ROI is dead. A dinosaur metric. Five years ago I would have been drummed out of both the IPA and the DMA for this statement. I still may be. But in a world of quantitative easing; looming deflation; negative interest rates and falling prices, growth has become the new competitive advantage for marketers.
Why? Any fool can generate an effective ROI; typically by cutting out the least efficient 10% of any marketing investment. But repeat that neat trick ten times in a row and what are you left with to present to a board?
Instead, growth – sustainable profitable growth – has become the new goal. Measured by the volume of incremental net profit generated over a five-year period. Net profit – so we have a positive return on our marketing investment; but also volume so we have a significant and growing return.
Creating this growth is not without risk. The classic performance agency (and client) will happily take refuge in the “what worked last time, let’s do more of that”. New growth, however, demands new ideas (last time I looked stupidity was defined as doing the same thing and expecting a different result), and with new ideas comes risk. The challenge is to create a viable process that underpins and supports consistent progress for both the agency and the client towards a shared goal of sustainable, profitable growth.
The most successful new campaigns start with the finance director. This may seem counter intuitive as most finance teams spend little time with marketing beyond the annual budget round, but hear me out. For too long marketing has been seen as a cost centre and not an investment. In our eyes that’s because many marketers fail to project and then report returns to finance. They talk of expenditure and budgets and not of investments.
For any new initiative we need to build two models. Firstly, an intellectual model of consumer behaviour; how will consumers behave differently in this new campaign? How will they change behaviours and become loyal customers? What is the journey they will take from first exposure to becoming a loyal customer? To accompany this we build a financial model. Typically a five year cash flow model showing the net returns at the end of the time period. Within this model we will build a series of KPI’s ranging from the very short term immediate response, all the way through to net retention rates at year four.
By sharing these models with finance and other senior management we share the insight as to both the goals we seek and the risks we face. By speaking their language and using their modelling techniques for our discipline we normalise what is often seen as a soft science.
Our last secret is to recognise failure and act. Culturally this is one of the hardest lessons to learn. Most people bury failure. They refuse to acknowledge it, and fear that the stink will taint their career. We need to recognise it as a fundamental necessity for growth. If we don’t fail then we are not in new territory.
The trick is to have a series of clearly defined and understood short term KPIs that enable swift identification of failure and a culture where it is permissible to own a failed project. We like to think the growth we create for clients comes from having more successes than others, but it may actually come from us closing our failures faster.
My brief for this article was to talk about communications planning. Targeting; customer journeys; reach and frequency; optimisation. These are all worthy subjects. I and many others have written many words on them, and doubtless will write many more over the years. But I suspect they contribute more to ROI, and maybe less to growth. And ROI is dead…
Mike Colling is founder and chief executive of MC&C
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