February 23, 2009

When financial marketers bring up new media tools, it’s quite common for CEOs to ask questions like, “What’s the ROI of having a blog?” Marketers say, “It doesn’t cost anything” (which isn’t really true). From there, the argument often devolves into subjective differences and a matters of opinions.

Reality Check: When someone asks about ROI, they are often looking for the quickest and easiest way to kill an idea dead in its tracks.

In the old days, you could spend money on ads and calculate what it cost to make an “impression.” If the metrics weren’t totally accurate, at least the math was pretty straightforward and the data was available. These days — especially with social media — marketers struggle to figure out how much their various marketing efforts are really worth.

The trick lies in being able to measure the Value of Awareness + Engagement. Some call this “PR Value,” but it goes beyond that, specifically regarding the level of “engagement.”

On a scale of 1-to-10, someone typically engage with TV commercials around a 1 to 3. Social media is typically around an 8-10. Sure, more people will see a TV ad than a blog or a Twitter timeline, but which is worth more?

Key Question: Would you rather have 10,000 people barely notice your TV ad? Or would you rather have 100 people hang on your every word? Or have 10 people take action and make a purpose?

One of the troubles with marketing metrics is the amount of “waste.” How many people see a TV ad or look at a website that is irrelevant to them. Perhaps they are find a website for a financial institution in another part of the country. Or they see a credit union’s ad but can’t join.

So… Maybe the theoretical formula for calculating marketing ROI looks something like this:

[(Users - Waste) x Engagement] ÷ [Cost + Time]

Users = people exposed to the marketing effort
Waste = people for whom the marketing message does not apply
Engagement = average level of Users’ captivity, actions and mental activity with respect to the marketing effort, including (but not limited to) purchases
Cost = the quantifiable hard costs of the marketing effort, including internal and external expenses
Time = the cost of employee time spent on the marketing effort

Now for the tough part: Actually measuring and quantifying the variables.

Bottom Line: The disagreement about marketing “ROI” hinges on how each side defines the “R” and the “I.” The “return” is not always about sales directly stemming from the marketing. The “investment” is not always about how much money is involved. It all depends on what your organization needs to achieve strategically, and the opportunity costs involved.

For instance, what is the value of communicating your financial institution’s strength and stability? Can you measure the amount of run-off and defections such a campaign might prevent? If not, does that mean a message of reassurance is unnecessary?

Reality Check: Your CEO probably can’t demonstrate an ROI on the charities they support. Does that mean the time and money is a waste?

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Previous related stories from The Financial Brand:

• The Web 2.0 make/buy decision
• How to build relationships with branch avoiders
• New media lessons from old school brands
• It only matters if it’s measured

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