Nearly everybody who works in marketing knows the John Wanamaker quote, “Half of the money I spend on advertising is wasted; the trouble is I don’t know which half.”
You may have just rolled your eyes at what you consider to be a trite and outdated quote, and you would be right to do so.
In the past, tracking marketing spend against ROI has been like trying to nail smoke to a wall. Marketers poured money into different programs without knowing which programs bring in customers and which programs go to waste. Sure, we had anecdotes about people saying they really liked what they heard on a webinar, but there wasn’t hard data.
Today, however, as many marketers know marketing software helps take the guesswork out of what works and what doesn’t. Not only does this make John Wanamaker’s quote obsolete, it also puts the marketer in a position to say, “We’re getting great return on our trade shows, and we should put more money into it; sponsorships we can cut by 30 percent.”
That’s an easy story to tell, but I want to go a step further. I’m going to show you some of my own internal marketing statistics, and how we make our decisions at Marketo.
The Marketing Golden Ratio
The whole process revolves around something we call the Marketing Golden Ratio. To get it, identify the sales pipeline created from any given marketing program and divide it by the total investment in the program. For Marketo, a ratio above ten is excellent, above seven is good, and above five means the investment is at least positive ROI.
At Marketo, we use our own marketing analytics tools to produce the grid below:
The “Program Channel” column houses the programs we run. Next, the “Total Investment” column shows the amount of money we invest on the program, excluding people and time. “Pipeline” represents the value of the active sales deals we created from that channel. We allocate revenue to each of the marketing programs that successfully influences a potential deal -- not just the first or last touch.
Then, the “Marketing Golden Ratio” column shows the average ratio for all programs in a channel. Finally, the last column shows the percentage of all programs in that channel that are above the minimum threshold of a Marketing Golden Ratio of five.
Our ratio of 7.6 means our overall marketing performance is good. Moreover, 52 percent of all programs achieve our threshold of a ratio of at least five--meaning 48 percent do not. So, while half our marketing is “wasted,” we know which half.
As a rule of thumb, more of the budget should be allocated to the channels with the highest ratios and success probabilities. Sometimes there are very clear takeaways -- for example, our grid shows more dollars should be invested in webinars and less in content syndication. In other cases, you need to look at the channels on a program-by-program basis to uncover what’s causing some to work and others to fail. For example, “Direct Mail Prospecting” has a great overall ratio, but only 50 percent of the programs succeed. This means that there is wide variance. Some direct mail programs perform very well and bring up the average, making it a smart bet to execute more of those. Conversely, “Sponsorship” shows a lower overall ratio, but two-thirds of the programs are successful. This means a few programs are dragging down the average and should be executed less frequently.
When you boil it down, marketing investments are like any other investment. You should consider yourself a fund manager and each channel should be treated like a portfolio. You wouldn’t invest all of your money in one stock. The same goes for marketers -- you have to create a portfolio with different types investments, risk profiles, and maturities to develop a well-rounded and successful marketing strategy. To ensure that your investment is always growing, track your returns, distribute assets to the programs with the highest ROI, and watch your Golden Ratio grow.