One of the persistent challenges for marketing departments is the ability to determine a reliable and justifiable return on investment for their marketing spend. One common reason given for this challenge is the difficulty in attributing revenue to specific marketing activities. But in an article for Forbes, Stephen Diorio argues that there is a need for improvement in how the money that is spent is categorized and tracked. “Marketing spend data is usually found in many places or consolidated in agency or trade partner contracts that are opaque with little line item detail,” he writes. “The spending that supports growth is usually spread across many different business units, geographies and departments depending on how distributed marketing program management is in each company.”
Diorio writes that top marketing organizations have streamlined processes to track expenditures on marketing throughout the organization. Tracking occurs from the time those expenditures are sourced to the time they are paid. This includes everything from writing marketing contracts, classifying vendors and coding invoices to reporting marketing expenses in accounting records. This consistent and thorough tracking helps show the full and true picture of money flowing out of the company for marketing activities: which vendors, what category of activities, which business units, etc.
Doing this is, of course, a lot of work. It might mean a complete overhaul of some long-standing marketing, finance and accounting processes. Convincing an organization to invest the time and resources into that kind of tracking effort will require some strong justification. Diorio suggests three main benefits companies can gain from these efforts.
Benefit One
Braking out what Diorio calls the “building blocks” of a marketing campaign or communication initiative offers the opportunity to drill down and attribute costs, and revenues, to the appropriate part of the organization. This provides not only the ability to determine which elements of the campaign or iniative was most effective but, writes Diorio, “how each department, agency or media property contributes to the collective business outcome by segment, return on investment threshold, and business objective.”
Benefit Two
For retailers, allocating promotional investments for every product (by SKU) can help provide a more accurate picture of profitability for each item. An item that may otherwise appear profitable but which demands a high percentage of marketing spend may not be that profitable after all. It pays to drill into the details.
Benefit Three
By “unpacking department budgets and agency contracts,” Diorio says, marketers can get a better sense of which elements of campaigns drive the greatest value. Which content drives greater awareness, interest and sales? Which channels are most productive and cost-effective?
The ability to closely tie marketing spend to specific activities, business units, vendors, etc. may very well provide significant benefits in evaluating the effectiveness of those efforts. The question marketing groups and the organizations they support have to ask themselves is whether the effort involved in implementing such a process is worth the greater transparency. And, of course, there is always the risk that a deep dive into advertising and marketing efficacy might call into question the overall value, credibility and expertise of those involved.
It is, though, a risk worth taking.
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Tags: Advertising, marketing analysis, marketing evaluation, marketing metrics, measuring ROI