It’s trendy to be the contrarian.
No, really, it is. Think of how many times you’ve heard a company (especially in tech) define itself as a “disruptor”? We’d be willing to bet more than once.
Not everyone can be a disruptor. And not everyone is. But there’s one concept we want to tackle in this blog, just for the sake of being contrarian. Let’s talk about ROI.
Is The ROI Metric Really That Effective?
If you’ve been in the marketing world for any length of time, you’ve probably heard of ROI, or “return on investment”. This measurement trend has been held aloft as a sort of “gold standard”—the magic number that shows if your digital campaign was effective.
It makes sense. Certainly, every company shelling out tens of thousands of dollars wants to know that their efforts were not in vain.
But it’s also a pretty dull metric that might not necessarily be as effective as you think. In fact, some marketers might admit that it’s extremely difficult to measure (if not impossible).
What if we realized ROIs are a terrible marketing metric (at least when measured in isolation)? What if we said you couldn’t even really measure ROI?
What ROI Isn’t Telling You
Let’s say a company runs two separate pr campaigns—one with 100% ROI and another with 20% ROI. Which one seems better? At first glance, the answer is easy: the one with 100% ROI.
In this instance, we need to look at how exactly ROI is calculated. A campaign with 20% ROI can technically generate a massive amount of profit for your company, while a campaign with 100% ROI can generate very little.
It all comes back to ratios, and it’s why the language around ROI can be so deceiving. ROI will favor tactics that cost little and make little. A high ROI can make a minimal impact on businesses. The easiest way to increase your ROI is not actually to increase the numerator but decrease the denominator. This means reducing the budget. Over time, this can have disastrous consequences and actually can achieve the opposite of your intended effect.
So what should be your priority as a marketer? The ROI or the actual amount of money your efforts are bringing into the company? ROI seems like a nice, official, fancy metric, but at the end of the day, companies live and die based on their actual revenue.
So, would you rather generate more in profit but less ROI, or less in profit and a higher ROI? It’s really the dealer’s choice. But we’re going to suggest you choose to make more revenue over a higher percentage metric that can be manipulated by the numbers.
Efficiency vs. Effectiveness
High ROI means your campaign is efficient, but it doesn’t speak to its overall effectiveness. If your main goal is to grow profit margins, you need to look at effectiveness.
For those chasing efficiency, slashing budgets on the front end might seem like a good idea—at first.
Sure, you can ride the high for a few months, maybe even a few years, of how much money you’ve saved the company. But suddenly, your reach shrinks up because you slashed your paid ads budget.
Your social media following stops climbing because you decided not to invest the big bucks in marketing with that ultra-trendy, mega-influencer.
In other words, the money you saved on the front end will cost you long-term.
What Would Bezos Do?
If you were to take the wealthiest people in the world (we’re looking at you, Jeff Bezos), get them in a room, and ask them about their tactics, I’m willing to bet they aren’t going to suggest you slash the budget. In fact, they might say the opposite.
There’s a chance that they will tell you to innovate, to go with the emerging trends no one has ever heard of. Oftentimes, those who are the most successful are the ones with the most out-of-the-box ideas.
The moral of the story here? Some marketing tactics that seem smart at first don’t play out long-term. Being successful in business means following the cash flow. This gives you more spending power, which helps you grow your market share and even invest in new businesses. The market leader, not the person with the highest ROI, holds their position at the top.
Rethink how your company defines marketing success, focus on the cash flow, and begin to truly disrupt your industry. We promise you won’t regret it.