Measuring what matters is table stakes for any modern marketing team.
You have to have an idea of how you’re performing and what your numbers really mean.
But it’s hard to measure ROI from social or content or community or word of mouth or a whole range of potential traffic sources that - if we’re being honest - drive the majority of business for most firms.
So what do we do about that? Where do we start?
In this article, we’re going to break down the approaches you can take to ROI tracking, and be a bit realistic on the limits of our knowledge about what really has influenced customer decisions.
In this Lately article, we’ll cover:
ROI tracking is the process of understanding how much money your business, organization, or project makes from what it puts in.
“Tracking” ROI implies running this process not just once, but continually over time. In doing so, you get better quality data, can understand fluctuations in return on investment, and can identify more accurately the factors that impact ROI, either positively or negatively.
When people talk about ROI tracking, they’re mostly referring to it in the context of business, and more specifically, in the context of marketing.
At its core, marketing is about generating return on investment. It is the responsibility of marketing to go out into the world and spend a certain amount of money on activities, materials, assets, or campaigns that will drive new business now or in the future.
The value that your business gains, compared against the initial money spent, shows the return on investment of those activities.
However, marketing is not the only domain that cares about ROI. ROI is a key metric in any context of good governance. For example, if you want to hire a new person for your team, you should be aware of how much that person is going to cost and what the impact of having them on the team will be. Ideally, the impact should be higher than the cost.
According to the way you measure these factors, hiring can be seen as a good decision, one you can justify with evidence.
ROI also appears in other forms. Social impact ROI, for instance, is a term often used to understand whether an act of public spending, charity activity, or resource allocation produces a net gain in welfare or the common good. Many state or third-sector organizations attempt to measure their activities in these terms, rather than in strictly financial metrics.
In this article, however, we are chiefly concerned with the process of measuring the ROI of ongoing marketing spend—how we can achieve this and how you can do it, aligned with best practices, while expending minimal resources yourself.
One common thing you'll see mentioned by investors and venture capitalists is the "what?", "how?", and "why now?".
Why is it important right now?
This seems to be a good moment to be writing about ROI. Yes, particularly across the tech sector over the last two years, there has been a significant reorganizing of capital and resources.
The pandemic led to a tech boom, which subsided, and we entered into a tech recession. In a tech recession, tech companies were losing customers, and they also had limited access to new capital coming off the back of a boom period.
Many of these tech companies were overstaffed and found themselves in a position where they didn't know how they would pay wages in a few months' time.
This led to a huge wave—and ongoing waves—of layoffs.
This meant a fundamental change in two different types of spending.
One was on marketing spend itself. There was a massive reduction in what was seen to be non-essential marketing spend.
To put it in different terms, marketing spend that didn’t have a clear, easy-to-understand short-term ROI.
If you’re an eCommerce firm and you spend $100 on an advert and you know you will generate $200 in sales, then that has clearly demonstrable ROI, and that spend continues. However, if you are wanting to spend that $100 on brand or in investments for future revenue and success, you're less able to demonstrate the ROI.
And, as we have seen, those budgets get cut.
The second area which took a big hit was spending on wages.
Wages are one of the biggest areas of spending for most tech companies. Many of them deemed themselves to be overstaffed, looking at whole departments and teams and asking, "Are they a profit center or a cost center?"
Teams that could not demonstrate their short-term ROI and their immediate impact, unfortunately, got the boot.
There are two basic methods to track ROI.
Both calculations are simple, but the two approaches show you different things.
The first approach is tracking the ROI of individual actions. In this instance—like the eCommerce example earlier—you know you’re going to spend $100.
Then, you can measure who clicked the advert, who arrived on your website with the right UTM parameters, how many people landed on the product page, how many clicked the button to buy the product, and ultimately, how many sales came through.
At the end of all this, you have a number: how much was sold, and the total revenue generated from that campaign.
The most simple way to measure the ROI of the campaign is to take the total revenue and subtract the marketing spend. This will tell you the dollar value that you generated from that campaign.
However, you also want to know the ratio. You want to know, for every dollar you spent, how much you made back. So, you take the amount you made in sales and divide it by the amount you spent on ad spend. This might tell you that for every dollar spent, you made $2 back.
While this is useful for a single campaign, it doesn’t factor in the cost of goods sold, the necessary margins you must maintain, and how much you cleared above those margins.
You need to know how much money you made on each sale after the cost of goods is accounted for, and then perform the calculation again. Suddenly, for every dollar spent, you might not have $2 back—you might have $1.20. The margins may get tighter, but this is how you work out the ROI of an individual campaign.
The second approach to ROI is more comprehensive. This is the kind of activity you might do as a marketing leader. You’re not doing the company accounts, but you're doing a kind of localized version of the company accounts.
You need to be able to understand how much your department is spending as a whole, and how much it’s driving in net new revenue.
Despite the advancement in software available to track all of this, most organizations still use a manual spreadsheet for this information, taking a couple of key data points and entering those in every week or month. Over time, those data points create a trend, and that trend allows you to assess the effectiveness of your spending and the return that spending is—or is not—bringing.
