Return on Investment

Perhaps the most commonly discussed and misunderstood term in Marketing today is ROI or return on investment.  Just to get in the spirit of things, take a look at this piece that looks at ROI from a pretty realistic and practical viewpoint.  Note the author points out the limitations of and the need for looking at ROI for both investing in a company and for the marketing expenditures that drive the growth of the company.

Perhaps the biggest concern I have with ROI is that those who tend to talk the most about it have little understanding of the intricacies of doing these analyses.  When somebody asks for a typical ROI on a tactic or tells you they get a certain ROI on a project, this should raise a lot of questions.  The biggest issue with ROI work is the difficulty in isolating one tactic or one activity from all other things being done or other environmental issues in order to credit it with generating the return.  Sending a mail piece to a physician when the drug being promoted just got added to a Medicare plan will generate tremendous ROI if you think the mail piece made the new business happen.  The exact same piece will likely have no impact on an office with few elderly patients.  In order to do ROI correctly, the cost of the study would often be way too prohibitive but to do it incorrectly just to save money could send you in a direction that could hurt your brand and your company.

The most important point about ROI is that there is a recognition that marketing tactics cost money and that decisions should be taken wisely.  The answer to what is the ROI may not always be a ratio.  It may be incremental results such as number of impressions or number of offices who requested samples.  There should be a constant search for ways to cut costs without hurting results, as by definition this improves ROI.  There should be diligence in completing all projects started, as wasted effort and resources are clearly a disaster for ROI.  Common sense is also critically important.  Constantly changing the look of the brand or the visuals used in advertising and promotion in order to gain some incremental improvement just doesn’t seem wise especially if research shows the customer never even sees the pieces being developed.

It might be time to move beyond the simplistic look at ROI.  When somebody asked what is the ROI they may really just be asking if the tactic will work or not.  More importantly, they may be wondering how much you thought about it.  Rather than just spouting out a number perhaps this is the time to expound on your thinking for choosing this tactic over something else.  It is a time to cite research done by experts and to showcase studies of what happened when others went in that direction.  It is a time to show how this and the other tactics in the marketing plan tie together and how they all line up with the strategic direction for the plan.  It is a time to show that this investment is being made with a depth of commitment as if it was your own personal money you were spending.  The more discipline you show in your analysis the more there will be trust in your decisions.

It might be worthwhile to look at some of your personal financial decisions and then utilize similar thinking around your business decisions.  Is it worthwhile sending your kids to college?  Is it better to buy or lease a car?  When do you refinance a mortgage?  Is it better to rent or own?  Is Starbucks worth the extra cost?  Is it wise to buy a hybrid car?  Should you pay off your credit card debt?  For each of these questions, you can definitely outline a way to analyze the question.  There are tons of variables and for each person these variables will change the answer.  If you use the same vigor in business as you do in your personal life, chances are you will be a good steward for your business even without formal ROI studies.

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