The purpose of measuring ROI is to know what works & what to do next.
In theory, ROI is a straightforward equation with two variables; How much did you spend? And, how much did you make?
If you know these values, you can use the formula above or a handy ROI calculator to measure your ROI.
In practice, understanding the causal relationship between these two variables (i.e. attribution) is hard.
But before you know it, you’re arguing over attribution models, the social media consultant has stormed out of the room, and someone suggests dropping 7 figures on the latest Adobe product.
So hard in fact that, despite a $1.8 billion marketing attribution industry, no one has truly solved ROI attribution.
A More Pragmatic Approach
For most marketing teams, the relationship between confidence and value when measuring ROI represents a bell curve.
When you move from ad-hoc (or not) measuring the ROI of your marketing activity to a consistent (albeit imperfect) approach, you add a lot of value and you’re able to make directionally correct decisions more confidently.
If you’re Coca Cola, Expedia, or have a marketing budget rivaling the GPD of a small nation – then yes, improving the accuracy of ROI calculations by fractional percentages is probably a good use of your time.
While all businesses benefit from having a clearer idea of what’s working, it goes without saying that the value of measuring ROI increases in proportion with the amount of marketing budget you’re spending.
Striving for perfect attribution is not just a fallacy but it ignores the fact that imperfect, yet directionally correct, ROI calculations can tell us what’s working and what to do next.
How TrueNorth calculates ROI
The default in TrueNorth is that all marketing activity (where budget has been spent) has an ROI value.
We use the metric you know that is closest to revenue. In other words, if you know how much revenue a campaign generated – we use that. If the revenue is unknown we calculate ROI using the number of customers (using the average customer value), then leads, then visits etc.
There are drawbacks to this, for sure.
However, having interviewed countless marketing leaders and their teams, we believe the benefits of having a directionally correct method of measuring ROI that is transparent outweighs the drawbacks of either not measuring ROI, or only measuring it selectively when the right data is available.