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Managing Marketing Dollars Through ROI Calculation

[ 0 ] Feb. 4, 2013 | SBO Editor

By Nick Overmann

As the economy continues to tread water and remain stagnant with moderate consumer spending, marketing budgets have been falling at an alarming rate as many companies begin cost cutting measures. Spending cuts always seem to begin with marketing expenditures. Small business owners are being forced to only use operating expenditures that produce quantifiable results and directly influence growth. The ability to accurately determine the return on investment for a given initiative has become increasingly important in order to be able to provide value to businesses. Properly calculating the return on investment for marketing functions is important because it allows business owners to more efficiently lead their efforts by utilizing “successful” campaigns and altering or cancelling “unsuccessful” campaigns. For a business owner, knowing the ROI of each marketing initiative also allows them to know their relative effect on sales and ultimately business growth.

There are three keys that all owners must follow in order to accurately track and report the ROI for a marketing campaign. First, there must be a system in place that can enter and qualify leads so that they get distributed to the necessary sales personnel in a timely manner. It is important to qualify leads so that sales people are able to prioritize leads based on their needs and potential value. The qualification process is going to utilize a different set of criteria depending on the industry. A key determinant in determining the qualification of a sales lead is the timing that the potential consumer is looking to buy. One of the easiest ways to evaluate and prioritize leads is by the time expected from first contact to purchase. A salesperson is going to need to focus on prospects that could bring revenue into the company in the shortest time. This system needs to continue to track the lead once a sales person has evaluated and executed it to its fullest potential. It needs to record whether the sale led to any source of revenue or was non beneficial to the company financially. Both outcomes are important to record because the same lead could surface later and create revenue for the company. Many prospects are willing to purchase but not at the particular time that they are inquiring or contacted by sales representative.

The second key for tracking ROI is having quality expense reporting. The second component in the return on investment formula is expenses, so it only makes logical sense to treat it with a high priority. Usually expenses are easier to track for companies since payroll and invoices provide concrete data associated with specific campaign related costs. The more difficult aspect is quantifying the accumulation of soft costs associated with each campaign. To achieve a more accurate ROI, a more accurate assessment of the related expenses must also be achieved. This includes dividing labor costs between different campaigns as a percentage of time spent on each. The easiest way to accurately track the costs associated with each campaign is to create a place for records to be stored before the campaign begins. This way, there won’t be scrambling to locate records and manipulate numbers to get an educated guess of the costs because managers won’t be working backward. The more groundwork that can be established on the front end of a campaign, the easier the calculations and necessary evaluations will be on the back end.

Since the management of leads involves multiple people from various departments, including marketing, sales, and administration, the third key is for company wide compliance to be an initiative. The best way to accomplish this somewhat daunting task is to create an effective training session for all persons involved before the campaign starts. This way everyone will effectively be on the same page and have an understanding of the cohesiveness and synergy that is needed. Also, it provides each individual their specific role and duties that are going to be expected of them. This is an important key for business owners because it ensures an accurate tracking of leads, their revenue, and expenses associated with each specific marketing function. This allows return on investment to be easily and accurately formulated which in turn provides owners with quality data from which to make an informed decision.

Business owners have always been aware of the importance of allocating expenses to allow for the most efficient path to company growth. During economic downturns and mediocrity, the importance and value of each dollar spent gains importance. The best way to ensure a business owner is getting their maximum result with each dollar spent, an ROI development system is crucial and can provide growth during more difficult times in which consumer spending is low. As the economy improves and revenues climb, the improvement in efficiency will become even more apparent as it compounds and allows for an even more improved bottom line.

Author Biography

Nick Overmann is a veteran marketing professional with corporate experience in the electronic payment, telecommunication, and construction industry. Utilizing his diversified marketing strengths, he founded Oveer Marketing, a marketing agency designed specifically for small business’ needs. Visit www.oveermarketing.com to learn more.

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Category: Features