Measuring Marketing Roi

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ARTICLE COLLECTION

Thank you from Harvard Business Review.

Measuring Marketing ROI Included in this collection:

A Refresher on Marketing ROI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 2 by Amy Gallo

Get More from Your Event Spending . . . . . . . . . . . . . . . . . . . . . . . Page 8 by Frank V. Cespedes and Pankaj Prasad

Calculating the ROI of Customer Engagement . . . . . . . . . . . . . Page 13 by Rachel Happe

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REPRINT H03RXF PUBLISHED ON HBR.ORG JULY 25, 2017

ARTICLE ACCOUNTING

A Refresher on Marketing ROI

by Amy Gallo

ACCOUNTING

A Refresher on Marketing ROI by Amy Gallo JULY 25, 2017

JUAN DÍAZ-FAES FOR HBR

Companies spend a lot on marketing communications. In fact, global spending on media is expected to reach $2.1 trillion in 2019, up from $1.6 trillion in 2014. But is all that money well spent? And more fundamentally, does marketing actually work? Marketing ROI analysis can help answer those questions. I talked with Jill Avery, a senior lecturer at Harvard Business School and coauthor of HBR’s Go To Market Tools, about this concept and what it tells leaders about their spending on marketing.

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What is Marketing ROI, and How Do Companies Use It? Marketing ROI is exactly what it sounds like: a way of measuring the return on investment from the amount a company spends on marketing. Avery explains that it is also referred to by its acronym, MROI, or as return on marketing investment (ROMI). It can be used to assess the return of a specific marketing program, or the firm’s overall marketing mix. For marketers (and other executives), there are several benefits associated with using this measurement, including: • Justifying marketing spend. “Marketing is a significant expense for most companies, and leaders want to know what they’re getting for it,” Avery says. MROI helps prove that “marketing does indeed have an impact on the profitability of the firm.” • Deciding what to spend on. MROI is most often calculated at the program or campaign level so that marketers know which efforts have a higher return and therefore warrant further investment. It also informs future spending levels, allocation of the budget across programs and media, and which messages a marketer chooses. • Comparing marketing efficiency with competitors. Track competitors’ MROI to gauge how your company is performing against others in the industry. While MROI is not usually public information, managers can use published financial statement data to estimate MROI for a competitor. • Holding themselves accountable. “Good marketing is not about winning creative awards or telling interesting stories,” Avery says. It’s about “delivering customers and sales.” Measuring how efficiently the marketing organization is using the company’s money keeps everyone accountable for using those funds wisely. “It puts a bit more rigor on what’s historically been much more intangible,” she explains. The MROI calculation also prompts individual marketers to think about and justify every dollar before they spend it.

How Do You Calculate MROI? Marketing ROI is a straightforward return-on-investment calculation. In its simplest form, it looks like this:

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The goal, as with any ROI calculation, is to end up with a positive number, and ideally as high a number as possible. Some companies establish a threshold for MROI that takes into account its risk tolerance and cost of capital, below which they are hesitant to make investments. “If a program doesn’t promise to deliver at or above that level, they are unlikely to invest,” Avery explains. And if you end up with a negative ROI, the project is harder to justify on financial terms.

