It wasn’t all that long ago that marketers and advertisers had to work their magic very differently from the way things were before the digital age. Digital marketing as we know it is very new.
Bear in mind, data wasn’t all that trackable just a couple of decades ago. As such, marketers and advertisers had to rely on commercial TV Ads, newspapers, and magazines to get the word out of their product/service. Naturally, measuring return on investment (ROI) was difficult, if not impossible. Their best bet was to recruit the services of third-party researchers, to conduct large-scale surveys for the sake of gauging brand sentiment.
Once digitization and connectivity became widespread, followed by the availability of data, the advertising world had transformed dramatically. Businesses started to measure clicks, impressions, online transactions, test audiences’ performance, and more.
This opened new doors, and attracted fresh and more tech-savvy minds into advertising due to the new upcoming challenges and interest that went hand-in-hand with the element of data collection. Businesses started to be obsessed with measuring their media efforts, and marketing efforts became far more trackable and calculable than years prior. Media planning also became much more accurate due to the new opportunities the data has brought with it.
In turn, marketing ROI as a metric quickly gained significance. It went from being simply important, to something that needed to be considered from the onset of numerous marketing efforts, to something that requires continuous focus with revenue-based approaches in mind.
Measuring ROI is important
Okay, I know this seems totally obvious, but sometimes the obvious needs to be stated as part of a greater point, so bear with me.
Measuring ROI is important because it will help your team understand the effectiveness of your marketing efforts. By keeping track of it, you will be able to see the effectiveness of each of your campaigns, all with real numbers. This data will play a role in helping your team steer campaigns towards the right direction.
The higher the ROI, the healthier the marketing efforts. And the sky's the limit. 🌞
Another reason why ROI is important in marketing is the fact that it allows you to understand your audience’s behavior. This metric clarifies the numbers coming from marketing investments, in addition to the strategy that is most effective. ROI results help you identify what type of advertising is most likely to engage your audience and, thus, convert them.
At this point, measuring ROI has become a part of holistic marketing, with consideration to things such as campaign performance, channel performance, business impact, scaling, budget allocation, spend optimization, and more.
But of course, measuring ROI can be one of those things that’s easier said than done, especially if you don’t have a proper growth marketing tech stack, or even the assistance of an awesome data team to help you along the way.
Interestingly enough, the lack of confidence in measuring ROI is more common than you might think.
Reasons why it is complicated to measure ROI
These days, businesses face the challenge of accurately measuring media attribution sources.
They are therefore finding themselves unable to take actions that can help them in facilitating growth for their brands. These actions include allocating budgets to the best ROI ad network or campaign, doubling up the best-valued ad, finding keywords with the best ROAS, etc.
If you’re in this boat, I’m sure you know all too well that this, in turn, impacts the ability to scale.
It would be incomplete to discuss digital targeting without considering the future state, which would be a world without third-party cookies and identifiers (such as IDFA). But even in advance of such a future state, the current reality is that about 44 percent of U.S Internet users are already using browsers that are free of third-party cookies, and many users have already opted out of mobile device tracking since the IOS 14.5 upgrade (according to Nielsen). There are a large number of digital users that are already operating without the benefit of third-party identifiers.
A Nielsen Annual Marketing Survey found that 48 percent of respondents felt slightly or not at all confident in their ability to measure ROI.
This can be due to a few reasons:
Attribution is difficult to measure
There's a great challenge in determining which marketing channel actually resulted in a conversion.
For instance, it can be difficult to find the impact attribution, or the correlation between spend and conversion. The higher the correlation between spend and conversion (or revenue), the higher the impact that channel should be assigned in the attribution model. This is one of the key ways that businesses determine which marketing initiatives are worth continued funding, so it is important to narrow this down.
The frequency of purchases is difficult to calculate and becomes an even bigger challenge when customer touchpoints are not joined up over time.
Multiple touchpoints are creating measuring challenges
These customer identification challenges, and others like them, can hugely cause LTV measurement undermining your growth and profitability forecasting – and making it difficult to optimize marketing channels activity.
This also creates new measurement challenges. After all, user journeys these days are more complicated than ever before, considering the multiple devices/platforms/etc used to interact with brands. It makes it trickier to connect conversions, as well as each users LTV to initial campaigns.
