What Does ROI Mean? Why Does It Matter? A View From The Monkeys
Published onAug 17, 2017byNicola Payne
The team talk about return on investment (ROI) a LOT at Noisy Little Monkey - both in terms of understanding our own marketing and in justifying investment in online marketing to our clients. We know ROI is important to our clients, because it's important to us too. Who can afford to spend money these days and not understand its value?
Here’s what Jon, from a business owner’s perspective, and Josh from a sales perspective have to say about the matter.
So, first question, how do you define ROI?
JON: From a business owner's perspective, I guess the key thing to remember is that it’s not the same for everyone.
Companies like Coca Cola or McDonalds need to worry about share of voice and have amazing tools to measure it. But in the real world of small and medium sized businesses, we have to think about ROI in a different way, and be creative in how we approach our understanding of it.
At Noisy Little Monkey, we measure our own ROI by comparing how much we spend on marketing with how much new business comes in through the door.
So at the end of every quarter we look at how many clients we’ve got in and how much they have spent with us. But because we are in online marketing we can then break it down further so that, for example, we can see which clients have come through events specifically, which blog posts they read, which social media they engaged with and where organic search has driven new business enquiries.
This enables us to understand in more detail the relationship between how much it costs to drive traffic, enquires and new business and the value of the new business we get from that.
What people often forget though is the lifetime value of that customer - it's not so much the value of their first order or contract, it's how much you will make with them through the rest of time. How much will you bill them? How regularly? And how can you build that relationship so that you can bill them more? This long term view - although more difficult to calculate - is key to ROI.
So it's easy to look at leads and web visits and calculate the ROI on what you’ve spent. A more sophisticated view would take into account the amount of new business, which is the outcome of those leads and web visits. But the real key to understanding ROI is to include the lifetime value of those customers going forwards.
JOSH: I agree with Jon, but from my perspective ROI is not so much about net profit or loss, it's about understanding the opportunity cost of certain actions.
When I’m talking to people on the phone who only have limited budget, or only budget for PPC or just for SEO, what I’m trying to do is help them evaluate where to spend their time and/or money so they have the best return on their investment. ROI isn’t just about dusty metrics, it's about all the small decisions about time and money that affect everyone.
From your experience, where do people make mistakes in thinking about ROI?
JOSH: People want quick results and don’t take the long view. So if you are trying to sell them something that has ROI over time they aren’t as eager to buy it as something that has a very quick return, even though in the long term it's a better option.
A good example is SEO v PPC. PPC has very quick results - spend £10,000 and get x number of clicks and conversions; stop that spend and the clicks stop. An SEO project on the other hand might not see results for a minimum of three to six months, but its benefit could last years and a sustained spend on content and adding value to your website has a cumulative impact.
So the return on your investment might be in the short term or long term - and your spend decisions may be different.
JON: You have to think like a boss. Stuff you invest in now needs to have some short term wins but also ideally will bring you long term gains and has sustainability for the business. We have a graph that shows the benefit over time mapped against spend of SEO versus PPC - PPC spend has a short term gain, but is of no long term benefit, whereas SEO has little short term impact but the results will last for years to come.
JOSH: One of things that Ste picked up on is a client that is measuring share of voice. They take the traffic suggested by Google in the keyword planner for a number of search terms and compare it to the number of visitors to their website and use this as a share of voice metric. Seems neat, but they failed to take into account the level of branded search - so the amount of traffic that is driven by their brand name, not by those search terms. This means that the figures are skewed and not really accurate. It looked like a silver bullet to understand ROI on spend but actually it was a bogus metric.
JON: Share of voice is all very well, but in truth most of us want leads. Measuring the outcome of the spend in those terms is the most important thing.
JOSH: Yes, metrics that don’t align with the bottom line seem clever but don’t actually have an impact. Vanity measures . .
So does ROI actually matter or is it just vanity?
JON: YES! To board level execs in your business and your shareholders. They want minimum outlay for maximum results and that is ROI.
ROI particularly matters when you are doing maximum outlay and are getting minimal results which is what lots of people are doing - spending lots of money on activity that they don’t understand and where they can’t identify the benefit.
JOSH: ROI is also really important for mid-level execs with a budget to allocate. They have to make tricky decisions about resources and need a good understanding of what delivers value.
Actually, ROI is important for everyone in marketing - as it helps to define what’s the better use of people's time and/or money: is it writing a few blogs, outreaching to an influencer or spending another hour crafting an Instagram story? It's about how you use your time, every day, That means ROI matters to everyone.
Has HubSpot made it easier for us to track our ROI?
JON:HubSpot has definitely made it easier to track which channels work best but you still have to use your fundamental tools for measuring ROI.
JOSH: It’s given us more clarity on where that first touch from a client came from and gives us a picture of the whole client journey in one go.
For something like HubSpot, how do we go about evaluating our investment in it?
JON: Tricky, as Hubspot in itself isn’t a marketing activity, it's an enabler.
We include it as a business essential tool rather than a marketing cost, as it's our CRM as well as our blogging platform and reporting tool. It’s enabled us to streamline our sales process and has given people in the business the tools to do more with less.
That’s why it's part of the cost of running the entire business; its ROI is linked to our overall profitability as a business.
JOSH: It's HubSpot’s automation that has really made a difference to me, using machine processes to do more with my time. Something like following up a prospect list - writing emails, following up leads etc - which would generally take half a day can literally just take 10 minutes using HubSpot workflows. It goes back to having a limited amount of time, anything you can do to improve efficiency is a useful thing.
Any final comments on ROI?
JON: Amazingly there are still a large number of businesses out there who aren’t really considering their return on investment.
Fairly regularly we’ll have a call from someone new in a job, saying their new employer spends x on marketing and they don’t know where it's going, as there’s little traffic to the website and the phone isn’t ringing as much as they’d expect.
So if you are in a marketing job and think that your fusty old boss is all over this, think again!
Particularly in professional services, senior partners have little idea of where their return on investment is coming from, so if you as a marketer want a pay rise or just to demonstrate your impact, then understanding ROI is absolutely critical.
JOSH: Help your managers to understand it before they go to a seminar and start demanding that summary of results . . .
JON: In other words, don’t be complacent, just because your boss isn't interested!
If you'd like some more information about how to measure your ROI success, you can download this helpful guide below!