Traditionally, calculating a ballpark return on your advertising spending was pretty easy.
Say you launched a new product. You created an ad campaign and placed those ads with the usual suspects: maybe print, maybe radio, maybe TV… and maybe you even ran banner ads on a few websites. (It couldn’t hurt, right?) You ran that campaign for two weeks.
Determining a return on advertising spending was simple: divide your sales over those two weeks by the cost of the campaign and voila! You knew your return. Maybe.
Grasping the true ROI of your efforts – and understanding the value of your customers – requires more. It requires an understanding that the rules of marketing and advertising have changed. And, if you’re smart about how you market, you'll find that the outcomes have changed too – for the better.
Consider the customers you acquired after launching that new product promotional campaign. Now, what if some of those customers became repeat customers? What if some of those customers later bought other products? What if some of those customers purchased other services?
And most importantly, consider some of those repeat customers becoming truly loyal customers! Not purchased loyalty – in effect buying customers' business through low prices or loyalty programs… until that “loyalty” is stolen by better offers from competitors. And not convenience loyalty – in effect gaining their loyalty through some form of location advantage… until that “loyalty” is stolen by competitors who are equally or more convenient.
Instead, what if some of those customers became truly loyal to your business? What if you’ve measured the right things, listened to your customers, and made changes and improvements that increase customer satisfaction and truly meet the needs of the people you serve?
That is the ultimate goal for every business, because truly loyal customers come back. You don't have to pay to acquire and keep them. And they’re much more profitable; new customers are always more expensive to acquire.
That’s why the old ways of calculating marketing and advertising success are flawed. Generalized metrics and calculations don’t take into account the lifetime value of a customer. Ballpark ROI calculations don’t take into account the impact on customer acquisition costs made by long-term and truly loyal customers.
Worst of all, generalized ROI calculations don’t take into account how marketing has changed – and what customers expect from marketing. Traditional advertising, especially direct response advertising, is based on interrupting the customer: ads, commercials, pop-ups, etc. Yet no one – and I mean no one – likes to be interrupted. No one wants to be interrupted.
No one clicks an article link and thinks, “Oh boy, I hope I get to watch a 30-second video before I get to read this.”
That’s why the best marketing is based on creating content that is useful for potential users or customers. (That's the essence of inbound marketing: helpful, useful content that draws people to you – and by doing so, genuinely attracts them instead of annoying them.)
They arrive largely pre-sold. They already think well of your business – after all, you’ve helped them, with no explicit expectation of a sale.
And your initial cost of acquisition is extremely low. There are two great things about organic traffic versus paid traffic: there's a lot more organic than paid traffic, and the incremental cost for those clicks is extremely low. Content that ranks well in search engines costs you nothing per additional click.
To reach your revenue objectives, take a step back and consider the current lifetime value of your customers. Consider your current customer acquisition costs. Then take a look at your current marketing budget and decide if some of those funds should be used to get a better return… and to create more truly loyal customers. Which, if you think about it, are two things that always go hand in hand.
Image by Elias Gayles via Flickr, licensed under CC BY