Marketing Capital – A New Way of Thinking About Marketing Dollars
What is the right way to think about marketing from a financial perspective? We budget for it like it’s an expense, and it shows up as an expense on our P&L’s. But we measure it like it’s capital. If you haven’t done some level of ROI assessment on your marketing efforts…come on, you have. In fact, you have probably tried to reduce everything to one ROI calculation. I’d like to present you with an alternative way of thinking about your marketing dollars.
How to Measure Marketing ROI
- Short-Term Investment: Short-term activities are most easily measured in terms of quantifiable ROI. These are things that generate revenue within a specified period of time such as advertising, targeted campaigns, and the like. These are often quantifiable and can enable you to determine if the effort was worth it and how it stacks up against your other short-term efforts. When you have enough short-term capital deployments in the market, you should know which are the most effective, which don’t work, and optimize accordingly.
- Long-Term Investment: Here’s where things get interesting. In nearly every other business scenario where capital is deployed, it is assumed that there will be returns over the long term. Capital investments are synonymous with future (not immediate) returns and seek future advantages in nature. Marketing, however, is too often measured only in the short term. Things in this category include CRM, automation tools, social media, website, and brand, to name a few. We should at this point understand these are all critical but are far harder to quantify returns on in most companies and break most ROI calculations.
- Hybrid: Things such as sponsorship and speaking at or attending events are examples of the point I’m trying to illustrate here as they seem to have a foot in both categories. When we at Syrup decide to open up a new channel/conference/organization, we set goals around what we expect year 1 as a basis of what we put in (time, attention, treasure) and set a benchmark. However, we also understand that if we hit that minimum threshold that we’ll continue for a second and third year knowing that the returns are likely to increase in the subsequent years. For example, how many times have you spoken at an event, won a client or two, and then heard from a new prospect who saw you speak there 18 months later? Same for trade show business cards. This type of capital has both short-term and long-term properties and needs to be considered as such.
Marketing capital is scarce and prone to waste which is why you must not only have both short and long-term investments, but you must properly categorize them and set expectations accordingly. They are each measured differently. If you only use simplistic ROI calculations, you could be missing the forest for the trees. This leads to doing too many of the short-term things and neglecting the long-term things. Conversely, you can’t focus solely on long-term and expect to be a healthy business today. If you deploy too much capital ineffectively you’ll be playing from behind in your market and starting over again pretty soon. The key is a healthy blend of short and long-term spending, setting reasonable and different goals for each type of investment, measure against them and adapt your capital accordingly.