Three Reasons Why You Should Measure the ROI of Marketing

Patricia Pulliam Phillips PhD and Jack J. Phillips PhD

This blog was originally posted October 19, 2020, on McGrawHillProfessionalBusinessBlog.com

Measurement and evaluation experts, Patricia Phillips and Jack Phillips, reveal the three most important reasons why you should measure the ROI of your marketing programs.

“The customer is always right.” This adage holds new meaning in the new normal. Your customers and their actions determine your bottom line. The best way to survive and even thrive in the current economic downturn is to measure the ROI of your marketing programs, projects, and initiatives to ensure that your marketing efforts deliver the business results that organizations want and need.

ROI in Marketing builds its framework around the customers’ decision-making processes and evaluates the impacts on business outcomes through a chain of impact. These data examine the value creation process at different levels and represent the inherent richness of the ROI Methodology. Specifically, marketers collect and analyze data at the following levels using metrics that correspond to each level:

Level 0: Input measures the financial and nonfinancial resources invested in the marketing campaigns, projects, programs, and events.

Level 1: Reaction refers to how the customers reacted to the marketing campaign, project, program, or initiative. At this level, marketers measure the target segment’s reaction to advertisements, products, services, information sessions, and promotional messages.

Level 2: Learning is the acquisition of information, knowledge, skills, or preferences through exposure to ads and interactions with sales professionals. Although learning itself does not guarantee project success, it is an important determinant of customers’ actions and, eventually, business outcomes.

Level 3: Action refers to what marketers expect the target audience to do with what they have learned. The actions may include customers’ inquiries and company website visits. Although still no guarantee of success, these actions generally have significant impacts on sales, market share, and profits.

Level 4: Impact measures the desired business outcomes that marketing projects and programs intend to achieve. Typical outcomes include increased sales revenue, profit, and new customers.

Level 5: ROI compares the monetary benefits of the business impact measures with the marketing project costs in order to calculate the ROI, which is the ultimate measure of value created by marketing.

With these levels in mind, let’s discuss the three most important reasons why you should measure the ROI of your marketing programs. You should conduct an ROI analysis:

1. To improve your marketing programs. This is our preferred reason for tackling the impact and ROI analysis. An ROI evaluation will show if the marketing program is working or not. If your program is not working, it will show you what needs to be done to make it better and what changes need to be made to improve performance. If your marketing program is working, the evaluation data will show you how to make the program even more successful.
2. To satisfy key stakeholders. Marketing programs have many stakeholders, but no one is more important than those who sponsor, support, or provide the budget for your programs. These individuals want to see the business connections of your marketing efforts and improvement in business measures. Dozens of studies have shown this is needed, and this is not debatable.
3. To maintain or enhance your budget. This is the number-one reason why ROI evaluations are being implemented globally. Economies are in a state of anxiety and there is uncertainty everywhere. In this environment, organizations must be lean and agile to be able to sustain whatever is happening. To do this, they often cut anything they see as a cost, and sometimes, the marketing budget gets caught up in this. One of the best ways to convince an executive that your marketing initiative is an investment and not a cost is to actually calculate and prove the return on investment.

The ROI Methodology can be used by all types of marketing programs, including business-to-consumer (B2C), business-to-business (B2B), and internal marketing programs. All six levels of data in the chain of impact framework are applicable to the three types of marketing. To learn more about how you can build capability in the ROI Methodology, contact [email protected].