Using ROI to Evaluate Marketing Technologies

(Recently, I had the opportunity to write a guest post for the ADAM Software blog. ADAM is a provider of marketing execution software that encompasses digital asset management, product content management, catalog automation, video content management, and more. This article is a slightly edited version of my guest post.)

The ROI of marketing technology has received a good bit of recent attention. Ralph Windsor wrote two articles on the topic, one for Digital Asset Management News, and another for CMS Wire. Both articles discussed several flaws in the methods frequently used to estimate the ROI of digital asset management projects. Mr. Windsor didn't pull any punches, describing the ROI estimates provided by consultants, analysts, and vendors as, ". . . at best wrong and, more often than not, a complete work of fiction."

ROI has been the "gold standard" for measuring financial performance for decades. It first gained prominence in the 1920's after DuPont made ROI the ultimate metric in a comprehensive financial management system for companies and business units. More recently, ROI has been widely used to evaluate prospective investments, including investments in marketing technologies.

ROI can be useful for evaluating marketing technology investments, but like any tool, ROI must be used appropriately. Managers must understand what information is needed to produce an accurate ROI calculation, and they must also understand what an ROI calculation does and does not reveal.

The basic ROI formula is:  (Gain from Investment - Cost of Investment) / Cost of Investment

This deceptively simple formula masks several important issues that managers must keep in mind when using ROI to evaluate prospective investments in marketing technology solutions. Here are three of the more significant issues.

Garbage In, Garbage Out

ROI is a calculated value, and as with any mathematical calculation, the "answer" will only be as accurate as the inputs you use in the formula. When you calculate the ROI for a prospective investment, you're required to input the economic value of future benefits. Developing accurate estimates of these values can be a difficult undertaking, but if your estimates aren't reasonably accurate, the ROI you calculate will be completely out of touch with reality.

One way to alleviate some of this difficulty is to reduce the scope of your analysis. Instead of attempting to calculate a complete ROI for a proposed investment, your objective is to determine whether a prospective investment will produce enough benefits to make it acceptable to your company.

The key to this approach is something called the ROI Threshold. This is the minimum ROI that your company requires investments to produce. The ROI Threshold is typically equal to your company's cost of capital, or perhaps the cost of capital plus a risk premium. The cost of capital calculation can be fairly complex, but you can usually obtain the value from your company's chief financial officer.

Once you have the ROI Threshold, you can easily determine what level of benefits an investment must produce to meet the threshold hurdle. For example, suppose that your ROI Threshold is 15%, and you are evaluating a project with a cost of $200,000. You would calculate the required level of benefits as follows:

ROI         = (Gain from Investment - Cost of Investment) / Cost of Investment

15%         = (Gain from Investment - $200,000) / $200,000

$30,000   = Gain from Investment - $200,000

$230,000 = Gain from Investment

In this scenario, if you can identify benefits with a total value of $230,000, the project will meet your company's ROI Threshold, and you should be willing to move forward.

This approach can alleviate some of the difficulties of ROI analysis because some benefits are easier to quantify than others. When using this approach, you only need to quantify benefits until you meet the threshold level.

ROI Doesn't Consider Risks

The basic ROI formula does not factor in the risks associated with a proposed investment. The acquisition of a new marketing technology solution almost always requires the implementation of new business processes, and it also requires new learning by employees. Therefore, marketing technology projects always carry some risks, even when the actual functionality of the technology is not in question. In most cases, the most significant risk is that the project will not produce the expected level of benefits.

One way to account for the risks that are inherent in any significant technology project is to value benefits using both "best case" and "worst case" assumptions. You then perform an ROI calculation for each set of benefit values. This results in two estimated ROI values that establish the boundaries within which the actual ROI is likely to fall.

ROI Measures Efficiency, Not Impact

ROI is a measure of financial efficiency. It compares the financial benefits that an investment produces (or will produce) with the amount of capital the investment consumes (or will consume). ROI is not directly concerned with the absolute impact that an investment will have on company profitability.

For example, suppose that you are evaluating two prospective technology projects. Project A has an estimated ROI of 25%, and Project B has an estimated ROI of 15%. Using ROI alone, you would choose Project A over Project B. However, suppose that Project B will produce net benefits of $300,000, while Project A is expected to produce net benefits of only $75,000. Under these facts, you might well choose Project B despite the lower ROI because of the larger impact it will have on company profitability.