You might track the amount of money spent between ad spend and wages on advertising or demand generation functions, and compile those costs together against the revenue brought in from ad spend. You may do something similar across other marketing functions, to the extent that it’s possible—like content, social, community, etc.
To do this effectively, you need to be able to work out the ROI of slightly more complicated marketing verticals. It’s easy to work out the ROI of eCommerce, but how do we work out the ROI of content, or of social, or community?
The honest answer is that, while some people will try to sell you a simple, "one and done" trick to understanding social ROI—that doesn’t exist.
There are two considerations you have for measuring the ROI of those functions or verticals. One is a multi-touch attribution model, and two is top-line marketing ROI, along with a mixture of your intuition and qualitative feedback on what led to that revenue.
In the next section, we’re going to look at multi-touch attribution models that help you account for the role that brand, content, community, and social all play toward helping close a deal and create new customers.
Multi-touch attribution models are ways we can try to understand the impact of different marketing efforts on sales. They're an attempt to quantify a more holistic view of marketing and marketing ROI.
Who contributed most to a sale is often a competitive question.
The salesperson wants to believe that it’s their charisma that closed the deal.
The product marketer who designed the landing page wants to believe it was their compelling copy that won the conversion, guaranteeing the sale from there.
The PPC specialist wants to believe it was their ad creative that caught the person’s attention and pulled them to the site, doing the vast majority of the work.
The content head thinks they’re all wrong.
The ads were only able to reach this person because they were being retargeted, having already visited the website to read a blog post. It was content that got them into the net.
But the social team knows that, really, this was all their doing.
Someone from this company had been following the social account for the entire year.
These arguments will never be settled and will continue bubbling as long as marketing exists. In organizations where bonus structures are tied to outcomes, these discussions can be especially fierce.
This is why any marketing leader knows that everyone contributed. Everyone’s good work was necessary to get this done.
And this is what a multi-touch attribution model attempts to measure.
Typically, you don’t use just one multi-touch attribution model—you’ll have a few, and each will tell you something slightly different. Each paints a narrative, tells a story, and has a different main character.
The final story, however, remains for you to write.
Linear attribution, also called even-weighting attribution, is a standard multi-touch attribution model that assigns equal credit to each touchpoint in a buyer's journey.
This model is particularly useful for businesses with extended consideration phases or those wanting to understand how different touchpoints collaborate to influence a deal. It's also a good starting point for companies new to multi-touch attribution, as it provides a baseline understanding of touchpoint performance across the audience.
By giving equal weight to all interactions, linear attribution helps reveal the cumulative impact of content and messaging throughout the buyer's journey.
The time-decay attribution model assigns varying levels of influence to touchpoints based on their proximity to conversion, with earlier interactions receiving less credit and later ones more.
In this model, touchpoints are arranged from least to most influential, with percentages increasing as you move closer to the conversion point. This approach is particularly well-suited for businesses focusing on short-term initiatives, such as specific campaigns, as it emphasizes the impact of recent interactions in the buyer's journey.
By weighting recent touchpoints more heavily, time-decay attribution helps marketers gauge the effectiveness of their latest efforts in driving conversions.
The U-shaped attribution model, sometimes called the bathtub model, emphasizes the importance of first and last interactions in the buyer's journey.
This approach allocates a higher percentage of credit to the initial and final touchpoints, while assigning less weight to those in the middle. It's particularly useful for teams interested in understanding the impact of their early awareness efforts and final conversion triggers.
By prioritizing these bookend interactions, the U-shaped model provides insights into how effectively a company captures initial interest and ultimately closes deals, though it places less emphasis on the nurturing stages in between.
The reality with ROI tracking in most marketing teams—particularly small marketing teams, and even more so in a team of one—is that it’s not a simple thing to track. Some would even argue that it’s not always a useful thing to track.
Someone like Rand Fishkin, for example, would take the position that part of being a good marketer is having the gut instinct to know whether something is working or not working.
Now, of course, you need more than just guesswork. This involves speaking to customers, looking at other related metrics—ones that might sometimes be written off as "vanity metrics."
For example, if you write an article directed at your target persona and it performs well on social media, there’s a very good chance that the people liking, sharing, clicking, and reading are, in fact, aligned with your target customer. There’s a good chance that article is helping your brand or your sales somehow, driving a positive impact—and you can work this out by considering other factors together.
It’s also important to talk to your customers—both new customers and prospects during sales calls. How did they hear about you? Why did they come to you? What is it about your brand that they like?
Sometimes, we lean too heavily on the data, and the data can send us down the wrong path or in the wrong direction.
We have to be able to marry together the different approaches available to us. We also have to recognize that sometimes spending that appears to have a super-low ROI in the short term may turn out to have a high ROI in the long run.
The value of brand is very difficult to quantify, but brand itself can be a defining factor in why one company wins.
For example, what is the brand value of Apple? What is the ROI on their sleek design?
It’s very difficult to calculate. And while ROI is something you should attempt to measure, so that you can leverage it in your calculations, your assessments, your analysis, and your conclusions, it cannot be a one-size-fits-all data point. It cannot be your only guiding star. ROI should fit into a broader conception of value generation within the activities of a marketing team or department.
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