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Getting that elusive ROI from digital marketing technology

Don't get hung up with ROI as you try to justify spending on marketing technology, an expert advises. Start at the beginning: Define your business goals and needs and move forward.

Most companies now recognize that one of their competitive differentiators is the strength of their marketing campaigns....

Digital marketing technology builds brand presence, nurtures long-term customer relationships and brings in new customers and prospects. It's now essential to the sales-and-marketing toolbox.

But historically, achieving that elusive marketing technology ROI has been a challenge. Marketing teams have struggled to make the case to executives that must spend to deliver results. Tools like marketing automation software were once considered nice-to-haves. But as the business environment gets more competitive, that perception is shifting -- big-time.

In 2015, marketing budgets increased 11% at the more than 300 organizations that responded to the Gartner CMO Spend Survey, 2015-2016. Two-thirds of the respondents reported that they expect an increased budget this year.

At the same time, the market is awash in technology. Some 3,500 marketing technology products are available -- an 87% increase over 2015's 2,000 products, Scott Brinker said on his Chief MarTec blog.

Aaron Dun, senior vice president of marketing at SnapApp, said, "I think that we are drowning in technology right now. Marketers need to have the discipline to focus in in on technologies that are really going to drive their business opportunity forward and put the rest on the backlog list."

Start with business objectives and strategy

Since the market is flooded with tools, how can you determine where to invest in marketing technology? Surprisingly, the starting point is not in the ROI, but in your business goals.

Before you even start thinking about technology or ROI, consider your business objectives and strategies -- only some will require a technology investment. Business objectives might include increasing revenue, improving profitability, lowering customer acquisition cost, increasing customer lifetime value, achieving better customer conversion rates, improving lead quality, shortening conversion time and supporting an account-based sales model, among other things. Now let's take a look at how to organize your thinking:

Your ROI model will depend on your marketing tools and project.

Improve the buyer's journey: Consider the buyer's journey or sales funnel, Steve Offsey, chief marketing officer at TandemSeven Inc., said. "I look at our buyer/customer journey and determine where their current experience is poor -- through qualitative analysis -- and/or where they are having difficulty [being converted to a sale]," Offsey said. "Then we determine ... whether products or technologies are required."

Anita Brearton, CEO of CabinetM, agreed. "More and more companies are taking this approach," she said. "For smaller companies, improving the buyer's journey can be a healthy approach."

Think like an investment manager: "It's important for marketers to realize that the company always has a choice about how to invest its funds," Dun said. "I start by [asking], 'How much are we spending in marketing to acquire a new dollar in bookings?'" Then consider -- and try to calculate -- how technology will drive efficiencies, scale, improved reporting or some other higher-order goal. Use ROI models to prioritize your tech investment options.

ROI Models

Each ROI model compares incremental improvement with the cost required to achieve that improvement. Given the myriad marketing products, each with different features and benefits, it can be difficult to assess ROI.

"Too often the marketer is being sold on something fuzzy," Brearton said. "Vendors need to step up and define benchmarks for their products." While a company's individual numbers will vary, she added that she believes these benchmarks are an important starting point to give a sense of what quantitative benefits to expect.

Your ROI model will depend on your marketing tools and project. Some projects will reduce costs, others may speed growth and still others may have a more indirect impact. Let's consider a few examples. The optimal metrics are bottom-line focused -- i.e., as close to generating revenue as possible -- but that will not make sense for all projects. The following are some of the more common ROI improvement metrics:

  • Customer acquisition cost. Owen Larkin, president of ski travel site SnowPak.com, focuses on opportunities to lower customer acquisition cost (CAC) -- for example, when a new technology enables each sales rep to handle a greater number of leads. You can also reduce CAC by automating more of the sales process.
  • Customer lifetime value. Consider the entire lifetime value of the customer, from initial sale to all subsequent sales.
  • Cost per lead. Jason Parks, president of The Media Captain LLC, focuses on reducing cost per lead (CPL). Assuming that lead quality is constant, lowering CPL can also reduce CAC.
  • Productivity. This includes both marketing and sales productivity, such as reducing the marketing effort to generate a single lead and the sales time required to close a deal. Improved productivity often translates into growth as the same effort yields more leads, for example.
  • Conversion rates. If you're optimizing the funnel or buyer's journey, there's a good chance that you will focus on conversion rates, which should reduce CAC and increase customer lifetime value. 

Qualitative metrics

Other metrics more indirectly affect bottom-line results, but are important nonetheless:

  • Engagement, followers, likes, shares. Brearton said these are common metrics for social media projects, although there is some debate about whether they are meaningful.
  • Buyer's journey and customer experience. New technologies can deliver a vastly improved buyer's journey and user experience, which should drive improved conversion rates, reduced CAC, higher customer retention rates, and higher customer lifetime value.
  • Improved data, data and analytics. "Better information helps you make better decisions regarding where to spend your marketing budget and what kind of messaging works best with different customers," Venkat Viswanathan, founder and chairman of software firm LatentView Analytics, said.
  • Compare benefits against total costs to determine ROI. This should include all software licensing and subscription fees, as well as implementation; integration; maintenance; support and other services; and, finally, training and other internal expenses.

Final considerations

  • You won't always know the ROI. You may not know the ROI -- especially for new programs -- which is why many companies dedicate a portion of their marketing technology budget to test projects, Brearton said. Additionally, some projects may just be "table-stakes" that are important, but lack a quantitative ROI.
  • Understand the impact on other teams. "Evaluate implementation time, costs and the impact it will have on teams," Adrienne Weissman, chief marketing officer of tech review site G2 Crowd, said.
  • Understand total cost of ownership (TCO). A few years ago, my company implemented a top marketing automation platform (MAP). During the first year, the new MAP enabled us to increase lead nurturing by 44%. But it was complicated and required exponentially more care and feeding -- i.e., it had a higher TCO, but also a higher ROI than our old system. So while our digital marketing manager was able to run many more campaigns and achieve better results, she had to invest more time to do so.
  • Different metrics for different people. Depending on the project and the organization, you will need to sell your project and tailor your ROI for to a variety of people and organizations, including marketing peers, sales, finance, IT, the CEO and others, Mark Goloboy, a marketing technology and analytics leader, said.

What do you think? How do you justify marketing technology projects?

Next Steps

Personalization isn't an automatic path to customer trust

How marketing performance management can improve ROI

Marketing automation software must meet user expectations

This was last published in May 2016

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How are you justifying digital marketing technology?
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Very good article!
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