Conclusion

ROI is a useful tool for evaluating potential investments in marketing technology solutions. It is widely accepted by CEO's and CFO's, and because it provides a common framework for describing financial performance, ROI is particularly helpful for comparing disparate types of potential investments. However, ROI (even assuming that it is calculated accurately) does not provide all of the information you need to make sound investment decisions, especially when those decisions involve complex projects whose success depends on multiple factors.

How to Boost the Performance of Channel Marketing

Every day, thousands of companies sell products and services through independent or quasi-independent channel partners such as franchisees, independent agents, or value-added resellers. Most companies that sell through channel partners operate in a distributed marketing environment. Distributed marketing refers to a marketing model in which both a corporate brand owner and channel partners plan and execute marketing campaigns and programs. The defining attribute of a distributed marketing model is that the "local" business organizations - i.e. channel partners - have some degree of autonomy when performing marketing functions.

Many B2B companies derive a significant portion of their total revenues from sales made by channel partners, and these companies face marketing challenges that firms with "regular" marketing operations don't typically encounter.

• Brand owners and channel partners often have different marketing priorities. Corporate marketers tend to focus on building the brand, while channel partners want to run marketing programs that will generate leads and drive short-term sales.
• Maintaining consistent brand messaging and brand presentation is extremely difficult when dozens or hundreds of channel partners are executing marketing programs.
• Many channel partners are small organizations that don't have the in-house expertise to create effective marketing campaigns and/or the resources to run campaigns as frequently as they should.
• Brand owners often have little visibility regarding the effectiveness of the marketing programs run by their channel partners.

Because of these and other challenges, channel marketing operations are often far less effective and efficient than they need to be, resulting in excessive marketing costs, poor response rates to marketing programs, and missed revenue opportunities for both brand owners and their channel partners.

To address the complexities of channel marketing, a growing number of companies are turning to a relatively new category of marketing automation technologies known generally as distributed marketing solutions.

A distributed marketing solution is a combination of technological capabilities and marketing support services that are designed to streamline and simplify marketing activities and processes for both channel partners and brand owners. At the most basic level, distributed marketing solutions are designed to facilitate two core marketing functions - the creation, execution, and measurement of marketing campaigns, and the management of marketing materials.

Distributed marketing solutions can provide brand owners and channel partners a range of important benefits. Specifically, they enable companies to:

• Increase the frequency of local marketing by making it easy for channel partners to create and execute marketing campaigns and programs
• Enhance the effectiveness of local marketing by making it easy for channel partners to create and use more customized marketing messages and materials
• Improve the consistency of brand messaging and presentation through the use of a centralized repository of marketing assets combined with controlled customization of those assets
• Reduce marketing support costs by eliminating the manual processes typically used to manage and fulfill requests for marketing materials and to manage materials inventories
• Reduce obsolescence waste by eliminating the need to acquire marketing materials in large quantities.

I've recently released a white paper that describes the challenges faced by channel marketers and explains how distributed marketing solutions work. The new white paper is part of our portfolio of marketing content resources for providers of distributed marketing/marketing asset management/web-to-print solutions. If you'd like to see a review copy of this white paper, just send an e-mail to ddodd(at)pointbalance(dot)com.

Can Your Marketing Content Meet the Burden of Proof?

The CMO Council recently published a white paper - Better Lead Yield in the Content Marketing Field - that contains both good news and bad news for B2B content marketers. The white paper is based on a survey of more than 400 B2B content consumers conducted by the CMO Council's Content ROI Center and NetLine Corporation. Forty-one percent of the respondents were from companies with more than $100 million in revenues, and half held titles of director and above.

First, the good news. Online content plays a big role in B2B purchase decisions. Eighty-seven percent of survey respondents said that online content had either a moderate or a major impact on vendor preference and selection. This finding demonstrates why good content has become essential to effective B2B marketing.

Now for the not-so-good news. When survey participants were asked what types of content they most value and trust, vendor-created content came in last. As the table below shows, B2B buyers value and trust professional association research reports and white papers, research reports and white papers created by industry groups, customer case studies, analyst reports and white papers, and independent product reviews more than vendor-created content.