What Are the Challenges of Calculating MROI? While the calculation looks straightforward, there are a lot of complexities to actually using it. The cost of the marketing investment is pretty concrete. “Usually we know how much we’re going to spend,” Avery says, but it’s often difficult to decide which expenditures to include. For example, do you include just the cost of the media, or do you also include the investment of staff time to create the ad? “The MROI of social media activity often looks very high if you only count financial resources, but if you look at the human resources required to develop content and respond to consumers’ posts 24/7, the number goes down,” she says. “In principle, managers should try to estimate the full cost of the marketing activity, including creative development, media spend, and customer-facing staff time.” Since marketing expenditures tie up capital, managers may also wish to include the opportunity costs associated with this spending, taking into account the company’s cost of capital in their calculations. That challenge, however, pales in comparison with the difficulty of measuring incremental financial value. To do this, you need to establish your sales baseline. What would our sales and profits have been if we didn’t spend on this marketing program? “The baseline is hard to establish in a dynamic marketing environment,” Avery says. Usually companies look at their historical data and project them into the future. But even that can be complex, she says: “Last year’s sales line had a bunch of marketing behind it. It’s hard to strip out everything that would give you a pure baseline.” Some firms use A/B testing to assess the incremental lift that a marketing program gives, with the B group serving as the no-marketing control case, Avery explains. “But sometimes, the incremental financial value attributable to marketing derives from its ability to increase customer loyalty and reduce customer churn. In this case, managers need to measure how much profit was retained that would have been lost without the marketing program.” Measuring the lag time associated with most marketing spending is another common challenge. If you spend $1 today, it might take three years for the marketing to “work” and for the consumer to make a purchase, especially with products, like cars, that are purchased less frequently. “It’s often COPYRIGHT © 2017 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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tough to link spend to purchase,” Avery says. “Time lags can also complicate the MROI formula, which needs to be adjusted to account for the risks of a changing environment and the time value of money.” It can also be difficult to figure out which incremental profits are attributable to which programs. “Most companies are using a mix of programs to persuade consumers,” Avery says, making it tough to parse which are having the largest impact on profit. It’s sometimes simpler in digital marketing, she points out: “Say I run an ad — they click or don’t click; they buy or don’t buy.” To overcome this attribution challenge, many marketers credit the sale to the last touch point, whether that’s a search ad, a coupon, or something else. “But consumer behavior may be the result of 30 years or more of marketing,” Avery says. “Google search ads look like they have a high ROI, but they are often building on and benefiting from many other forms of marketing.” Avery points out that several companies now sell marketing mix software, which uses complex algorithms to help managers disentangle the attribution problem. “Algorithms are fabulous as long as they are based on good assumptions and good data,” Avery says, but most managers find that collecting data needed to make good assumptions can be the most difficult part of the process.

What Mistakes Do Companies Make When Using MROI? One of the downsides of marketing ROI is that it is easy to only recognize the incremental profits in short-term sales and underestimate the long-term benefits that marketing brings to brand value. This “can be particularly challenging for executives who might be impatient to see a return. A CFO might just see marketing expenses walking out the door and not a corresponding build-up of cash flows and assets,” Avery explains. As a result, CFOs and CMOs are often at odds. “CFOs are under tremendous pressure to deliver quarterly earnings, and may not be patient for the longer-term effects of marketing to take hold. You’re asking them to believe in forward movement in a progression through a customer’s purchase journey, and that can take a long time,” she says. But marketing does more for a company than generate profits in the short term; it also builds lasting value and drives future profits. This is where the concept of customer lifetime value can be useful. By calculating how much one customer is worth in comparison with others, marketers can show a CFO (and other skeptics) the impact of marketing spend over the course of the company’s ongoing relationship with that customer. Avery says that some companies also build in “proxy measurements,” such as brand awareness, brand liking, and brand knowledge, that help demonstrate that marketing dollars are helping customers move along the decision journey even if they’re not making purchases now. The key is to remember that while marketing expenditures hit the P&L immediately, every dollar you spend today is building your brand as an asset for the future, Avery explains. So, ideally your marketing program is not only affecting sales and profits this year but also strengthening your brand equity and customer relationships over time. COPYRIGHT © 2017 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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Amy Gallo is a contributing editor at Harvard Business Review and the author of the HBR Guide to Dealing with Conflict at Work. She writes and speaks about workplace dynamics. Follow her on Twitter at @amyegallo.

