The Definition of ROI

Ask a dumb question, get a series of dumb answers? Not so fast. AdRants and MarketingVOX report on the Association of National Advertisers/Forrester study which, some say, concludes that marketing ROI remains un-defined. In fact this has become a recurring (annually) conclusion. Oddly enough this research was presented at the association’s Accountability Forum. Yes, marketing accountability. Remember that? Oh, never mind.

The good stuff: How do these mega-advertisers define ROI?

78% cited measuring the sales impact of marketing as somewhat or very difficult.
70% also said gaining agreement on the definition of ROI as somewhat or very difficult.

The specific definition of definition of “marketing ROI?” Here’s what they said:

Incremental sales revenue generated by marketing activities – 66%
Changes in brand awareness – 57%
Total sales revenue generated by marketing activities – 55%
Changes in purchase intention – 55%
Changes in attitudes toward the brand – 51%
Changes in market share – 49%
Number of leads generated – 40%
Ratio of advertising costs to sales revenue – 34%
Cost per lead generated – 34%
Reach/frequency achieved – 30%
Gross rating points delivered – 25%
Cost per sale generated – 23%
Post buy analysis comparing media plan to actual media delivery – 21%
Changes in the financial value of brand equity – 19%
Increase in customer lifetime value – 17%
Other – 4%
None of the above – 2%

I took a moment to bold those which drive the online performance marketing sector’s definition. In my experience, this is how marketers define it. No, I didn’t make a mistake. Cost per lead and cost per sale are not in bold type… because marketers do not choose, in affiliate marketing, to track it (beyond what they assume is the only cost… the commission or bounty).

Are we safe to conclude… as so many analysts do… that ROI is un-definable? I say no. Why? ROI is subjective. There is no one formula to define it and to search for one is futile and, I say, irresponsible. To label the market “confused” is also irresponsible (yet certainly feeds the need to try and know… hence, analysts love this kind of thing; it gives them purpose). The statistical significance and measures used for any given campaign is based on one or more specific objective… for that campaign. Thus, how marketers define ROI should vary widely.

In our realm, I still yearn to know why online marketers believe they can compensate affiliate partners in a one or perhaps two-size-fits-all manner (at reasonable cost to them and, concurrently, fair revenue to the affiliate) without actually understanding what the true costs associated with sales are. In affiliate marketing marketers pretend to know what ROI is. If I had a penny for each time someone said “it’s guaranteed with this model” I’d be a rich man. It only appears guaranteed if you don’t measure ALL costs associated with affiliate-referred sales… and most marketers, with the assistance of affiliate networks, seem happy to oblige. I guess that’s their prerogative though. They can define ROI as they see fit!

About Jeff Molander

Jeff Molander is the authority on making social media sell and corporate trainer to small businesses and global corporations like IBM and Brazil’s energy company, Petrobras. He’s an accomplished entrepreneur, having co-founded what is today the Google Affiliate Network. He’s adjunct digital marketing professor at Loyola University’s school of business and author of Off the Hook Marketing: How to Make Social Media Sell for You.

Website: JeffMolander.com

Blog: Off the Hook Blog

Answers: AskJeffMolander.com

You can find Jeff on Twitter @jeffreymolander.