Why Marketing ROI Is The Most Important Yet Least Understood Metric in UA
It is perhaps the most dysfunctional metric in digital marketing.
Marketing return on investment, or marketing ROI, is frequently talked about, but frequently misstated, misunderstood, or just plain inaccurate.
Simply put, marketing ROI is a way of measuring the return on investment from the amount a company spends on marketing. It can be used to assess the return of a company’s overall marketing mix, or a specific marketing program.
The calculation for marketing ROI might seem relatively straightforward: Revenue divided by Marketing Cost. Yet arriving at fast, granular and reliable ROI data is by no means a straightforward process.
ROI calculation is particularly challenging for marketers who seek detailed levels of reporting to inform their optimizations. For instance, marketers may want to see the ROI of a specific campaign, publisher, keyword, geography or user — and the more granular a marketer wants to get, the more difficult it is to calculate ROI.
But before we delve the into the challenges of calculating ROI, let’s dive into why marketers consider ROI to be such an important metric.
Critical to Securing Marketing Budget
Marketing is a significant expense and leaders want to know exactly what they’re getting for it. In a recent study commissioned by Google, marketers identified ROI as the most valuable metric for securing additional budget for their marketing programs and media campaigns.
The study, which surveyed 150 marketing decision-makers at U.S. companies, found that consistently achieving ROI goals allowed marketers to prove the value of their initiatives to the greater organization and ultimately gain resources from executives to expand their efforts.
Deciding Where to Spend
Marketers often calculate ROI at the channel or campaign level to determine which efforts have a higher return and therefore deserve additional investment. When experimenting with a new ad network or marketing channel, a crucial first step for marketers is setting up analytics such that marketing teams can measure ROI and determine if the network or channel is driving performance.
In the process of determining the effectiveness of an ad network or channel, marketers optimize ongoing campaigns on the fly to maximize performance. Effective optimizations require digging deeper into spend and performance data to achieve more granular levels of reporting.
For instance, ad networks consist of numerous websites and apps, known individually as “publishers”, where marketers’ ads run. By monitoring the ROI of specific publishers within an ad network, marketers can determine which publishers drive the best performance. In turn, marketers are able to increase spending on high-performing publishers and shut off or “blacklist” under-performing publishers in order to increase the overall ROI of an ad network.
Marketers might also seek to inform their optimizations with ROI analysis at the Campaign, Creative, Keyword, Geographic or User level — or any combination of these dimensions. For instance, a marketer may want to see how one creative performs in a specific geography in a campaign which targets a specific demographic of users.
ROI Drives Integrated Marketing Analytics
This kind of precision analysis requires a particularly advanced set of analytics tools to collect, clean and combine data streamed from multiple sources, not to mention powerful database technologies to process flexible queries on large volumes of data.
The ROI metric in particular requires combining data from multiple sources — namely cost, revenue and event data. The most accurate and granular cost data comes from direct marketing channel integrations, which often require constant maintenance. Meanwhile, revenue and event data is typically extracted from tracking links, before it is combined with cost data to produce ROI and other “full-funnel” metrics like Cost per Event.
By focusing on ROI, marketing teams can galvanize their teams around building marketing analytics systems that leverage a host of well-integrated tools to deliver intuitive and flexible reporting. Google’s study showed that marketers with measurement stacks that rely on five or more marketing analytics tools are 39% more likely to see improvements in the overall performance of their marketing programs. They are also able to realize reduced marketing expenses and improved marketing efficiency than their less sophisticated counterparts in other organizations.
The Challenges of Calculating ROI
Google’s study showed that marketers are not confident in their ability to reliably measure ROI. While a majority felt capable of accurately measuring the performance of efforts like email campaigns as well as traffic to their site or app, only 13 percent of marketers were confident in their ability to measure marketing ROI and only 14 percent were very confident that they understood the contribution of marketing programs to business revenue.
The number one reason marketers gave for why they have such a hard time exposing ROI is a lack of integration between their marketing analytics tools.
In the study, only 26 percent of marketers believed that their marketing analytics tools were well integrated, while one-third of marketers believed their tools don’t work together efficiently at all.