What’s Your Marketing ROI?

 - November 13, 2012, 10:45 AM

Many aviation companies view the corporate marketing department as a necessary evil. Too often, marketing is not considered an integral part of the business. It’s a cost, not an investment. And the truth is, marketers have hard been pressed to prove otherwise. Until now.

Data — the holy grail of our industry — has never been more accessible. Today, marketers have varied tools, primarily digital, to collect, analyze and use data to make informed decisions, ultimately linking marketing spend with business outcomes.

So why aren’t we doing it?

We’re Not Alone

In a survey that was conducted this summer, MarketingSherpa reports that only 25% of marketers can show value to their organization. The majority of respondents (66%) feel that marketing does have an impact on business goals, but are not able to measure or report.

The study was focused entirely on marketers working in aerospace and defense companies large and small. Only 18% had solid, proven tools in place that were consistently used to measure results against stated goals. While 63% did not consistently measure or track to their goals. 

BDN Aerospace Marketing, a specialized marketing communications company with an aerospace focus, conducted a similar survey which yielded similar results.

“We reject the idea that marketing success cannot be measured,” said Grace Nakazawa, a partner at the firm.  “Using data to enhance marketing effectiveness and efficiency is possible for any B2B segment, including aerospace.”

Click here to download a copy of the survey and find out what aerospace marketers are saying about measuring their marketing.

ROI Redefined

It’s important to understand that ROI is only a tool in the process of managing a profitable marketing program. It is simply an indicator to help identify gaps, align budgets to outcomes, improve campaign integration and overall effectiveness. It is not a sign of success or failure, but providing numerical clarity to what’s working and what’s not. When you react and make adjustments based on the numbers, the results will be an increase in leads and marketing credibility.

What to Measure

Many marketers don’t know where to get started when it comes to ROI. Specifically, they don’t know what to evaluate or how to measure. The best place to start is with measurable goals. What do you expect to achieve from your marketing efforts? If you can’t quantify it, it’s not measurable.

For example, one could measure an increase in sales over a specific time period, a shift in market share, qualified leads, a response to a special offer, or what combination of media is the most effective. The best question to ask in determining your objectives is what aspect of your marketing do you want to improve or change?

How to Measure

Standard ROI calculations are:

Gain from Investment - Cost of Investment
Cost of Investment

This is a quick and simple effective formula, although not as complete and insightful as other tools. This does not take into consideration that the aviation industry typically expenses its marketing costs in a fiscal year and not as long term investments or capital costs.

A more accurate measurement tool includes the impact of the contribution margin, and the Return on Marketing Investment (ROMI) formula better describes and measures the challenges that are faced in promoting goods and services.  This calculation can also take into account marketing overhead, which doubters often attribute to higher costs and lower profits. Unlike traditional ROI calculations, ROMI is used to measure the degree to which spending on marketing contributes to profits.

ROMI formula:

Revenue attributable to Marketing ($) X Contribution margin (%) - Marketing spend ($)
Marketing Spend ($)

Here’s an example of how an incentive-based advertising campaign might calculate out.

  • Advertising campaign development costs: $15,000
  • Media placement costs: $200,000
  • Internal staff labor to support campaign: $10,000
  • Total marketing investment to launch campaign: $225,000
  • The target audience reached by the campaign is 100,000.

As a result of the advertising, 125 people respond to the incentive and purchase the product, but based on historic performance only 55% of the sales can be attributed to this incentive campaign.

Additional costs:

  • Cost of the incentive gift: $100
  • 125 respondents X $100 = $12,500
  • The product sells for $120,000
  • 65% cost of goods and manufacturing expenses
  • Profit of $42,000 per product sold
  • Total profits based on this campaign is $5,250,000
(profits $5,250,000 - incentive costs $12,500) x contribution margin 55% - marketing spend $225,000 = 1180% ROMI
marketing spend $225,000

When to Measure

So when should ROI be measured? The typical answer is to make your calculations once the campaign is complete, all of the receipts have been tallied, business cards have been collected, or 6 months later when your sales cycle has closed. But ROI measurements do not need to be calculated at the end of a campaign or marketing effort. They may have even more utility when used prior to the initiation of a marketing effort, where they can make an impact and adjustments can still be made.

For example, try running ROI calculations prior to a campaign to project the desired outcome. Determine the tolerance level and adjust the campaign accordingly to achieve the preferred results. If necessary, these figures can also be used to justify the chosen marketing approach. ROI calculations can be used to check viability of different marketing initiatives or scenarios, to determine what the right media mix is based on the tolerance level. This allows you to adjust your campaign based on your desired results or available budget.

Bottom Line

You don’t need a complicated system in place to get started. The important thing is to just get started. Determine a baseline, define some goals, make your best guess, whatever it takes to get started. As soon as you start measuring, you will immediately have a new baseline to analyze from. Most importantly, you will be able to see which initiatives are getting the best leads or sales results, and be able to duplicate the process on other campaigns. Only by demonstrating this expertise and impact on sales and revenue will marketing become a respected part of a company’s revenue process.

What’s more, when your campaigns consistently deliver good returns, it’s far less likely that colleagues will question or second guess your decision and choices - because you will have solid data to support your investments.