Marketing ROI: Immediate gratification vs. Long Term Value
These days, the most commonly misunderstood phrase in the world of marketing is “Return on Investment” (ROI). Most marketing agencies proclaim they can deliver it, most clients say they never get it. Hmmm? Actually, there’s reality in both cases. But the real truth is that Marketing-ROI must be fully understood before bent, folded, spindled or mutilated.
To most CFOs and CEOs, ROI resembles spending $10,000.00 on marketing and receiving $20,000.00 back. This seems to be the box ROI is stuck in. This CEO believes differently. There are numerous factors and components to Marketing-ROI. Hence, it is virtually impossible to measure every one let alone tracking the marketing expense to profit ROI that 90 percent of companies don’t measure. Measuring ROI is part philosophy, part science and part instinct.
It’s no surprise when a company invests marketing dollars it expects a return on those dollars. But when the dollars don’t return it becomes a critical issue. Most companies actually believe that Marketing-ROI should happen immediately. Pure fantasy, in most cases. For example, let’s say I spend $1 million on marketing and in the first year I receive $800,000.00 in profit from 10 clients. Is it a loss? Some would say yes. However, if I keep eight of the ten clients I acquired and expand their business flow, perhaps I’ll get a conservative $600,000.00 in business from those clients for a two year return of $1.4 million with no marketing costs associated. That makes a return of 20% per year with every following year, in essence – free money. The original million invested based on long-term value will turn into millions if client retention ratios are high. The point is marketing should be viewed like the stock market in that long-term growth, not short sighted thinking, is the key. Sensitive example, but you get the point. Long-term value of a customer, (LTVC) is nothing new. But in a world where instant gratification is paramount, LTVC is but a vapor in today’s impatient marketing minds.
