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ROI and Definitions
As you probably know, ROI (Return on Investment) is a simple ratio:
ROI = (Current value of investment – Cost) / Cost
It’s a percentage that makes it possible to compare several investments with each other and, therefore, direct your investments according to their returns. In the case of marketing campaigns, the value/cost link is sometimes challenging to make, and we must be rigorous to obtain it. We will dive into it all in this post.
First, let’s define the basic concepts behind the true nature of ROI in Marketing Automation Systems (MAS). When speaking of a marketing campaign and sales opportunity, we must distinguish between cost and revenue associations, and then detail the performance attribution to link these two elements. We connect our campaigns and opportunities in our CRM (Customer Relationship Management) system. But we will also see how CRM/MAS and CRM/ERP (Enterprise Resource Planning) synchronization is key to achieving real ROI.
Campaign budgeting and costing
This post will not get into the strategic considerations of creating new campaigns or the objectives and definitions of a marketing campaign. What it will cover are the financial aspects of any marketing campaign, digital or traditional, and it’s associated expenses.
So your campaign has real costs – so you need to create your campaign in your CRM. Next, set a budget definition to your campaign. Here, it is crucial to confirm your CRM / ERP synchronization. With your ERP, break down all your invoices and costs on each campaign created. This way, you will always have the most accurate estimate of the cost of the campaign. It will be necessary to set up special relationships between your marketing and financial departments so that all parties can correctly allocate invoices. Your accounting teams will need to know the invoice/campaign links or delegate this to your marketing teams.
The marketing campaign must also be in sync with your MAS. It’s your MAS that will edit and launch your automated marketing campaigns including, but not limited to: tracked links, emailing, social networks, Search & Display Ads with Google Ads, LinkedIn Ads, and more. Your MAS is the epicenter that records all interactions with your prospects. We will see in the attribution section how the recording of these interactions is crucial to your marketing strategy.
Opportunity estimate and quote
As we saw in the ROI formula, we need to know the earnings associated with campaigns. In our systems, the gains remain linked to our clients and their associated sales opportunities. In the next section, we will look at how to link customers/opportunities to campaigns with performance attribution.
It is important to define as early and precisely as possible the revenues for each opportunity. As we are interested in the attributes related to our customers, we will work preferentially in CRM. As soon as we have an advanced discussion with a prospect, the sales teams should estimate the project’s revenue potential as early as possible. We can refine the revenue as the discussions develop and adjust the estimate to reflect the actual quotes and invoices more accurately. A critical KPI to check, by and for the sales team, is their ability to precisely quantify a project in pre-sales discussions.
Once the project has started, apply the same principles as done for expenses and campaigns to income and opportunities. The finance teams need to attribute the invoices issued and paid to the right opportunity and client. The ERP needs to communicate with the CRM so that the actual revenue is in sync across the two systems.
We have seen that costs and revenues can and should be as accurate and identified as early as possible to calculate ROI. The last element is to link the campaigns (thus the costs) and the opportunities (the revenues).
For this part, we enter into strategic considerations that vary enormously depending on your business, sales cycle, and marketing mix. Each prospect will most likely have several points of contact with you and your campaigns. The goal is to choose the model that best suits your prospects’ pre-conversion behavior and your sales and marketing strategies.
Here are some existing and classic models with details on best-case scenarios for their uses, advantages, and disadvantages.
Using the conversion model will depend on your business and whether or not conversions are in line with your website’s strategic objective. There are three main objectives, distinct and non-cumulative, for a website:
- Brand Awareness
- Lead Generation
With Brand Awareness, there is no conversion. As such, there is no precise calculation for the profitability and return on investment of incurred expenses. The objective is to maximize the visits to your site and to have a significant presence on the web – there are no expected gains. I will not elaborate more on this case as it is the exception for most companies (as with associative sites, for example).
As Lead Generation as the objective, the conversion occurs the moment the person registers on the site. When we speak about attribution models in this manner, we will only consider interactions that occur with prospects prior to them registering their contact information (via a form on your website, a call to a sales representative, or other contact information exchange). For B2B companies with a long sales cycle and sophisticated products to quantify, this is usually the adopted objective.
Lastly, with Sales as the objective, the conversion point will be when the first transaction occurs. Sales is the main objective for all companies selling products in catalogs, B2B or B2C, and who can sell their product online. In the case of acquisition campaigns, we will consider all interactions with the prospect before the first purchase. For upselling (resale) campaigns, the conversion costs are generally much lower and cannot be compared to the acquisition costs. We will be much more interested in LTv (or sometimes CLV) Customer LifeTime Value.
In future posts, we will detail KPIs to implement and monitor for different digital strategies.
The attribution model is a key element that must be at the center of any digital marketing strategy. It determines the share of revenue to attribute to each marketing campaign. This choice of model can also have a direct impact on your marketing expenses. Especially in affiliate marketing, some campaigns can be in RevShare, i.e., in margin compensation. There is then a direct link between our revenues and the cost of this campaign. You’ll notice in the description of each model; some application cases depend on your business model.
The most basic, but still very effective and widely used, attribution models are single points of attribution. They allow you to value a single point in the conversion funnel, which has a strategic interest in your business.
A straightforward model to set up because we only need to record the first point of contact we have with our leads. This model is particularly useful in the case of lead generation marketing strategy because it enhances the acquisition value. We want to make the most of the moments when we meet our leads. We can then focus our efforts and investments in campaigns that allow us to meet and discover the best prospects.
The most commonly used model, traditionally the first to have been set up, because it is simple to implement. It’s also a good way to know which marketing channel (i.e., campaign) allowed us to convert our lead, so we value “conversion.” In the case of a sales-oriented website, it will enable us to easily identify which marketing channel allowed us to trigger the sale.
Last Non-Direct Click
The latest single-point model of allocation and a simple derivative of the previous one to remove the direct channel. We can indeed consider that the lead arriving directly on our site remembers us to thanks to the previous interaction. It is this penultimate interaction that we will value.
Variants of this model can be had by excluding coupons, which can easily steal sales during purchase. In the case of a marketing mix with affiliate and RevShare (with a sales strategy), we can easily reward the affiliate who triggered the sale by removing the last direct interaction and/or coupon.
We have seen that single-point attribution models remain fairly basic and only allow for the valuation of one strategic step in the conversion process. Suppose your conversion cycle includes different strategic channels. In that case, we will be able to leverage each of them with multi-attribution point models.
Linear attribution consists of valuing all interactions with your prospects at the same level. This will allow you to see, in the long term, which campaigns interact the most with your prospects who spend the most.
Time Decay attribution
With this model, we will enhance the value of interactions with our leads closest to conversion. This allows us, like a last-click model, to value our “converters” and is therefore used more in sales strategies.
This last model values both the conversion and acquisition levers, by returning 40% of the conversion to the first and last interactions, while the other interactions will share 20% of the credit (as in a linear model).
In short, to get the right ROI from your campaigns, you need:
- Proper synchronization between your marketing, sales, and accounting teams resulting in systems that communicate with each other: MAS, CRM, and ERP.
- The choice of the attribution model is crucial to value the interactions that have the most substantial impact on your marketing strategy.
Author: Alexandre Liné, Digital Marketing Specialist at Big Bang