Return on Marketing Investment

I was asked a great question this morning on how an organization empirically quantifies marketing results.  After all, how do you separate the people who would have bought your products and services without your advertising from those who showed up because of your advertising?  In short, you don’t.  But that doesn’t mean your efforts aren’t measurable!

The following link to a Microsoft Office article addresses the question of measuring Return on Marketing Investment (ROMI) fairly well:

Breaking it down

What ROMI is really about is establishing how the results of the investment will be quantified before engagement, then doing the work of making those measurements.

When establishing how results will be quantified, it is important to keep in mind that some results are short-term, some long-term, some direct and some indirect.  Keep in mind that, like medicine, marketing is part science, part R&D, and part art/instinct/creative.  Only engaging in activities that can be empirically quantified leaves many of the strongest tools out of your tool box.

However, by pre-determining how results will be measured, measuring each component of the overall marketing strategy individually, as well as part of the whole, a person can draw an impressively accurate view of what is working and what isn’t.

If you aren’t measuring what works and what doesn’t, you aren’t most likely wasting at least some of your marketing dollars and are far less likely to progress in building your brand.  The more you use ROMI as feedback and adjust your marketing plan accordingly, the stronger your cumulative effort becomes.  The more you ignore it and/or divert funds to projects that are not a part of the overall marketing strategy, the more you dilute the result of our efforts.

Marketing isn’t empirically defined, but it is definitely scientific.

Thanks to an unnamed City of Long Beach official for the question, which caused me to find a way to articulate what weighs heavy on my mind as we move into the 2011 budget season.

Guy Powell has a nice little Excel spreadsheet for calculating your ROMI hurdle rate: ROMI-hurdleratecal.xlt