With tight budgets and an increased focus on cost accountability, the subject of marketing ROI is getting more and more attention in the b2b marketing world. Better ROMI (Return-On-Marketing-Investment) is one of the many reasons that more and more b2b marketers are turning to Inbound Marketing and Marketing Automation.
In related posts we covered:
- How ROMI is easy to calculate (and demonstrate) for your b2b website if you are equipped with sales and marketing automation
- How you can calculate ROMI for a various other marketing initiatives, from PPC to Social Media, using our Top 10 list of free Marketing ROI calculators on the Web
Should none of the above alternatives satisfy your need to calculate ROMI, in this post we’ll cover how you, as b2b marketer, can easily build your own marketing ROI calculator, based on an open template provided by the good folks at the Lenskold Group.
To start, download Lenskold’s free Basic ROI Spreadsheet. The spreadsheet they provide is not “locked”, so you can modify it at will. Add rows, subtract rows. Modify formulas. Their Excel-based ROI spreadsheet provides all the needed components to quickly and accurately calculate marketing ROI for just about any marketing investment, as long as you can estimate the future stream of income and costs associated with your marketing program.
A couple of pointers:
- Use Gross Profit, not Revenue, in your ROMI calculation. Some marketers make the mistake in calculating marketing ROI by using pure Sales Revenue in the ROMI formula. Instead, make sure the “Income” part of the ROMI formula truly represents the incremental profit contribution from the increase in sales. Start by subtracting “The Cost of Goods Sold” (you can get this from your friends in the accounting dept) from Sales Revenue, and then subtract any other incremental costs directly associated with the new sales, such as discounts.
- Project the future income stream (and costs) for new customers. Unlike B2C, B2B customers generally have a significant Lifetime Value beyond the initial purchase. Think repeat purchases, service, parts, etc over the average lifespan of B2B customers. Because switching costs are high in B2B, it is not uncommon for B2B customers to stay loyal to a supplier for 5, 7, even 10 or more years. So project on your spreadsheet out to the average lifespan of your customers.
- The spreadsheet calculates Net Present Value. This is a basic Financial Accounting technique to ensure that you “discount” future cash flows based on the cost of money and your company’s discount rate (for those not financially inclined, think interest rate). Again, with a cup of coffee and a smile, you can easily get this from your finance dept.
- The Spreadsheet’s columns represent months, not years. If you want to simplify the spreadsheet and just show “years” as the columns instead of “months”, don’t forget to modify the discount factor from monthly to annually.
- Keep your ROI calculator simple. No ROI projection is perfect, whether you are justifying the purchase of new manufacturing technology, or justifying investing in a new b2b marketing program. Think 80/20. In the end, your marketing ROI calculation is an estimation, and no amount of complexity will make it 100% accurate. However, the fact that you are engaging in the exercise of determining marketing ROI puts you head-and-shoulders above traditional marketers.
And remember, if your b2b marketing program is not designed from the ground up to clearly deliver quantifiable sales results, you will not ever be able to calculate ROMI. So if ROMI is important to you and your organization, perhaps you should look at marketing investments that demonstrate a clear link between the marketing investment and sales results. For that, check out the incredible potential of Inbound Marketing and Marketing Automation.
Until next time – Axel
- The Shift from Art to Science in B2B Marketing
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- Website ROMI – Calculating your Marketing ROI online