Is Marketing ROI Important?

You may have noticed that my discussions of marketing performance measurement have not stressed Return on Marketing Investment as an important metric. Frankly, this surprises even me: ROMI appears every time I jot down a list of such measures, but it never quite fits into the final schemes. To use the categories I proposed yesterday, ROMI isn’t a measure of business value, of strategic alignment, or of marketing efficiency. I guess it comes closest to the efficiency category, but the efficiency measures tend to be more simple and specific, such as a cost per unit or time per activity. Although ROMI could be considered the ultimate measure of marketing efficiency, it is too abstract to fit easily into this group.

Still, my silence doesn’t mean I haven’t been giving ROMI much thought. (I am, after all, a man of many secrets.) In fact, I spent some time earlier this week revisiting what I assume is the standard work on the topic, James Lenskold’s excellent Marketing ROI. Lenksold takes a rigorous and honest view of the subject, which means he discusses the challenges as well as the advantages. I came away feeling ROMI faces two major issues: the practical one of identifying exactly which results are caused by a particular marketing investment, and the more conceptual one of how to deal with benefits that depend in part on future marketing activities.

The practical issue of linking results to investments has no simple solution: there’s no getting around the fact that life is complex. But any measure of marketing performance faces the same challenge, so I don’t see this as a flaw in ROMI itself. The only thing I would say is that ROMI may give a false illusion of precision that persists no matter how many caveats are presented along with the numbers.

How to treat future, contingent benefits is also a problem any methodology must face. Lenskold offers several options, from treating several investments into a single investment for analytical purposes, to reporting the future benefits separately from the immediate ROMI, to treating investments with long-term results (e.g. brand building) as overhead rather than marketing. Since he covers pretty much all the possibilities, one of them must be the right answer (or, more likely, different answers will be right in different situations). My own attitude is this isn’t something to agonize over: all marketing decisions (indeed, all business decisions) require assumptions about the future, so it’s not necessary to isolate future marketing programs as something to treat separate from, say, future product costs. Both will result in part from future business decisions. When I calculate lifetime value, I certainly include the results of future marketing efforts in the value stream. Were I to calculate ROMI, I’d do the same.

So here's what it comes down to. Even though I'm attracted to the idea of ROMI, I find it isn't concrete enough to replace specific marketing efficiency measures like cost per order, but is still too narrow to provide the strategic insight gained from lifetime value. (This applies unless you define ROMI to include the results of future marketing decisions, but then it's really the same as incremental LTV.)

Now you know why ROMI never makes my list of marketing performance measures.