(Mis)Understanding The New ROI Of Marketing

In the Forbes’ FORBESWOMAN column, an article titled Understanding The New ROI Of Marketing states:

“No longer does ROI stand only for return on investment. Today, ROI also stands for return on impression, which encompasses two primary values — a hard metric and a soft metric. Together, those two values are far more powerful for measuring marketing performance than the single dollar value provided by return on investment metrics. Traditional ROI analysis is just the tip of the iceberg. The really interesting part of the story is what happens beneath the surface of the water. The hard metrics related to return on investment barely touch the surface.”

If you do click over to the article, skip reading the article itself, and go straight to the comments. There you will find the voices of rational, sane, and intelligent people.

Bob London writes:

“Sorry but in my opinion this smacks of a desperate attempt to cover up marketing’s tenuous or fictional link to real business metrics.”

My Twitter buddy Jeff Marsico (@jeffmarsico) writes:

“I don’t agree with many of the metrics mentioned because they are too soft. It feeds the notion that somehow marketing folks have their head in the clouds.”

Bob and Jeff are nice, polite guys who know how to disagree with someone in a civil manner.

Sadly, I lack that skill.

My take: The Forbes article is a shameful display of stupidity. And it has nothing to do with women. Why was this sad excuse for an article published in the FORBESWOMAN column?

Talking about “traditional ROI analysis” is like talking about the “traditional definition of left and right.” It’s senseless. ROI is ROI. There is only one way to calculate it: Revenue minus costs divided by costs. The only consideration that’s left to “redefinition” is the timeframe in which those revenues and costs are calculated.

I’m not saying, however, that marketers shouldn’t define new metrics if they add value to our understanding and measurement of marketing activities.

—————

Marketers (and perhaps Forbes columnists) should realize that there are three types of metrics: 1) Input; 2) Output; and 3) Impact.

Input metrics capture how much of something you put in the investment. It could be things like hours per week, dollars spent per customer, raw materials used by item.

Output metrics capture what you get out from that input. Units produced per week, page hits per day, etc. Measures like those proposed in the Forbes article — like Return on Impression — are output metrics. In and of themselves, they have no financial return.

Impact metrics are those with financial return. They capture the amount or increase in sales per some unit of measurement, or they capture the reduction in cost of doing something per some unit of measurement.

—————

Input and output metrics do not replace impact metrics. The problem we have with marketing measurement is that it’s hard to quantitatively tie input and output metrics to impact metrics like ROI.

Smart marketers understand that there is a return on investment chain. You put things in, you get things out, and there is an impact — or maybe not, and possibly it takes a combination of the things that come out to achieve an impact.

—————

The Forbes article clearly demonstrates one other sad fact about today’s business world. Once-top-quality publications like Forbes must be so hard up for content that they’ll publish anything

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4 thoughts on “(Mis)Understanding The New ROI Of Marketing

  1. well stated, Ron. My only critique ? Your blog title. Why not (Ms)Understanding or (Miss)Understanding? Suggestion: Maybe u should use pen name Rona?
    Either way, business folks need to do a better job of combining Mars/Venus insights and experiences for a more effective AND easily understood need for ROI, straight up. Marketing is both a science (the WHAT and WHY ‘black and white’ numbers matters) and an art (how to tap into all that ‘gray’ matter of our target market). Prime Responsibility is to build business for a purpose, not busyness without accountability. Otherwise, we’re all seeing ‘red’. And that’s ok for a splash of color at times, but we don’t need it bleeding on our beautiful balance sheets. That just makes my blood boil.
    jussayin.

    • Lisa: More likely to go with “Ronda” (yeah, I know, there’s an h in there).

      Can you imagine the crap I would be getting if I had said this was a miss-understanding or a ms.-understanding? I’d be flamed and skewered to no end. My critique of the Forbes article has nothing to do with gender. There is no shortage of dumb-ass men who believe this nonsense about the “new ROI of marketing.”

      I couldn’t understand why the article was in the FORBESWOMAN column. Was it some kind of statement that women are more enlightened about “soft” metrics? My guess is that that was NOT the intention, and that it’s more the case that there are absolutely no editorial controls at Forbes regarding what gets published on its blog.

  2. Ron
    your point on incremental impact
    “They capture the amount or increase in sales per some unit of measurement, or they capture the reduction in cost of doing something per some unit of measurement”

    may need to be highlighted as most would treat any increase in revenue or decrease in costs as a result of their action.

    -rags

  3. Nice Site btw. i think marketing in this way is not black and white. retourn on impression is a funny view to see what numbers can be count but at the end there is just the hard dollar in the hand of the website owner. Usually he is paying the campaign and he has the risk of what the marketer is doing. every number you can count is just interpretation. rise the number of bla bla is the result of bla… whats up with the dollars at the end? this is the question and gives your the next job.

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