To prove ROI, we need to stop rushing it
New research from LinkedIn shows that measuring ROI too quickly is causing huge problems for digital marketers
November 5, 2019
In a digital age awash with data, why do so many marketers still struggle to prove the value they deliver to their businesses? After all, we should have more material than ever when it comes to linking marketing activity to the bottom line. Why is demonstrating Return on Investment (ROI) still such a challenge?
LinkedIn has just completed an in-depth survey of how digital marketers approach ROI – and it provides a simple answer. The fact is that far too many of us are attempting to prove ROI far too quickly. We’re claiming to have evidence of a Return on Investment long before the ‘Investment’ has had a chance to generate that ‘Return’. This is a quick-fire way to blow credibility, undermine self-confidence and set off a vicious spiral that forces us into optimising marketing around metrics nobody really believes in. Marketers are in a far stronger position when they are able to slow down their approach to measuring ROI. However, to do so, they will need to push back against some pretty formidable internal pressures.
For our report The Long and Short of ROI, we surveyed more than 4,000 digital marketers worldwide, and we found that most are struggling to calculate and share the impact they have. Only 37% describe themselves as ‘very’ confident in their ROI metrics, fewer than two thirds of them actually share those ROI metrics, and of those that do almost half only share with other marketers. In all, only 29% of digital marketers share ROI figures with sales and only 30% share them with finance.
The dangers of measuring too quickly
Where does this lack of confidence come from? It’s all to do with timing. The metrics that we put forward as evidence of ROI are being generated at a point where we know our marketing activity is unlikely to have contributed to any sales. This means they aren’t really ROI metrics at all.
The average B2B sales cycle lasts six months. That’s how long it typically takes for somebody who’s already aware that they need a solution like yours to complete the process of buying one. For an average B2B category that means that the shortest time period over which marketing investment can translate into revenue is six months. And that’s leaving to one side the fact that the role of marketing includes building brand salience and seeding demand long before the sales cycle even starts.
So how long do most B2B marketers give a piece of marketing before we start examining whether it’s delivering a return on our investment? Six months? A year? Maybe even longer, to reflect the fact that some B2B categories can have far more extended sales cycles?
Not even close. Our research shows that a staggering 77% of digital marketers are attempting to measure ROI within the first month of a campaign. That’s despite the fact that 52% of these same marketers admit their sales cycle is over three months long. Only a tiny 4% of digital marketers are measuring over a period of six months or more. The vast majority are setting out to provide evidence of returns that they know don’t exist yet.
The pressure to prove the impossible
Why are marketers setting themselves such an impossible task? This is where the pressure from the rest of the business comes in. The digital marketers aiming to measure ROI within the first month are more than twice as likely to have budget allocation discussions on a monthly basis. Over half (53%) of them face budgets being moved around during that time frame, and putting forward some form of ROI evidence is the only way to justify spend. In fact, 58% of all digital marketers tell us that they need to prove ROI to get approval for future budgets. If new budgets are being set every month that leaves them with little choice but to find some evidence, somewhere.
The problem is that the metrics marketers depend on to fill the gap aren’t measures of ROI at all. They are Key Performance Indicators (KPIs) and they have a very different job.
The crucial difference between KPIs and ROI
Take the metric that 42% of lead generation marketers tell us they use as a measure of ROI: cost per click (CPC). The clue’s in the name. CPC is a measure of the cost of generating a particular action. It’s not a measure of the value that action will deliver to the business. Relying on CPC to demonstrate ROI is the equivalent of judging your investments in the stock market just by how much you paid for them. You can’t work out the return on an investment just by knowing how much the investment costs.
KPIs like CPC are forward-looking indicators. They give you real-time updates on important areas of performance that you know will contribute to your overall return at the end of the day. However, they are not the complete picture. The cost you pay for clicks will have an influence on the net return that you eventually get from them – but it has far less of an influence than the overall impact of those clicks in terms of generating customers and revenue.
In contrast, ROI is a backwards-looking calculation. You can only figure it out with hindsight, when you can see the value that all of those KPIs eventually delivered. ROI puts KPIs in context and gives them some meaning. Once you know what the average value of a lead or a click is, it makes sense to monitor how much you are paying for them. But if you never make time for proper ROI calculations, optimising around KPIs becomes pointless.
It doesn’t help that many marketers are actually using the wrong KPIs to track their progress towards generating a return. Lead generation marketers, for example, should pay much more attention to cost per lead (CPL) than they do to CPC. With CPL, they at least know the cost of something that directly relates to their objective. CPC tells they how much they are paying for something they don’t necessarily need. There’s no point paying a low price for clicks if none of those clicks are from people likely to become leads.
At best KPIs are like the chapters in a book. They tell you what’s happening in a particular moment – but they don’t tell you where the overall story is going or what the outcome will be. That’s the danger in using them as a make-do measure for ROI. Dip into an early chapter of Pride and Prejudice and you’d never see the value of investing in a relationship with Mister D’Arcy.
It’s time to stop sprinting the marathon
Using KPIs as our proof of ROI causes three types of problems. It leaves marketers with weak evidence of the real value they are delivering, since they can only point to reducing costs rather than increasing returns. It diminishes confidence and gets in the way of meaningful communication with the rest of the business. And most damagingly of all, it distorts the way that marketing budgets are divided up. Presenting ROI in terms of CPC or even CPL means that campaigns that generate lots of cheap clicks or leads look like great value – even if those clicks are from irrelevant people fooled by a clickbait headline, and even if those leads are all rejected by sales.
Measuring ROI is a marathon, and any marketer can do a better job of it when they stop trying to sprint. For many of us that means managing expectations within the business. That can often feel like a challenge, but it’s a much easier challenge to meet when we’re clear and consistent in telling people which metrics do which job.
The first task is to come up with a meaningful measure of ROI that aligns with the sales cycle of the business. If you’re sales cycle is six months then you want measures of return over the last six months divided by investment over the last six months. Looking backwards and over a timeframe that’s long enough means you can aim much higher with what you measure – not just clicks but leads, not just leads but sales, and not just sales but projected revenue. These are the true measures of return on the investments you made.
Next up is to separate your sales cycle-long ROI calculation from the KPIs that you use to measure performance on a short-term basis. KPIs are there to help you stay on course for delivering ROI over the sales cycle – if they change you want to know about it, and optimising to improve them could well increase the returns next time you calculate them. However, it’s important to distinguish between a number that helps you do your job and a number that it’s your job to deliver.
When you’re clear about the different roles that KPIs and ROI are playing, it’s much easier to manage your colleagues’ expectations. You can share results with a lot more confidence when you’ve given the sales and finance teams a context for understanding them. It’s much easier to have conversations about KPIs on a monthly basis if you’ve had a discussion about ROI that didn’t feature those KPIs as the only evidence.
ROI is the ultimate goal of marketing and it’s no surprise that we’re impatient to prove it. However, the reason it’s the ultimate goal is because it links back robustly and meaningfully to the bottom line. When we mix up our metrics to keep our colleagues happy, we lose that connection. ROI deserves more – and so do you!
You’ll find more ideas for a longer-term view of ROI in our full research report, The Long and Short of ROI: Why Measuring Quickly Poses Challenges for Digital Marketers. It’s available for free download now.