When marketers try to measure return on investment (ROI) too quickly, they’re not actually measuring ROI.
That’s the key takeaway from a new study by LinkedIn of 4000 digital marketers on its platform, with the results summarized in a blog post today. The surveyed marketers came from a variety of verticals across 19 countries, and the campaigns involved both digital and traditional channels.
The problem, LinkedIn found, is that digital marketers are pressured to show the benefits of their campaigns, and, as a result, they’re measuring short-term impact that doesn’t cover the full sales cycle.
KPIs, not ROI
The study looked at both B2B and B2C marketers. While most B2C sales cycles are short, Head of Global Go-To Market Reem Abeidoh told ClickZ that the focus here was on big-ticket consumer items like cars, education or travel, which can take months from consideration through the sale. B2B sales cycles, which usually involve multiple decision makers and large price-tags, can often take six months to a year.
When a digital marketer measures some short-term impact, the report said, it is usually measuring something like cost-per-click (CPC) or leads generated, which are actually Key Performance Indicators (KPIs).
In fact, the report said that 42% of respondents use CPC or leads as their key metric for ROI. Seventy-seven percent measured after one month and 55% after three months. Only 4% measured over six months or longer, across an entire sales cycle.
The definition of ROI
Abeidoh pointed out that the definition of ROI is return on marketing effort divided by marketing investment. For example, if the return on marketing was $10,000 in new sales, and the campaign cost $1000, the ROI is 10X. The study utilized all kinds of attribution, since there are many flavors.
This ROI definition assumes that the return is (Read more...) in dollars through sales, not through leads or clicks, so the idea is that an ROI measurement over less than a full sales cycle is not an ROI. Even if a campaign is intended for something intangible, like brand promotion, it needs to be tied to eventual sales to generate a true ROI, such as by showing that increased market share because of increased brand awareness across the entire funnel led to new sales.
The report noted that KPIs are “a forward looking predictor of end performance, whereas ROI is used as backward looking informer of future budget allocation decisions.” If a campaign were compared to reading a novel, the report said, the KPI is a summary of what happens after each chapter, while the ROI tells what happened at the end of the story.
By understanding the difference between a KPI and ROI, LinkedIn said, marketers can help to educate stakeholders and “make better marketing investments.”