I have been doing a lot of reading on ROI lately and found that writings on this can vary quite significantly on how to address this, and yes it appears to be very muddy. At the end of the day though, the big question still comes down to “How do we know we are spending our marketing dollars effectively – and how do we demonstrate it to others?”.

When trying to answer this question, there is not one clear cut ROI formula that defines this that can be applied universally for all marketing activities. (I am stopping here but his comments continue in the forum)

Reply from David McNab:
Here is a thought that might incite fear in the hearts of marketing departments everywhere – instead of muddling around with a whole sloough of measurements of ROMI, ROI, ROC and the like for measuring marketing performance why not simply make the marketing department (probably along with sales) accountable as a profit centre ?

This isn’t hard. Simply “sell” the products to Marketing at a discount (sales price less industry average marketing and sales percentage) and let them live or die on the profit they make.If the spend doesn’t drive excellent returns marketing loses. If it does, they win. Tie bonus to the results and we have accountability.

No-one does this. Hmmmm I wonder why … ?

My contribution to the thread:
That would strike more fear in the hearts of the Treasury and the shareholders. The marketers perpetual vision of success would make him/her the most likely to want to grab hold of the reins. But it takes more than marketing sense to make a business flourish.

ROI is a simple calculator in a small business environment. Just ask the owner. He knows whether the money spent had any payback. The simplicity of the question gets lost in a more complex enterprise. And it is our own fault. The inability to define a marketing ROI is because marketers still execute programs based on assumptions and then develop complex rationale, couched in the finest jargon and best-case case studies that they cherry-picked to win their point.

For example, brand advertising => top of mind => market share growth => profitability. It is a leap of logic that baffles accountants, because, while it sounds logical and insightful, there is still the no-name bottler selling more soda that Pepsi, without spending a nickel on marketing. Sometimes it’s true and sometimes it’s not. But the marketing dogma says “It’s empirically true.”

We now live in a state of technology where marketers can develop program models that are so targeted to a specific customer segment or objective, ROI should be a constant measurement per campaign. But it is easier for marketing to say, “We think this is a good idea. Let’s try it and see.” That’s a sink-tank not a think-tank. And do we ever fear failure. Nothing hurts quite so hard as being told by someone who knows zip about your profession that your last campaign bombed and you have to fumble for excuses.” That ended my posting. But the adjunct that I would put in this blog is that Customer-centric marketing is designed for ROI measurement. When you define your marketing based on customer values you can measure the uplift of a specific campaign because you are marketing with an identifiable objective rather than a catch-all mentality. The focus of customer-centricity identifies the real drivers of your marketing programs. There is a common failing of a goals-driven enterprise – fling many things at the wall to see what sticks, figure out later what it was and explain to accounting why your marketing budget should not be cut by 50%, even though 50% of your investment was wasted.