The credibility of marketing in any business is often a point of serious discussion and one that usually gets a lively response from the finance department. Marketing budgets are usually the first to be slashed when times are hard, and marketers are increasingly being asked to demonstrate return on investment (ROI).
New research from Richmond Research, the research division of Richmond Events, which organises the annual Marketing Forum, found that 82 per cent of marketers now measure ROI, with 79 per cent doing so on a campaign-by-campaign basis. In the quest to prove the effectiveness of marketing 56 per cent of respondents say they examine the individual components of the marketing mix and 36 per cent measure ROI by individual execution. Almost half the marketers questioned also look at ROI on an annual basis, although 32 per cent are more vague, saying that they do so “over time”.
Encouragingly, a majority of the marketers measure ROI because it helps when planning future advertising and marketing activity: just ten per cent say that they do it to please the company’s financial director. The research found that a minimal number of marketers are given incentives such as performance-related bonuses if they can demonstrate ROI. Indeed, 60 per cent of the marketers surveyed say that the main reason for measuring it is that it shows them what they are doing right.
Whether marketing’s effectiveness is measured depends in part upon the media used. The research shows that 91 per cent of marketers measure the ROI from direct mail campaigns and 82 per cent measure it from press advertising. But just 35 per cent of those surveyed measure the effectiveness of outdoor, and only half quantify the return on PR campaigns. This wide variation could be attributed to the varying degrees of difficulty in measuring these channels’ effect.
The survey shows that marketers include a variety of costs in their measurement of ROI: 92 per cent include production costs; 86 per cent include the cost of buying the media; and 84 per cent include the cost of the agency. A smaller proportion of marketers also enumerate internal factors, with 23 per cent counting salaries and 25 per cent including business overheads. The figures reflect clear differences in how marketers are defining ROI. While a majority include all external costs, less than one in four of the respondents currently include internal costs.
There is also no consensus on the exact definition of a “return”, with marketers giving a variety of responses, including improving the company’s internal key performance indicators and additional sales, over periods of one to three years. The most popular definition, with which 30 per cent of marketers agree, is an overall increase in volume sales. Interestingly, 59 per cent of respondents say that they do not account for “brand equity” – indeed, nine per cent say their organisation does not believe in brand equity or does not have any brand equity. Just 29 per cent of the marketers agree that increased brand familiarity has an identifiable value.
When it comes to measuring the value of new business, 58 per cent of marketers do their calculation retrospectively, aggregating the actual revenue gained from new business; the other 42 per cent anticipate, using the average revenue gained from different types of new customer.
A majority of the respondents say their finance department provides assistance when it comes to managing and calculating ROI, rather than interfering. But 18 per cent of marketers admit that the finance team police the way that they do things; 12 per cent say that the finance department works out ROI for them; and six per cent admit that “they do it for me whether I like it or not.”
Interestingly for the advertising industry, 69 per cent of marketers do not have a policy of linking agency remuneration to ROI – and just one per cent have a sliding scale linked to results. The remaining 30 per cent are split equally between linking the agency’s standard remuneration to results and paying a bonus above the standard fees if the agency achieves the right results.
Just over two-thirds (68 per cent) of marketers surveyed say that their overall view of ROI is that it is an invaluable tool for the company, but not for marketers as individuals. Perhaps disappointingly for observers of the ongoing battle over the credibility of marketing within business, 18 per cent of respondents say, half-heartedly, that they “live with” ROI.
It is encouraging, however, for the credibility of marketing as a discipline that those marketers who do not believe ROI helps them to improve their work are in the minority. It seems today’s marketers believe that demonstrating the value of investing in marketing is not only a part of the marketing process but also that it helps to ensure the right approach for the future.