As more and more businesses rely on online marketing channels to acquire and maintain relationships with customers, understanding which marketing channels and techniques work best can help CFOs set appropriate marketing budgets and work effectively with marketing heads to develop effective strategies.
Return on investment (ROI) for customer acquisition is a key metric to consider, and can be measured in several different ways. Technology marketing consultant Victor Lopez from Programmatic Academy says the most important ROI measure is customer lifetime value. This predicts the profit a customer will generate for the business over the full lifetime of the relationship.
CFOs can use ROI for customer lifetime value alongside other financial management tools such as quarterly and annual financial accounts, to help them forecast the sustainability of the business.
Measuring the cost of customer behaviour
One of the most popular ways of measuring ROI in marketing campaigns is known as cost per acquisition or cost per action (CPA). This is the cost of generating a particular type of consumer behaviour. It does not necessarily mean the cost of acquiring a consumer.
“It could be anything from getting someone to give you their email address, to successfully getting someone to fill out an entire application or form," explains Lopez. "The consumer's action should ultimately lead to a return for the business, if the marketing program is working properly. If not, you need to think through how your marketing program needs to be optimised."
For example, let's say a car dealership's data tells it that out of 100 people who test drive a car, 10 of them will buy it, and on each car, they make $1000. So the CPA is $100 per buyer. If the business spends more than $100 to acquire a test drive, it will lose money over the long run.
Now it knows its budget, the dealership could spend its money in many different ways – for instance in social media marketing, referral programs and even local newspaper advertising. The idea is to measure which channel generates the most cost-effective test drives and maximise marketing through this channel.
“In the end, CFOs and marketers need to appreciate that with any action the business takes to win a sale, the goal is to make more money than you spend", says Lopez.
There are similar metrics businesses can use to measure ROI, such as:
· Cost per download or cost per click
· Cost per install, for apps
CFOs and marketing teams need to understand which short-term, campaign-based measures work best for them.
Flexible marketing approaches to get high return on investment
Lopez says the most effective approach to generating ROI for customer lifetime value will vary by client and industry, and also by campaign and product.
“You want to use media in your marketing campaigns that allows you to segment the consumer base in a way that suits your business," he advises. "The idea is to use marketing tools that expose the company to highly targeted traffic, such as that generated through search engine marketing."
In recent years, programmatic marketing has become an increasingly popular way of selecting marketing channels to generate the best ROI. Programmatic marketing is a targeted approach to advertising that allows businesses to segment their customer base by criteria such as age, gender and location. It also allows organisations to choose where their advertising appears. Programmatic marketing relies on an algorithm to decide who sees an advertising message, where and when.
Says Lopez: “Programmatic marketing has become popular because of its ability to target specific audiences rather than all media. This can make all the difference in an online marketing campaign."
Getting the most from marketing
Many companies use return on advertising spend (ROAS) to help them decide which marketing channels to choose.
According to digital research firm Zenith's most recent Advertising Expenditure Forecast, global internet ad spend will reach US$205 billion this year, compared to spending on television advertising, which is predicted to be US$192 billion.
“Return on advertising spend is one of the most useful tools for businesses to use," says Lopez. "Increasingly, mid-sized companies are relying heavily on online spending for their growth. ROAS helps them determine which channels are working best."
His advice for CFOs of mid-sized businesses to get the most from their marketing campaigns is to be consistent and open minded to testing different platforms, formats and media.
“What works for one type of company may not work for yours. Test everything and make sure you have a data management strategy in place to get insights from every customer interaction. And if you have an agency, let them do their job."
Key Takeaways for best return on investment
- Customer lifetime value defines the profit a customer generates for a business over time.
- Cost per acquisition information across campaigns and channels can inform future marketing plans.
- These measures help ensure a business does not spend more than it makes when acquiring new business.