Key Metrics for Determining Your Marketing ROI

By Craig Conard

As inevitable as death and taxes, we all endure budget season. We are required to submit plans which we know will probably be sideways by Q2 and ask for dollars hoping we can get half of what we are asking for. This ritualistic dance requires us to take a look at what worked well, what not so well, and perhaps what we want to try in the coming year.

Most companies have a blueprint to follow—tradeshows, seminars, media placements, list buys, social media and the like. Some of these blueprints read like rings on a tree stump, with line items providing a timeline of available marketing activities as technology has evolved, from trade shows to email blasts to content syndication.

Marketing diligence and the pressure of accountability demand that you figure out where your best leads are coming from – and how much they are costing you.

It sounds simple, but it probably isn’t.

The foundation to monetize direct marketing begins with creating definitions for levels of contact interaction, allowing you to  track their progression over time. Many marketing activities equate specific activity and response for lead generation, when in fact true leads are generally a subset of all responses.

If your campaign or marketing activity is focused on generating responses from people who will actually purchase your products of services,  it behooves you to strip out the partners, distributors, integrators, analysts, competitors and non-buying inquiries. We use the term “ground shrinkage” to describe what you have left after taking a street-level view of who responded to your efforts.  This becomes the basis for the campaign cost per lead equation. Cost of the effort ÷  (gross inquiry quantity  ̶  non prospects) = cost per lead.

At face value, it may seem like some marketing activities should be eliminated due to a high initial cost per lead. However, not all lead mechanisms are created equal. Prospect interactions requiring low commitment level, such as downloading a white paper in response to a banner ad or email blast, can be great for building prospect databases but entail significant effort and cost downstream to convert to a sales-ready opportunity. Conversely, higher-cost, higher-commitment interactions such as attending an event may signal a more immediate interest level on the part of a prospect and result in more sales-ready opportunities with fewer marketing touches required to convert to a sales opportunity.

That said, initial cost per lead needs to be examined and rationalized against the cost and margins on the goods or services being sold. A critical data point to bear in mind is whether your customer lifetime value warrants your front-end spend and acquisition lifecycle outlay.

The next key metric is determining how much a sales opportunity costs. Naturally, you will experience significant attrition from leads to sales-ready opportunities. There are any number of reasons leads don’t convert to sales opportunities, but in no way does this devalue the leads you’ve captured. You may be in position to capitalize on their next buying cycle.

The next challenge is monetizing the incremental touches needed to convert to an actionable lead for your sales team. Marketers increasingly look to low-cost touches via marketing automation systems and social media that can be tracked though marketing automation 2.0 platforms to move leads down the funnel.

However, following the lead lifecycle through the CRM and marketing automation blender adds complexity in tracking. Retaining the original campaign source code becomes critical in establishing a cost per sales opportunity.

Arriving at cost per opportunity is the tabulation of the activity costs needed to move the lead into the hands of sales.  Generally this will be many times higher than the original cost per lead, especially for big-ticket items with long sales cycles.

The final hurdle is following the opportunities you’ve created through the sales process—most likely tracking them through the sales force CRM tool and relying on sales to provide updates and feedback. Clearly, there’s an organizational responsibility for assuring the closed loop.

The Holy Grail of marketing is determining your cost per lead, cost per opportunity, and cost per sale using repeatable tactics and marketing efforts. If you create these cost baselines and test against established practices, you will be able to make a difference in the bottom line numbers. Once you’ve monetized the marketing effort, you’ll be able to essentially buy the number of opportunities you want. Investment and outcomes will become predictable and management will have visibility into what to expect.  And that’s sure to simplify the budgeting process next season.

Craig Conard ([email protected]) is president of Sudden Impact Marketing.