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REPRINT H01YW0 PUBLISHED ON HBR.ORG MARCH 31, 2015

ARTICLE MARKETING

Get More from Your Event Spending

by Frank V. Cespedes and Pankaj Prasad

MARKETING

Get More from Your Event Spending by Frank V. Cespedes and Pankaj Prasad MARCH 31, 2015

Event marketing is currently a very expensive and sloppy process in most firms because the relevant information is fragmented, difficult to assemble, and the “database” is often a pile of business cards. But it needn’t be that way. The means for more careful thinking about the big money you may already be spending is at your fingertips. According to a report by the Convention Industry Council, about 225 million people attend more than 1.8 million events sponsored by companies and associations, including 270,000 conventions and 11,000 trade shows per year. In 2012, even in the midst of an anemic global economy and budget tightening at firms, the amount spent on these events worldwide was an estimated $565 billion.

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Hosting, attending, and exhibiting at events comprise a whopping 21% of corporate marketing budgets, and one analysis indicates that these meetings “contribute more to the [U.S.] GDP than the air transportation, motion picture, sound-recording, performing arts and spectator sport industries.” But it’s far from moneyball when it comes to event marketing. Three of five marketers use no tools to measure event ROI, and most companies plan and execute events without specific business objectives. Yet, after sales force costs, events are the biggest line item in many marketing budgets, especially for B2B firms. So consider what more productive event spending means for the bottom line. Technology to do this exists, and it has implications for what managers can do before, during, and after the events they sponsor or attend. Before. There’s not just one rationale for events. Goals can range from lead generation or gaining access to decision makers to actually selling products or services — measured against the expense and opportunity cost of that event. But if you don’t know where you’re going or why, no road will take you there. No technology can help managers who are unable or unwilling to set goals. Once goals are set, however, there are tools to track ROI milestones that are currently dark holes in most marketing budgets. Pre-event registration systems like Cvent or Eventbrite help organizers sell tickets, promote the event, and measure responses beyond the number of registrations. They provide data, like campaign impressions and email opens, which can track the relative effectiveness of various event promotion activities. The technology will also help you make a a core decision: is attending, sponsoring, or exhibiting at this event worth it? Salesforce addresses this question with potential attendees at Dreamforce, its annual event. The Dreamforce 2014 homepage had a calculator that provided users with the projected ROI that their respective companies would gain from their presence at the conference. It also had a template letter with relevant data that prospective attendees could send with the data to their supervisors, justifying the expense, and, in the process, establishing accountable metrics for follow-up evaluation. During. At the event, new technologies provide cost-reduction and revenue opportunities for all stakeholders. Mobile platforms accessed by apps on smart phones or tablets replace paper agenda, venue maps, and other standard documents, saving on printing and personnel costs while enhancing sponsorship opportunities. Trade groups such as the Georgia Economic Developers Association use an app that lowers the cost and distribution hassle of print material while generating enough incremental sponsorship revenue to pay for the app entirely. The apps also make real the often-cited but rarely-delivered promise of “engagement” via social media. Attendees, speakers, and event managers can communicate, participate in surveys, polls, and COPYRIGHT © 2015 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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contests, share reactions and insights, and broaden the event’s reach by allowing people to link with others they might not otherwise have met. Beacon (location based) technology allows exhibitors or sponsors to direct interested attendees to their product or booth. Software from firms like Glisser or sli.do create more interaction in sessions and enable ongoing dialogue beyond the meeting room. These services help oft-distracted attendees participate via a smart phone or tablet. They also you to create communications and content that reflect the spirit of the event and your attendees, which is far better than generic materials prepared at headquarters. Marketers can also quantify many traditionally amorphous goals. Networking can be done and tabulated via the app, allowing exhibitors to connect with prospects in a more targeted way. Lead generation is now more efficient and scalable with apps that provide an all-in-one lead scanner and note-taking platform which can be seamlessly uploaded to a CRM system for follow-up. Remember that, when it comes to signaling interest in the topic of the event, attendees have already voted with their feet. So this is often more sales-ready data about buyers and their key concerns than the broad demographic data currently resident in most CRM systems. After. The most common metrics for evaluating an event are the “smile sheets” distributed after a session or the ad hoc perceptions of people in the exhibitor’s booth. New technology goes further. Did the keynote speaker deliver? Find out based on the number of bookmarks, views, and comments as well as session ratings. Did sponsors get the level of exposure they hoped for? Impressions, clickthroughs, and interaction with their content are relevant to this assessment. Did attendees find the event a good use of their time? That’s an important customer-satisfaction issue, and comments in the activity feed are often a better way to gauge that than polite comments during the cocktail reception. Data also helps to close the loop. Event goals depend upon your objectives with current or potential customers. With current customers, your primary goal may be to maintain relationships, meet other decision makers or influencers, stimulate add-on sales, or get feedback about prototypes. With potential customers, your goal may involve making initial contact, establishing a brand presence, gathering competitive intelligence, or getting follow-up calls with relevant prospects. These goals have inherently different evaluation criteria. For account maintenance and enhancement, for example, cost per contact is less relevant than it is for acquiring new leads or post-event meetings with prospects. Some companies are already using this type of event data to boost business. SAP, the global software firm, generates 60% of its revenues from events and uses app data to inform sales reps of prospects’ interests. In turn, this data allows the reps to tailor their conversations to those prospects’ interests and focus on the most appropriate bundle of products and services. SAP credits this approach with increasing sales by as much as 25% where it has been used.