In these types of situations, the brand campaign/organic search ends up getting the credit as a traffic source, as it is the user’s last touch point in a long and complex journey.
For example, when it comes to brands that don’t have a subscription-based revenue model (or any other identification method,) it becomes very difficult to unambiguously determine when users churn, or even connect those churned users to their initial traffic source.
In the end, it often comes down to two simple metrics:
- Cost to acquire a customer (CAC)
- Customer lifetime value (LTV) (how can I know the lifespan of the user)?
Data management issues make ROI difficult to measure
By extension of the previous points I made, tracking and attribution can be a limitation as to how long you actually will be able to track users and their behaviors.
Bear in mind however, that the lack of data further complicates the ability to measure ROI accurately, and unfortunately, most businesses don’t store their entire data in one place.
Many companies suffer from data-related issues such as trying to organize multiple data sources, a lack of collaboration among teams, and poor data accessibility.
Companies need to ensure that all stakeholders are using the same data to make decisions in order to realize the full value of their data. They need to make sure they are working from a single source of truth. Decision-makers will gain a clearer picture of the data they have and the barriers that stand in their way of optimizing their data strategy.
There have been a series of privacy-related changes
I already mentioned the changes brought on by iOS 14.5 and 15, but the complications don’t stop there. While the SKAdNetwork does provide data about installs and conversions, none of it can be tied to an individual or device.
Plus, Google is experimenting with FloC (Google's current solution for ad targeting in the absence of third-party cookies, which keeps browsing data within the user's browser, and creates anonymous cohorts which can be targeted by advertisers.) and other privacy-centric technologies that will likely lead to further changes and increasing fragmentation of marketing data and best practices across the major mobile operating systems.
So I’m sure you can imagine, growth teams will be thrown into the lion's den a few more times in 2022, as they were in 2021, with new official privacy-related changes across the board.
And let us not forget, the FB AMM’s depreciation dramatically decreased the ability to collect user level data, which directly affected the measurement of ROI.
The most efficient ways for your team to measure ROI:
Identify your users
Customers and prospects are incredibly difficult to identify and track persistently across the web. But once you invest in an identification solution, it becomes easier to communicate with them on a one-to-one level. This isn't just about talking to customers/prospects when they arrive on-site. Because with routine personalized messages, you will build brand equity by demonstrating that you know them, and genuinely care.
Save all your data in one data warehouse
The next big challenges on the horizon for marketers will include identity resolution and cross-channel measurement. Without cookies, marketers will increasingly need to rely on first-party data, and brands with all budget sizes will need to invest in the right tools to help them allocate their budget and better measure their full-funnel media ROI.
Data can then be turned into insights so companies can make smart, data-driven decisions. A data warehouse acts as the single point of truth for an organization by storing current as well as historical data in one location. Therefore, it saves user’s time retrieving data from multiple sources and helps to reduce total turnaround time for analysis and reporting.
Ask your users about themselves and their preferences
Zero party data holds a unique degree of power unlike its first, second, and third-party counterparts. This is something I previously delved into in this post. Zero-party data is data that is intentionally and proactively shared directly by the consumer, which you can use to determine what your customers intend to do or buy in the future. You can use that data towards personalized campaigns that are based on their preferences. This includes upselling—because offering the right product(s) to your customers at scale will collectively create a significant impact on the bottom line.
Build predictive models that can forecast your user’s LTV
If you decide to build a predictive marketing solution in-house, you would be able to make quicker decisions on their user acquisition campaigns and understand at an early stage their future positioning. The use of data science for BI purposes is a powerful tool these days for scaling and creating growth strategies. If I may be honest though, the upkeep of in-house solutions can become much, as seen in the case of Lyft with their own internal solution, called Symphony.
The proper implementation of the solutions mentioned above will vastly increase your team's confidence in their ability to measure ROI. And when they are each done right, it can collectively be a strategic enabler for greater returns, and increased business impact.
“Even before the pandemic had an impact on media planning, it was in need of a reboot. For brands that were forced to pull back on budgets over the past 18+ months, navigating media planning will involve some level of uncertainty for the foreseeable future”.