Rethinking marketing: why is marketing a good investment?
It’s an age-old struggle for marketing people convincing others in their business Is marketing an expense or an investment? While many business leaders view marketing an expense, there’s an opportunity for marketers to reframe the conversation and illustrate how marketing is an investment. What’s the difference?
I recently met with a prospect who is struggling to show the senior management of her mid-market B2B company that the additional investment in digital marketing is worth the effort. Some programs they ran were working but others weren’t. She was not interested in the same old tactics that her competitors are doing. Her management team of financially-minded executives was frustrated that their efforts weren’t tangibly growing the business. Instead of talking about digital ad tactics or competition, we talked about marketing math as the course to get her team on board.
What’s Marketing Math?
Marketing math is a simple way to reframe whether investment in marketing is growing the business by relating all marketing resources (employee activity, external cost, etc) to growth levers such as new revenue, better customer loyalty, or higher price.
Sure, there is more value to digital marketing than just immediate sales. And, a business can’t always measure the brand value of marketing in short-term dollars. However, in today’s environment, there needs to be some line of sight to marketing’s role in driving growth.
The challenge is that marketing math isn’t always precise or obvious. Often, assumptions and estimates are required which make some people uncomfortable (especially our friends in accounting and finance!).
Some key estimates that a company might need to make when implementing marketing math:
- How many potential customers exist for our product or service? (Total Available Market)
- How many are in our “sweet spot?” (Serviceable Addressable Segment)
- What % of that do we currently have or could we gain? (Market Share)
- What’s the average transaction (or annual) value of a new customer?
- What’s the average lifetime value of a new customer?
- What’s our churn rate? (% of customers who discontinue services each year)
- What’s our average price per customer (or product or service line), and how might that change over time?
In our experience at &Marketing, there are two key success factors when implementing new marketing programs (using Marketing Math):
- Metrics: Establish key metrics (or “key performance indicators” – KPIs) that everyone – from company management, marketing leadership, and tacticians can agree are accurate and really matter.
- Accountability: Tacticians who are responsible for executing marketing programs need clarity on how their work impacts the metrics, and the authority to make changes along the way.
Marketing math in action: what is ROAS in digital marketing? How does it change the game in digital ads?
At &Marketing, one way we implement marketing math is by using “Return on Ad Spend” (ROAS) models. It is a set of metrics that calculates the short and long term returns on each marketing dollar spent.
Here is a simple example of our ROAS model in action for a digital ads spend. The model takes several inputs (orange) and produces key outputs (some of which are the KPIs).
Implementing a ROAS model is not always easy. You need to know (or at least estimate) your numbers – like the close rate and the expected lifetime value of a new customer. You need to measure different campaigns, and time frames against each other. It’s not perfect – but it’s better than dumping money into marketing and hoping that it works.
