CEOs: If you want your marketing team to work on growing your business, ask them what your target return on investment (ROI) is.
Not ROI for paid search, or for email, or for anything individual, what is the target ROI for the business’ marketing? It’s common for an agency to hear “we want the agency to recommend” when it comes to setting a ROI target, which is going to be a difficult question to answer. It’s a business that is going to know what its target profit margin is. It’s the business that is going to know what its cost of doing business is… what overheads need to be baked into this cost? What losses? How does it change from market to market? Do you only look at one sale or lead, or does each customer have a repeat, lifetime value to consider?
And most importantly, the company that cannot set its own performance targets is the company cheating itself out of growth.
If you know your targets, your profit margins, you can pursue the tried and tested strategy... hit or beat these targets, and then chase volume and scale. Know how much you can spend on marketing and still turn a profit on a sale, and then aggressively market and chase volume up to the upper level of that target. This is what will achieve the bottom line of growing market share profitably and put pressure on your competitors. But it absolutely rests on marketers understanding their targets or you risk a long period of groping in the dark. So, work out your ROI target, or your cost of sale target, or your CPA etc, and then push on boldly forward!
Sounds easy right?
Do we understand ourselves?
Apparently, Chinese general and business management consultant Sun Tzu has only ever been cited twice in the history of The Drum’s opinion pieces, and is any opinion sensibly founded until you have used a tenuous quote? Experts say not. Experts such as Sun Tzu who said, “if you know your enemies and know yourself, you will not be imperilled in a hundred battles”.
Let’s take a hypothetical example of an insurance company. How do you understand your business and work towards the maximum of what you can spend in order to make a profit and from there, grow? To begin with, there will be the same that all businesses have – their overheads. Salaries, keeping the lights on, the general cost of doing business. That gives you a percentage of every dollar that’s going to operations. There will be the costs specific to your business… of the dollars you earn, what percentage is getting paid back out in claims?
Hopefully, this should all be readily available information to a business. But what about the dollars you’re generating, is every dollar sale worth a dollar? The good news that it’s probably worth more. That insurance policy from before – how many renewals is somebody going to get before they get tempted away? If it’s a straight sale, how many other purchases will be generated over the next three months on average? If you have a sales team, how much more value are they adding in upsells?
All this is going to help your marketing operations and make it better geared towards growing your business. Giving marketing its fair due with a complete view on the value-driven will give a greater, more accurate view of the value it is generating. Building a target built on your operational costs and your business profit targets will free marketing from the inevitably short-term approach of expecting marketing to somehow be more efficient every month forever: don’t be afraid to embrace the reality of the point of diminishing returns.
And from that point, it’s overdue time to understand the value of different channels specifically for your business. We know that search is going to be over-valued, and video under-valued… but how much? It’s going to depend, and the work on finding out needs to be done, but it’s going to be worth it if you can say that the expensive video you made produced drove x% uplift through search while live, which will feed more budget for the next video, and so on and so forth… And what about customer retention? How effective are you at retaining, returning, upselling? If it’s all healthy then how much of that revenue should be assigned back to the channels that did the original heavy lifting in converting that first sale? If you have leaky pipes… well, prioritise getting a plumber.
Do we understand the impact of our creative and design?
Here’s a fun bit to look forward to in the new year! In the spirit of giving everything its due in chasing that ROI, marketing obviously isn’t just spend out and money in, and this is what greater access to data and improved technology is going to improve and accelerate in 2019 – beginning to not only integrate creative costing into these ROI targets but testing and recording creative efficacy so much better and attributing this to overall success as well.
Testing and improving, and then testing and improving, and then testing improving (the joy of repetition really is in you) – and crucially – measuring the impact on the bottom line is here and going to bring a bit of digital science to your creative and design. Websites are going to benefit hugely as competition increases and e-commerce maturity develops and understanding the customer is going to be critical. It’s time to get conversion rate optimising! Humans respond to cultural signals, and a valid question for marketers to ask is “what colour should my website CTA be?”. It’s a medical fact that the colour of a pill can change the efficacy of the cure… and if through some design tests you increase your on-site conversion rate by 1%... then that’s $1 out of every $100 you spend on traffic driving saved, forever. Plug that into the ROI!
Apply the same to your creative, and you practically have an infinite number of things to test, and especially if you have both media and creative specialists working together. What length of video should I be producing? Is there any difference in performance between short form and long form when I look at different media placements, and how much of that is down to the audience viewing it? If I launch vertical video formats how much of an audience do I reach that I previously couldn’t? Either way, improving technology, improving access to data, and hopefully, improving integration between these data points will begin to answer elusive questions on dollar value contributions of creative work and justifying investment – and underlining the importance of making sure that media and creative is working together from the very beginning to keep an eye on the bottom line and get deployment done seamlessly.
Who is going to help you grow?
The agency is dead, long live the agency. We’ve gone through the first phase of the internet messing around with things, with new and scary and technical and effective channels coming up, spawning the first performance agencies doing paid search, or affiliate or SEO, and doing what little there was of the hiring in the post-credit crunch late 2000s, for most of those to be gobbled up, and now ground down again, by the big players. We’ve gone through, or are going through, marketers growing to not want to work with ten different agencies, all within their specialities, and wanting one throat to choke, and in recent years some brands opting to bring it in-house. Hopefully they find success, but one thing I think is not going away is the reality that although there are benefits to bringing things all under one roof (internally or with a vendor), although there are absolutely benefits in making sure your performance, your media, your creative, your web design, your CRM and so on are working together, these are a lot of different specialisms, served by specialists.
Looking at your businesses ROI and how your marketing is contributing to it overall, and not just from isolated performance channels, is how agency relationships are evolving to ultimately look at the business bottom line and help enable growth: identifying the problem, fixing it, and using ROI as the measure of success. The internal question for the boss this year is will this help me grow?
Tom Jones-Barlow is head of media, Southeast Asia at APD.