Marketing has truly evolved into a data-driven business function, justifying the fact that we all get a B.S. degree rather than a B.A. With the pervasiveness of digital marketing, our obsession with data has reached new heights. But have we flown so high that we are no longer grounded on Earth?
At the core of marketing, data is a set of ratios to help us interpret the results of all we do. The king of all of those ratios, in the eyes of most, is ROI, Return on Investment. This ratio has provided accountability and forced all of us to think long and hard about where we are spending our budgets. We apply this ratio to every level of marketing: signage, subject line changes, trade shows, etc. This obsession with one overall marketing metric is where the deception arrives.
The ROI metric is dependent on the total investment and return calculations. In most cases, accurately calculating either side of the equations requires a Master’s Degree in activity-based accounting. Take a simple example: Running a Google Ads campaign. On the surface, it seems simple. The total amount spent on media development and ad purchases is divided into the total amount sold from those ads. Here is the hard part: How much time did you really spend in creating the ad placement? How many meetings? Reviews? Research? Drafts? The overall amount invested into the campaign will always be understated no matter what channel or how “effectively” that channel produces a return.
As we focus on the ROI, we fail to see what really matters: the money! How many marketers are focused on net dollar contribution to revenue or profitability?
If marketers only focus on this one metric for overall campaign performance, it naturally tips the scales in favor of low investment channels. For example, if you ran a print campaign, overall ROI will be suppressed due to the increase in investment. This is a simplistic, short-sighted approach to improving your business. Instead of a financial metric, we should always stay focused on the true metric: CASH! Because cash is always king!
If you measure the same campaigns through the cash they generate, you’ll see one very clear winner: print. Print drives more cash than any other channel. Why? It reaches the highest possible number of target customers. Direct mail has the highest open rate, strongest response rates, and highest deliverability among marketing channels. So the only real question is how much money you want to make. Let’s re-evaluate how we set marketing budgets by focusing on how we drive the most money, not the highest ROI. You can have a high ROI, but still go out of business if you aren’t generating cash through sales.
Here’s a crude example: Let’s suppose you run an email campaign. The campaign costs $50,000 and you realize $2 million in sales. The ROI is 40:1. At the same time you run a direct mail campaign. That campaign costs $1 million and yields 8 million in sales. ROI is only 8:1. Which one is the winner? If you manage the business, you clearly want as much cash as possible to cover overhead and all other costs, making the direct mail campaign the clear winner.