Beyond ROI: How the Most Popular Marketing Metric Is Holding You Back
Contemporary businesses, large and small, have become obsessed with return on investment (ROI). On the surface, it makes perfect sense. If ROI represents what it claims to, you’d obviously need to track it closely. For higher-ups and managers, it’s certainly an important metric to gauge the correct course for the company. But when it comes to measuring the success of modern marketing campaigns, ROI is far less useful than most business owners believe — at least not in the way it’s being used. Here’s why.
ROI Is Reductive
In its most basic form, ROI is calculated by dividing the net revenue gained through a marketing campaign by its cost. This allows us to compare the dollars we’re putting into a campaign to the dollars we’re getting out of it, which, at face value, would make it the end-all be-all of marketing metrics.
But even the most complex ROI calculations drastically oversimplify the marketing process. For example, you can determine the monetary ROI on a recent email blast, and it will give you a pretty good indicator of how many recipients responded to your efforts with their dollars. What it won’t tell you is how that campaign improved your prospects’ awareness of your brand or their actual engagement with the content you’re providing.
Even if we suppose that ROI can closely represent how much you’re getting out of a campaign, it can’t predict the future. Depending on what particular strategy you use, actual monetary return for your marketing investment might be months out. Too many business owners use ROI as an excuse to ditch a campaign early. Two months in, they see a lackluster ROI, so they abandon the campaign they’re poured thousands of dollars and hundreds of hours into. Often, if they’d just waited, they’d have seen a steady improvement on their return, especially as they learned the ins and outs of the strategy and invested more in it.
The Wrong Tool for the Right Job
All of this isn’t to say that you shouldn’t try to determine the financial performance of your marketing efforts. But it’s important to realize that ROI is a blunter instrument than what you really need. Instead, break down your marketing efforts into their constituent parts and learn to measure them at the most basic level. This way, you can start to truly see what’s going on in those complex marketing interactions and determine exactly what’s working and what isn’t.