer vs the Granular Marketer

What differentiates a growth-hacking marketer from a granular marketer? Truth is, they can be one in the same. While some growth hackers base their decisions on assumptions (not all, some), others ground their decisions in the analytics. Unlike a high-level marketer, a growth-hacking marketer can (and probably should) be data-driven in order to truly be successful.

The question remains, are these data-driven marketers ultimately successful in their analytical approach to marketing? The answer is a resounding yes.

The trouble, however, comes into play when a marketer is too focused on metrics they may miss the forest for the trees.

What do I mean by that? Simply put, analytics are a must when it comes to digital marketing, however sometimes if we look too closely at the details, we’ll forget what our initial big picture vision is. And though some metrics may appear to be low, if it’s ultimately serving the greater campaign purpose, then we can’t lose sight of that either.

This is where the downside of growth-hacking comes into play. Growth implies increase. And if we are so narrowly focused on that, we’ll fail to see other opportunities and possibly even fail to achieve our goals.

As marketers we are all highly invested in gaining the best outcomes for our campaigns. But maybe it’s as simple as the tortoise and the hare fable, where the tortoise always wins out?

Data-driven marketers are process-driven as well as meticulous and patient. They understand that growth doesn’t always happen overnight. Therein lies the rub. Yes, we want to see the most return for our investment, but we also want these to have long-lasting impacts.

And in a world full of marketing hares who see high-level results and sometimes make bad decisions based on that, the granular marketing tortoise will ultimately win out with his or her strategic action.

Orbit Media puts it perfectly with their visual depiction of the pros-cons of either type of marketer.

There are 2 types of marketers, both are focused on Marketing ROI

Based on my personal experience, I’ve seen (and shown) that if you don’t manage the key metrics in marketing, your campaigns won’t perform as expected. Why is that? Simply, what you can’t measure, you can’t manage. And in order to measure, you need to get in those weeds, those analytics weeds.

Are you the Hare or the Tortise, I think I am a bit of a Hybrid

It’s often why we as marketers prefer to approach campaigns from a high level instead of getting granular. And I’ve fallen victim to this as well – no one is immune. Getting into the fine details, into the analytics, means you need time and that’s a luxury we don’t always have.

The 7 Metrics Every Data-Driven Marketer Should Track

The 7 metrics every marketer should track
7 metrics you should be tracking to calculate your "Marketing ROI" or did I say ROAS?

Metrics are the key to a slow and steady but winnable race. But what data will help you make smart, strategic decisions for your marketing campaigns while also staying focused on your ultimate goals?

1-Return on Ad Spend (ROAS)

One of the single most important metrics a marketer needs to know and measure when creating ad campaigns. Beyond the usual ROI (return on investment), the ROAS is specific to your digital advertising and helps ensure that you’re investing your marketing budget wisely.

Why should ROAS be more important than ROI? Well, it’s not necessarily more important, but it will be a strong indicator of whether or not your ultimate ROI will be positive (or negative). What’s more, with ROAS, you’re able to optimize your ads and ad spend to ensure you’re always getting a higher ROAS. This isn’t possible with all marketing ROI since not every tactic is digital in nature.

2-Customer Acquisition Cost

According to Hubspot, “A company's CAC is the total sales and marketing cost required to earn a new customer over a specific time period.” Simply put, it’s the amount of money it costs a company to attract and convert leads into customers.

The goal is to constantly be reducing the CAC since your CAC is an inverse correlation to the success of your marketing, sales and customer service programs. That is, the lower your CAC, the better your programs are working to earn and retain customers.

customer acquisition cost for calculating marketing ROI
Take your time to work out your true "CAC" it is an essential for calculating "marketing ROI"

The cost of sales and marketing, according to Hubspot, include:

  • Ad spend
  • Employee salaries
  • Creative costs
  • Technical costs
  • Publishing costs
  • Production costs
  • Inventory upkeep

Once you’ve considered all the costs and expenses, you’ll have a much clearer vision of what it truly costs to acquire new customers for your business. This is the first step to understanding the difference between marketing ROI and ROAS, but most importantly why granular approach may be more effective in the long run.

3-Customer Lifetime Value (CLTV)

If CAC is how much it costs to acquire new customers, CLTV is how long it takes for that customer to make back the CAC based on that single customer. The higher the CLTV, the more valuable the customer is to your business. And the longer this customer purchases from your company, the greater their lifetime value is.

Unlike the other calculations (for CAC and ROAS), this one is a bit trickier. Hubspot has the calculation broken down for you on their blog.

Retaining customers is much more profitable than acquiring new customers. In fact, it’s been noted that it can cost between 5-25% more to convert new leads than it does to retain existing customers. This should showcase why CLTV is of the utmost importance to your business model.

4-Market Share

You might be wondering why market share should be an important metric for marketers to consider. Market share is a percentage of how much of your company’s sales represents of your entire industry’s sales as a whole.

Not sure what your industry is worth in sales? Statista is one of my favorite resources for industry facts and trends and data from around the world.

Your market share can give you a very clear indication of who your direct competitors are in your industry. For instance, if your company has 4% market share, your direct competitors aren’t ABC Inc. or XYZ Inc. with 22% and 26% market share respectively, but rather Acme Corp with 5%.

5-Market Trends

Understanding market trends in your industry is also not commonplace for most marketers. However, it helps you see the industry from a completely different perspective (financial markets) and allows you to (with some degree of accuracy) predict where your business may go in the short- and long-term.

For an intro-level understanding of market trends, Investopedia’s article is a great place to start. And for the non-analyst, their simplification of complex financial info is great for this marketer.

Market trends also allow marketers to innovate and spot the future needs of their audience. These will help you, ultimately, gain some market share. And isn’t that what all marketers strive for in the end?

Though you don’t need to be (or become) a market analyst to follow trends, learning the basics may help improve your planning and strategies for future marketing efforts.

6-Customer Feedback

At the end of the (work) day, all the CAC, CLTV, market shares and market trends won’t tell you what really matters: what your customers think of your product or service.

Without truly understanding your customer’s experience, you’ll never know where you truly fit in the market. Just because someone buys doesn’t mean they’re happy. Or perhaps you’re missing out on a new segment of customers because you never really knew they were purchasing.

7-Marketing Spend vs Y-o-Y Growth

You’ve reviewed your ROAS and optimized for better results.

You’ve calculated your CAC and optimized for better results.

You’ve factored in your CLTV and optimized for better results.

You’ve reviewed your market share and market trends and even listened to customer feedback… and optimized for better results.

But if your company is still not consistently growing every year, increasing net return, you’ve still not optimized for the best results.

If your marketing isn’t growing your business year-over-year, you’re probs doing it wrong. #amiright? Because the goal for all marketing initiatives, the ultimate goal, should be to grow the business. Consistently. Without growth, what even is the point?

This article from Vital goes through some companies’ (big and small) marketing spend and compares it to their year-over-year growth as a result. You’ll notice that these companies spend anywhere from 8% to 51% of their annual revenue on sales and marketing. As a result, they’ve seen anywhere from 1.6% to 32% revenue growth.

If you break it down, that’s pretty incredible. So no matter your plans and projects, ensuring that everything helps grow the business is what really counts.

To Be or Not to Be… Granular

As I mentioned before, being granular is a luxury, not every marketer has. It takes time, it takes patience, and it takes a certain know-how. Some of us have teams who can help while others might be a one-person marketing department.

That’s why breaking it down to the absolutely necessary metrics and keeping a close eye on those will help guide your focus long-term.

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