That’s a quote attributed to John Wanamaker who died in 1922 but who was known as a “pioneer in marketing.”
Some would argue that digitalisation makes the concept of wasted advertising spending redundant because we can track every customer and advertising interaction. But is that true? Are we actually tracking the real ROI of advertising and marketing spend? Do we need to track the ROI of social media?
Let’s investigate these questions before discovering how to track and calculate marketing ROI.
Wanamaker opened one of the first and most successful department stores in the U.S. His chain later became part of Macy’s. The retailer is credited with being the inventor of the price tag and seasonal sale and the first to place a half-page newspaper advert and then, five years later the first full-page advert. Although there appears to be little context available to go with it, he is known to have said:
"Half the money I spend on advertising is wasted; the trouble is I don’t know which half."
Let’s take the quote at face value. In Wanamaker’s business day, the late 1800s, it would have been almost impossible to track the ROI of his marketing endeavours accurately. Sure, more customers likely visited his store after he advertised, but how many? How much did each one spend? How many went back a second time? If he ran two adverts at the same time, which one worked best? Wanamaker could well have been wasting half his advertising spend. The term return on investment (ROI) was not widely used until the 1960s.
Over 60% of all advertising is now online, which means its impact can be precisely tracked by cookies and other tracking methods. Even offline marketing campaigns can be tracked online because they can drive traffic to custom landing pages online, which can be tracked and there are other methods of identifying the source of “offline” customers. Offline advertising is more difficult to track, but how many small to medium-sized businesses are still investing in print, TV, or radio ads?
Given that even offline adverts will generate an uptick in leads or sales that can at least loosely be identified by using some common sense deductions and overall analytics, do we track the ROI of marketing to the best of our ability?
Marketing Week’s Language of Effective Survey revealed only 13% of brands conduct ongoing tracking of marketing effectiveness. Around 16% crunch their numbers once a quarter, and 14% say once a month or once a year. 31% of the survey respondents say analysis happens on an ad-hoc basis, depending on which campaigns they are running.
Based on those statistics, it’s safe to say companies generally aren’t thoroughly tracking the ROI of marketing departments and campaigns effectively despite the existence of tools and platforms that can do much of the work for them and provide data in real-time.
So perhaps Wanamaker’s dilemma is still true today?
But on a larger scale? A typical marketing budget is 13.6% of a company’s budget in 2023, per Deloitte. Gartner puts marketing budgets at around 9.1% of a company's overall revenue.
Even for the smallest of businesses, this equates to thousands in spending with potentially none of the return identified.
The same question applies to other brand awareness activities. These are vital, so do we need to track spending on them?
Let’s break marketing out to just social media for a second, as there’s an argument to say that a social media presence is a necessity. Therefore, do we need to track its ROI?
The answer could lie in a company’s and consumer's expectations for social media and whether the amount of spending correlates with expectations. Which, of course, indicates something needs to be measured!
So, for example, you don’t expect or need social media to generate leads or conversions, but you do believe that new customers might use social media to check your credibility. You need to have a presence, and your spending will be small, but you aren’t expecting direct ROI.
In this case, you may not need to track direct ROI. You might take this stance with a local print ad that you keep running to show you still operate in the area. Or the football team jersey sponsorship that builds brand awareness. What about the national industry directory you’re “expected” to be listed in?
Each of these things doesn’t have a direct ROI, potentially, but they all have a cost that adds up. Therefore, isn’t the argument to say they should be included as a cost in at least some marketing metrics and ROI calculations?
This could be especially prudent if you’re taking a RevOps approach. Gartner says 75% of the highest growth companies will deploy a RevOps model by 2025. Moreover, a RevOps goal is to increase the ROI of marketing spend, achieving good conversion rates while optimising a marketing budget.
Social media and brand awareness exercises are marketing spend. What’s more, if your costs are substantial and/or you expect a return (leads, conversions, etc), then calculating ROI should be performed as with any other business activity and investment.
Boston Consulting Group estimates RevOps increases digital marketing ROI by 100% to 200% with a strategy that removes the barriers and tightens the alignment between sales, marketing, and customer engagement teams. When deciding how well closely to monitor the ROI of marketing and even social media, perhaps it’s important to ask if you would manage a sales team without conversion or revenue targets.
That said, how should we be monitoring the real ROI of marketing?
It’s important to collect the right data and have appropriate KPIs.
Track and break your marketing spending right from platforms and subscriptions to staffing and social media. What are you spending on freelancers? Adverts, however small, directory listings? When you do it once, you have to account for changes in later calculations, and you might be surprised by your discoveries.
Your costs are your outgoings. What’s coming back in? Marketing and even CRM software will help you to track and analyse the success of your marketing efforts. There’s also Google Analytics, and if your marketing spend is substantial, you likely have an expert on hand for split testing campaigns and to use the latest technologies for tracking customer engagement.
With the highest proportion of your marketing activity online, it won’t take too much time to identify offline leads. You can also use custom landing pages, telephone numbers, or email addresses routed to your main contact points for offline marketing you really want to analyse.
There are numerous RevOps-appropriate KPIs and formulas for calculating the ROI of marketing. Here are some examples:
Lead Conversion Rate (LCR)
The percentage of leads converted into customers. Calculated by the number of conversions divided by leads generated expressed as a percentage (*100%).
Cost Per Lead (CPL)
Calculated by total marketing spend divided by the total number of new leads over a given period.
Customer Acquisition Cost (CAC)
The cost of acquiring a new customer. Calculated by total sales and marketing costs divided by the number of new customers acquired over a given period.
Marketing Campaign ROI
The return on investment (ROI) of a marketing campaign. This metric can be calculated by taking the sales growth from a product line, subtracting the marketing costs and dividing by the marketing cost.
You’ll see from these metrics there are several options to account for that non-specific social media or brand awareness spending. These metrics and others can be used in ways appropriate to your business.
For example, if your marketing team’s efforts are split 70/30 online vs offline, but you believe a simple social media presence is relevant to both, you can split your social media spend 70/30 and perform a Customer Acquisition Cost (CAC) calculation for online and offline marketing efforts.
Don’t forget that ROI can be measured in terms of revenue generated or in other terms, including engagement, reach, followers, customer loyalty, and those all-important leads.
Today’s businesses can’t commit a tenth of their revenue to market without knowing they are not wasting that investment, nor even wasting half that investment. ROI calculations are invaluable for informed business decisions and to optimise revenue and profit generation, regardless if you’re running a RevOps strategy.