One of the biggest trends I’ve seen in B2B marketing over the last 5 years is the growing focus on how a company will get marketing ROI. Maybe it’s always been prevalent, but I feel that the number of businesses who are focusing on the return they’ll get from marketing is increasing. It’s become a common question from prospects who are looking at our outsourced marketing services, and we spend a lot of time talking through how it can be measured, what kinds of return to expect and when to expect it.
This is good news for B2B marketing. The more companies who are scrutinizing their investment and results, the better marketers will become at producing the desired results. And that will make marketing a stronger function, better able to contribute at the C-suite level for B2B companies.
But there’s one problem.
Too many companies and marketers don’t know how to calculate ROI. I don’t make that statement lightly – I wish it weren’t the case. But I’ve interviewed hundreds of marketers in my career, and the vast majority couldn't tell me how they calculate ROI on the various marketing campaigns and initiatives they’ve run. Sure, some elements of marketing don’t have a clear ROI (for example, what’s the ROI of a website relaunch). But a lead generation campaign with a specific timeframe, offer and communications plan – that is easier to measure.
For B2B companies who are interested in achieving strong results from their marketing investment, knowing how you’re going to calculate ROI and what you’re going to calculate it on, is an absolutely critical step in order to get marketing ROI. Without it, you're just guessing.
I’ve seen B2B companies use different formulas to calculate ROI. Sometimes they have a focus on transactional sales, which dictates one approach to ROI, and sometimes they focus on long-term relationships, which dictates a different approach (incorporating lifetime value of a customer). Variations on the formula are fine – as long as there’s agreement on what the formula is! Below are a few pointers.
Calculating ROI on a specific B2B marketing campaign or program
Assessing marketing ROI on a single marketing program is the easiest calculation. To determine your campaign ROI, subtract the cost of the campaign from the profit generated by the campaign, and then divide that number by the cost. Here’s an example:
You run a marketing campaign that costs $1000.
From the campaign, you generate $5,000 of new business at a gross margin of 30%. So your profit from the campaign is $1500.
The ROI calculation is:
$1500 - $1000
Your return is 50%.
That’s a massive return, by the way. Think in comparison to the financial returns you usually hear about, like 1% for savings accounts or 3 – 8% on the stock market (when it’s performing well). If you are generating north of 10% on your marketing campaigns, your CFO should be demanding more of them!
Here’s the caveat: the place that most people trip up is around the profit calculation. It can be easy to think that marketing return is about the revenues that are generated. But every company has costs in order to produce its products and services. Some companies have very thin profit margins (like distributors and commodity businesses) while others have larger margins (like pharmaceuticals and consulting companies). If you calculate based on revenue, you get marketing ROI that is very misleading. So it’s vital to focus on profit.
Don’t be misled by campaign ROI
The challenge for B2B companies when it comes to accurately analyzing marketing ROI is that in B2B it’s rare for a single campaign to produce strong results. B2B buyers typically have over 10 interactions with a new supplier before they engage with them (for deal sizes over $5000). B2B relationships are more complex, and often high risk, so buyers need time and exposure to gauge a supplier. A single campaign might be the door opener, but subsequent campaigns are usually needed to seal the deal.
As a result, it can be tough to know which campaign lead to the deal, which ones had influence, and how much influence they had. This issue is called attribution and you can read more about it in this Marketo blog.
How more B2B companies can get marketing ROI
Great B2B marketers (whether they’re in-house or in a marketing services company like Mezzanine) evaluate marketing ROI for each campaign they run in order to identify which campaigns deliver the best returns, and they also assess ROI for marketing overall in order to demonstrate the value that marketing is delivering for the company. We’ve learned in our years of experience that it isn’t a fast or easy journey (it takes years, not months) to get to a solid marketing ROI calculation. And having an agreed-upon formula or method for calculating marketing ROI is critical as the starting point.
Interested in more lessons on how to achieve B2B marketing success? Download PROFITGUIDE’s Special Report on The Radical Sales Shift, including 5 lessons from leading B2B marketers on how to grow sales by using marketing.