Marketing ROI, Heartbeats and Breaths

Clarity is important to effective language use. If our words all mean different things it is hard to communicate. It is often surprising that marketers, who often claim to be communication experts, are often terribly imprecise about what they mean.

James Lenskold tried to help clarify the language of marketing with his 2003 book Marketing ROI. The book is very strong on emphasizing that ROI has a specific meaning and when we speak of ROI we should use this meaning. ROI in marketing is often, however, used to describe anything that is a good thing. A CMO might say: “we have shown the ROI of our advertising campaign increasing awareness by 10%”. To be clear:
A) I’m not saying they haven’t made a good investment,
B) I’m not saying increased awareness isn’t a good thing, and
C) I’m not even saying the advertising campaign didn’t have a positive ROI.
What I am saying is that awareness alone can’t possible show whether the campaign had a positive ROI.

To explain lets turn to medicine, a subject about which I know practically nothing. Still I know that measuring a pulse is different to measuring a respiratory rate. Both may be good measures to know. You want a patient to be both breathing and pumping blood but the two measures are not interchangeable. If a doctor asks: “What is the patient’s pulse?” and you respond “15 breathes per minute” the doctor will be unimpressed. If a CFO asks: “What is the ROI on the campaign?” and you respond “awareness is up 10%” they shouldn’t be impressed. Awareness being up 10% may be a great thing but it isn’t a measure of ROI. Heartbeats and breathing may be connected but aren’t the same thing. Awareness and ROI may be connected but they aren’t the same thing.

Lenskold (20013) has a useful checklist of errors in ROI calculations where he makes the important point: “In the English language, “return” could be construed to mean everything gained back from an investment, but in financial language, return is equal to gross margin (net present value of profit stream) less the original investment.” (Lenskold 2003, page 64-65).

I’d suggest marketers only use ROI when meaning the well understood formula for ROI. Hopefully it’ll help ensure marketers aren’t trying to give Ventolin when they should be trying to jump-start their firm’s heart.

Read: James Lenskold (2003) Marketing ROI: The Path to Campaign, Customer, And Corporate Profitability, American Marketing Association/McGraw-Hill