There is much hype and confusion around buzzwords like “ROI”, “results” and “performance.” So, first things first what is Marketing ROI? It is the amount of gross profit generated from marketing investment.
The hard fact is that CEOs are unconvinced of marketers and the ROI their initiatives generate. Database marketers are always justifying their stance of how they are contributing through objectives of increasing customer acquisition, customer retention and cross selling.
Here are some pointers you can consider in measuring ROI:
- Customer Acquisition – calculation of new customers is fairly easy. It is the amount of revenue a new customer is going to generate, which is easily identifiable.
- Customer Retention - the calculation usually applied is = Number of customers x percentage retained x marketing costs. However an important metric seems to be missing. Any guesses? Replacement cost! By including replacement cost the ROI drastically improves.
- Technology Infrastructure – marketers more often than not find themselves justifying cost on investment in technology such as databases, marketing automation, CRM initiatives, etc. Here are 4 areas which will help in rationalizing cost:
- Total Cost – It include total expense incurred on licensing or purchasing technology and the cost of resources utilized to deploy or implement it.
- Process Improvement Savings – Dollars saved as a result of introducing new process can be justified as a return of savings on investment.
- Information Technology Savings – If new technology introduced compensates for the time invested by resources (personnel as well as machine time) earlier it can be categorized as cost savings.
- Time to Market – should new technology propel product or service launches therefore increasing faster time to market delivery; revenue generated from that as well can be included in your validation.
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