Marketing Guide

Why ROI is often not the right measure of marketing impact

It is important for marketers to consider the true value of marketing. Using a simple measure as ROI (return on investment) can block your views to appreciate the overall contribution that marketing is making to your business. ROI may be the buzzword in the marketing world today, but it is just a handy measure that might not be accurate to let you know about the effectiveness of your marketing efforts. Although it is important to link your financial performance to marketing, ROI may not be properly applied at times or indicate an unintended meaning. This measure is more about the evaluation of a one-time capital project, which definitely does not define marketing.

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If you consider marketing costs, you will find them being a part of your profit and loss statement rather than your balance sheet. Thus, marketing expenditures are technically not an investment, as ROI considers. Marketers generally do not mean ROI when they talk about ROI. This measure does not let you know about marketing’s contribution toward meeting your business goals and falls short when improvement in marketing effectiveness is talked about. For that purpose, you need to consider factors related to all kinds of marketing investments your company does.

Many marketers find it easy to use ROI, as they need a single number that could quantify their marketing performance. However, ROI is just a ratio of not much significance in this case. The net cash flow and profits are what really matter when it comes to judging the marketing performance. Additionally, it is difficult to compare varied marketing investments in terms of ROI unless the spent amounts are same. It is also wrong to assume that the highest ROI indicates the best level of spending. It is not necessary that the maximum profit be gained when the maximum ROI is reached.

You generally stop or change your spend on the basis of returns on marginal investment and not the overall ROI. Thus, return on marginal investment (ROMI) is still a better measure than ROI if you want to gauge your marketing effectiveness in terms of returns. ROI keeps altering with the changing spending levels. It is a function of the investment in a particular medium, along with being a function of that medium. Further, having a good ROI in relation to a specific activity does not hold any value if your wider marketing goals are not met. Therefore, you should not keep it simply to ROI and always consider additional measures of marketing effectiveness.

 

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Dr Prem Jagyasi (c)

Dr Prem is an award winning strategic leader, renowned author, publisher and highly acclaimed global speaker. Aside from publishing a bevy of life improvement guides, Dr Prem runs a network of 50 niche websites that attracts millions of readers across the globe. Thus far, Dr Prem has traveled to more than 40 countries, addressed numerous international conferences and offered his expert training and consultancy services to more than 150 international organizations. He also owns and leads a web services and technology business, supervised and managed by his eminent team. Dr Prem further takes great delight in travel photography.

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