The Imperfect Science of Return On Investment
When I talk to business owners and managers about advertising options, they want to feel good about the money they are going to spend.
Did you see that?
They want to feel good.
They want to feel smart, confident, happy and wise.
Often times this feeling comes from examining facts and figures and from calculating the Return On Investment they will get from spending (investing) in advertising.
This is such an imperfect science that we should eliminate it all together but like I said, people want to feel good when they are going to spend money.
I was talking with a friend recently and we came up with a return on investment that looks like this:
For every $3000 he spends, he needs 3 sales to break even and the 4th sale produces a profit. This is based on 3 years of being in business and the knowledge that he has of his average sale, expenses and those operating numbers.
Great information, I wish more business owners knew this.
What we don’t know is how to accurately track the Return On Investment of each individual advertising and marketing message he has out there.
Here’s why: His truck is logoed up and has his contact info. When he is driving down the road or sitting in traffic, his truck is planting marketing seeds (impressions) on future customers. You can’t accurately measure the Return On Investment of his vehicle wrap can you?
He takes part in some consumer trade shows. Hundreds of people have seen his display and dozens have spoken with him each year. Only a small percentage of the people who see his display (the ones he talks to and gets contact info from) are trackable for Return On Investment measurement.
Advertising and marketing messages overlap. We are exposed to a business via multiple methods which nullifies the results of tracking the Return on Investment of each individual advertising and marketing message.
The web was supposed to be the ultimate source of accurate and fool proof tracking, but it falls victim to the same limitations of measurement that off line marketing has.
You could try combining the two which might help, or produce some really weird and useless ad campaigns like this one from 2012 that tried combining Billboards with QR codes:
So how do you deal with Return On Investment as a way to measure the success of your advertising campaign and more importantly how do you feel good about spending money on advertising?
Ask the right questions.
Know the limitations.
Deal with trustworthy people.
More on this Wednesday.