With tight budgets and an increased focus on cost accountability, the subject of ROMI (Return-On-Marketing-Investment) is getting more and more attention in the b2b marketing world. In this post, we’ll cover how Inbound Marketing and Marketing Automation makes it easy for you to calculate the ROI of your internet marketing, given that your website is undoubtedly one of the big elements in your b2b marketing mix.

If you want to skip the discussion, and jump straight into a ROMI calculation for your website,  check out our interactive, easy-to-use ROMI calculator for Inbound Marketing and Marketing Automation.

And if you would like a broader discussion of ROI in b2b marketing, then check out these related Gossamar blog posts:

1. Our top 10 list of ROMI calculators and Marketing ROI tools on the Web
2. How to build your own ROMI calculator

The Bottom line

Why should you, as b2b Marketer, be excited about finally being able to calculate ROMI?  Here are my top 3 reasons:

• You will be able to see which programs get the best results, and do more of what works, and less of what doesn’t (think raise!)
• You will offer more accountability and thus gain more credibility with the rest of the organization (think prestige!)
• Your bottom-line focus may just earn you a seat at the big table with the rest of the C-level team (think promotion!)

Keeping it Simple

Now some marketers try to make ROMI a very, very complicated process. And, if you wish, you can certainly make it complicated, especially in cases where you have multiple marketing programs targeted at the same audience and you have no ability to directly link marketing investment (the input) to sales (the output). Our good friend at Digital Tonto recently wrote an extensive post on the complexities of dealing with Marketing ROI.

But I like simple.

So let’s start by reviewing the basic formula for ROI:

To keep things simple*, let’s morph this into the following equation for ROMI:

Where:

Gross Profit Contribution from Incremental Sales is calculated by taking the number of new customers generated by the marketing program, multiplying this by the total revenue generated by the average customer over their lifetime, multiplied by your company’s gross margin (or gross profit).

Cost of the Marketing Program includes all the incremental costs associated with this particular marketing program,  both external (suppliers) and internal (staffing).

*If you want to get picky, the Profit Contribution from Incremental Sales should really be the “net present value” of all future gross profit contributions throughout the life of the new customers.

As you can see, website ROI or online ROMI can be a relatively simple calculation.

The Cost side of your Website Marketing Program

This part is really easy. Add up all the annual costs in creating, managing, and promoting your website. Costs should include:

• Ongoing website development, website maintenance, and website hosting
• Search Engine Optimization (SEO) efforts to drive organic website traffic
• Pay-per-Click (PPC) programs to drive paid website traffic
• Social Media Marketing (SMM) programs, including the resources required to blog, engage in online communities, etc to drive referral website traffic
• Offline traditional marketing programs (direct mail, advertising, PR) that drives referral  website traffic
• Software licensing fees for any marketing automation software used to automate your website

The Income side of your Website Marketing Program

Traditionally, this is where marketers throw up their hands and surrender.  Retrieving data on incremental sales, and being able to tie actual incremental sales to specific marketing programs has historically been very, very difficult. You can try to do this manually with a spreadsheet, and in a small company where you (as marketer) know the CFO and all the sales people firsthand you might succeed. But for everyone else, you need Sales and Marketing Automation (SAMA) to capture both sales and marketing data, and automatically link marketing investment with new sales activity.

Here’s how it works:

Marketing automation, like Demand Generation tools, automatically captures new prospects data through your website, and feeds this information to your sales team via their Customer Relationship Management (CRM) or Sales Force Automation (SFA) system. Once sales to these new prospects are realized, this data is then fed from the CRM or SFA system back into the marketing automation system. The two pieces of data – new prospects generated through your website marketing, and new sales realized – are automatically aligned, and, after you consider the associated marketing costs, voila, you have website ROI.

To drill down further, your marketing automation system tells you where your online prospects are coming from: Direct; Organic Search; Paid Search; or Referral Sites.  So you can calculate the marketing campaign ROI for each element of your online marketing efforts, such as comparing the ROMI of your PPC program to the ROMI of your SEO efforts, versus the ROMI of your Social Media efforts.

This approach – linking new prospects to new sales generated – is much more credible way of calculating website ROI than to use proxy data such as website traffic (90% junk) or even clicks (clicks are not prospects!).

The Gossamar ROMI calculator

For mid-sized b2b companies, our slogan says it all: “More Leads of Higher Quality at Lower Cost”. That implies a better ROMI with web-based Inbound Marketing and Marketing Automation than is possible through any traditional b2b sales and marketing programs.

And if you want a taste of the kind of website ROI that is possible for your b2b organization with sales and marketing automation, check out our ROMI calculator. Enter a few numbers specific to your industry and company, and you can quickly estimate the ROMI potential for your website.

Related Posts:

1. The Shift from Art to Science in B2B Marketing
2. The best ROMI calculators on the Web
3. Building your own ROMI calculator

Until next time – Axel

Tags: b2b marketing, Inbound Marketing, Marketing Automation, marketing ROI, ROMI

This entry was posted on Sunday, December 13th, 2009 at 10:51 am and is filed under Blog Posts. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.