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The benefits of event marketing are undeniable. But too many firms tend to mismanage their business-development expenditures, treat their events like de facto perks, and they refuse to change their ways because “that’s the way they’ve always done it.” It’s shame, really. Because with current technologies, there’s little excuse for that.

Frank Cespedes is a Senior Lecturer at Harvard Business School and author of Aligning Strategy and Sales (Harvard Business Review Press).

Pankaj Prasad is co-founder of DoubleDutch, a provider of mobile event apps, where he heads global sales, channel relationships, and partnerships

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REPRINT H032HJ PUBLISHED ON HBR.ORG AUGUST 19, 2016

ARTICLE MARKETING

Calculating the ROI of Customer Engagement

by Rachel Happe

MARKETING

Calculating the ROI of Customer Engagement by Rachel Happe AUGUST 19, 2016

JUAN DÍAZ-FAES FOR HBR

We know that customer engagement matters. Yet much of our thinking about engagement remains simplistic. Most current definitions of engagement are bimodal – someone is either engaged or they ‘re not. But this is a limited view that hampers our ability to manage engagement in meaningful ways. A more sophisticated understanding of engagement allows community managers to effectively influence and change it, and even to calculate an ROI for engagement.

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Community management is the discipline of building technical and social environments in such a way that individuals can easily organize and collaborate to achieve an objective. And what good community managers have learned is that, first and foremost, all engagement is not the same. There are a number of behaviors within the broader umbrella of engagement that need to be understood and measured in order to impact them. Engagement is a set of behaviors, not a switch. It needs to be calibrated to business goals to be effective. Second, engagement behaviors are progressive. As individuals get more comfortable and connected to the social environment in which they are engaging, they will exhibit more complex engagement behaviors. At The Community Roundtable, we ‘ve worked to define these engagement behaviors in enough detail so they can be measured and addressed through community management. We call this TheCR ‘s Work Out Loud framework and it includes the following behaviors: • Validate Out Loud includes liking, sharing others ‘ posts, commenting, bookmarking or responding to posts. This is often the first visible behavior beyond consuming that people exhibit and is the equivalent of dipping their toes in the water to feel how warm it is in order to assess whether the social environment is comfortable. • Share Out Loud includes sharing documents, graphics, updates and ideas. People tend to start with sharing content that has been written by someone else or approved and as they feel validated and connected, will start to share their own observations and ideas. • Ask and Answer Out Loud includes asking and answering questions. Individuals tend to start with logistical questions (“where can I find x?”) and if they find the culture to be validating, supportive and trustworthy they will evolve to asking deeper questions that expose a gap in their knowledge or confidence (“what is the best way to manage a customer situation?”). • Explore Out Loud includes open-ended questions or questions about ambiguous topics where there is no right or known answer. This requires individuals to feel like the community culture is both supportive and challenging, making it a safe space to explore, admit vulnerability and share half-baked ideas. This stage is where rich collaboration and innovation lies. This model helps community managers measure the culture in their community or network and then apply management techniques that prompt and move each segment of their community to adopt more complex engagement behaviors. For example, a customer support community may be getting a lot of views and likes, but very few questions or answers. To address this, the community manager may redesign the home page to highlight a question box and also design a weekly newsletter that highlights unanswered questions. This focus on asking and answering questions will trigger community members to exhibit more of that behavior. By understanding what kind of engagement is in play, community managers can significantly impact both how much the community engages and how much value is generated. In 2006, Nielsen COPYRIGHT © 2016 HARVARD BUSINESS SCHOOL PUBLISHING CORPORATION. ALL RIGHTS RESERVED.

