What To Watch For, What To Watch Out For
Here’s a simple formula:
Gross Profit – Marketing Investment
Marketing Investment
For the equation-challenged, you take your gross profit and subtract marketing expenditures. You then divide the result by the marketing expenditures. Get your CFO on the line.
You now know your ROI, return on investment. In this case, the return is on every penny you spent huckstering, directly or indirectly. Some call it ROMI – return on marketing investment. It’s a popular buzzword, or buzz-initials, something bandied about many times with undeserved assuredness.
Simple equations are subject to devils lurking in the details. In determining ROI/ROMI, the demons may include:
1. Assessing content marketing
The return builds slowly over time, and is not something you can calculate in 30 days. An array of website metrics can be used as key performance indicators, and surveys on brand awareness help. Ensure that your website is set up to measure time visitors spend on specific locations. Then attribute marketing value. Also assess repeat visitors, which should be a sign of burgeoning (profitable!) relationships, as well as conversions (of whatever type your business utilizes).
‘Ensure that your website is set up to measure time visitors spend on specific locations. Then attribute marketing value. Also assess repeat visitors…’
2. Determining net profit
Determining the true cost of goods sold is a slippery devil, and it regularly taunts the accounting department. A lot of companies use a percentage; truly a rough guestimate. Corralling costs can be vexing, but it’s necessary. Double-check to see if all costs are included, such as:
- Hidden costs. What’s the value of management time meeting, discussing, and reviewing marketing initiatives?
- Overhead allocation. Something to account for the utilities and other fixed expenses?
3. Figuring out Customer Lifetime Value (CLV)
Doesn’t it require a lifetime to tally this?
We’re competing in a data-crazed universe. You need to measure the traffic, calls, forms, emails, sign-ups, leads – not to mention customers and sales. You also have to determine what marketing sources are producing the best results.
While the data is piling high, be thankful so much of it is digital. An accountant’s ledger could never handle all the bits and bytes of digital-era info.
A recent study estimated that almost 15 percent of businesses don’t even track ROMI. They probably don’t post their purchases either, or keep a checkbook register, and they’re likely to dump a shoebox of crumpled receipts on a CPA at tax time.
For them, and perhaps for you, there is a one-word solution – outsource.