Why chasing ROI could kill your business
Return on investment is the metric of choice for many marketers looking to define the success, or failure, of their latest campaign. But what if a focus on short-term gains is jeopardising the potential for future growth?
Return on investment (ROI) has become close to an obsession in marketing in 2019. Finding a formula to demonstrate the effectiveness of your work is an extremely attractive prospect for marketers, but how do we define ROI? And moreover, is this desire to pin marketing’s success down to a single number damaging long-term brand growth?
“There are lots of flaky, woolly and totally moronic definitions of ROI floating around in the world of marketing, but there can really only be one – which is the definition of ROI that an accountant would understand,” explains effectiveness expert and consultant, Peter Field.
“It’s an accountancy term and any attempt to use the term ROI on any of these flaky measures is completely misguided. ROI is simply what you get back, divided by what you put in. In marketing, it is how much extra cost did you generate as a result of investing in marketing.”
Field stresses that both he and his collaborator Les Binet, head of effectiveness at Adam & Eve DDB, see ROI as an “incredibly dangerous metric”. He believes using ROI as a decision metric, as per the definition above, is dangerous because ultimately the best way to maximise ROI is to spend less money.
This approach, Field argues, is leading businesses into marketing activity that generates “very mediocre improvements in trading, but at a minute cost”. These are typically short-term, digital, highly tactical initiatives that look fantastic in terms of ROI, but are not scaleable and do not drive long-term growth.
Log in or subscribe to read the full article.