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published the still oft-cited 90-9-1 rule of engagement, that says you can expect a community or network to have 90% of its members lurking/reading, 9% contributing and 1% creating. What we ‘ve found in our research is that while that rule can still be applied to large social networks, it is outdated for well-managed communities. In 2016, the average community is achieving estimated engagement rates of 50% lurkers, 23% contributors, and 27% creators, according to our 2016 State of Community Management research. While all of this is helpful, it still doesn ‘t define engagement in terms of a quantifiable financial value. To do that, we focus on the engagement behavior that generates the most value – answering questions. While communities are applied to many different, complex use cases, at their core they are about enabling people to connect with a network of peers to get information directly from each other, instead of going through a formal structure. That information sharing is prompted by a question-and-answer dynamic in every community – no matter its use case. This is where we start to formulate a ROI for engagement. When we think about the value of answers there are two categories: • Value of the Answers: There is immediate, incremental cost savings of not having to manage and route the question to the appropriate person and assign them to the task of answering (i.e. overhead cost savings) as well as the value of capturing answers that never would have been asked in more formal channels. • Networked Value of the Answers: The geometric value of making an answer available to the entire community forever (i.e. cost avoidance, productivity and opportunity identification) To calculate the ROI of engagement, you include the cost of generating that engagement – all of the program expenses (like software, content/programming and staff) related to community management or culture change:

One challenge in looking at the ROI of engagement over time is that in new communities and networks, asking and answering does not happen right away. Most individuals need to feel comfortable and connected before they are willing to ask a question that might make them feel vulnerable. This means there is a lot of work for community managers to do to prime the culture of the community so that people do feel comfortable and connected. For this reason, the ROI of engagement is typically negative until the culture supports and rewards regular asking and answering.

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Once the culture supports asking and answering, the floodgates of value open up and typically the value curve becomes geometric as both more people answer and more people come to the community looking for answers. We ‘ve seen this firsthand in our work with the H&R Block community. Started as a community of practice — a community focused on sharing expertise and learning — the H&R Block community evolved to a highly effective and widely utilized client self-service resource, where we could calculate in financial terms the geometric growth in value that communities theoretically generate, but is seldom reported. In its first year, the community did not pay for itself yet because membership and activity was just beginning, but the number of members and quantity of accumulated knowledge was growing rapidly. As membership grew and we worked to make the community more supportive and constructive, more people began asking questions — and getting good answers. As more of those discussions and content elements were captured, more and more people were able to find answers by searching rather than asking directly — creating a positive feedback loop of value. Four years in, the community is producing amazing results and has become the go-to resource for people looking for tax support. That helps H&R Block extend its brand presence by offering trusted support and access in a way they never could before. Looking at engagement through its most valuable behavior — asking and answering — can help make cultural maturity more visible. If the culture of your employee community or customer community is not encouraging and rewarding this behavior, you could benefit from a more structured approach to community management. Editor’s note: We’ve updated the formula in this article from its original version. Rachel Happe is a Co-Founder and Principal at The Community Roundtable, a company dedicated to advancing the business of community and building strategies for better engagement. Follow her on Twitter @rhappe.

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