 

While these survey findings should concern B2B marketers, they are also understandable, at least to some extent. Business buyers have been conditioned to treat the information they receive from vendors with a healthy degree of skepticism. They recognize that vendors have an agenda, and they perceive that this agenda can cause most vendor-supplied information to be somewhat less than completely objective. The survey findings show that B2B buyers believe they will get more objective information from professional associations, industry groups, and independent analysts and product reviewers.

In our criminal justice system, there is a presumption of innocence. An individual is presumed to be innocent until the state proves guilt beyond a reasonable doubt. In the B2B marketing world, most business buyers presume that vendor content is usually biased, probably not always accurate, and therefore not completely trustworthy. The burden of proof is on B2B marketers to develop content that can overcome this presumption.

Meeting this burden of proof is particularly critical for content that is designed for early-stage buyers. That's because early-stage buyers will often form their first impression of your company based on your content. If you can establish credibility early, you'll take a big step forward with potential buyers.

Many adjectives can be used to describe content that will build credibility with early-stage buyers, but I contend that two stand out in importance. First, credible content is authoritative. Marketing content doesn't need to read like an academic journal or a legal brief, but the main points you make should be supported by sound evidence, preferably from third-party sources.

The second essential attribute of credible early-stage content is that it is non-promotional. For many early-stage buyers, even a hint of self-serving promotion will taint their view of the content. When I prepare a new early-stage content resource, I use a simple test to determine if it is sufficiently non-promotional. I ask myself this question:  If I created a version of the resource without any obvious brand identifiers and gave that version to a reader, would the reader be able to determine who prepared the resource? If the answer to this question is "yes," the resource may be too promotional.

 

Recent research by DemandGen Report has shown that B2B buyers are more reliant on content than ever. The same research also shows that buyers are becoming more selective when it comes to content. They will only spend their time with content that they deem to be valuable and trustworthy. Therefore, it's more important than ever to develop content that potential buyers will see as credible.

 

Stop Thinking in Terms of Marketing Campaigns

For decades, marketers have thought in terms of campaigns when planning their marketing efforts. The campaign model provided a useful way to organize marketing activities and link those activities to specific marketing objectives. Today, however, effective B2B marketing requires new kinds of marketing tactics and methods that have an entirely different structure and rhythm from traditional marketing campaigns. Therefore, the campaign model no longer provides an effective paradigm for thinking about and planning all marketing efforts.

The word campaign was first used to describe a connected series of military operations intended to achieve a particular objective. Surprisingly, the online dictionary provided by the American Marketing Association doesn't include a definition of marketing campaign. However, the AMA dictionary does define an advertising campaign as a group of advertisements, commercials, and related promotional materials and activities that are designed to be used during the same period of time as part of a coordinated advertising plan to meet the specified advertising objectives of a client.

With a few changes, this definition can be applied to marketing campaigns, which we can define as:  A group of coordinated marketing activities (as opposed to a single activity) that are performed during a defined period of time and are designed to achieve a specified marketing objective.

As this definition indicates, the campaign model assumes that a marketing campaign has a fixed and defined lifespan. It begins, runs for the specified period of time, and ends. The problem is, many of today's most critical marketing tactics and methods don't fit the campaign model because they don't have predetermined lifespans. Many inbound marketing techniques fall into this category.

For example, if you want to have an effective company blog, you can't publish new content once a week for six months and then stop publishing for the next six months. That's one sure way to lose your audience. The same principle applies to other inbound marketing techniques, such as search engine optimization and most kinds of social media marketing. Once you begin these kinds of marketing activities, they will continue indefinitely and require more or less continuous attention. Therefore, the term blogging campaign is an oxymoron.

Lead nurturing is another critical B2B marketing activity that doesn't fit the campaign model. An effective lead nurturing program operates continuously. The timing and content of nurturing communications are either designed into the process or are triggered by the behavior of individual prospects. The nurturing process for an individual prospect will end under certain circumstances, but the nurturing program continues to operate as long as there are prospects to nurture. That's why the idea of a lead nurturing campaign doesn't really make sense.

As companies face the challenge of creating engagement with increasingly empowered and independent business buyers, the importance of always-on, continuously running marketing programs will continue to grow. These types of programs operate very differently from traditional marketing campaigns and require a different kind of thinking and planning.

Marketing campaigns won't completely disappear. The campaign model still works reasonably well for some kinds of outbound lead acquisition programs, but, it's time to ditch the campaign paradigm for a growing segment of B2B marketing.