Creating and Communicating Value
The key to optimizing any organizational process is a measurement to determine performance. Marketing strategies and campaigns are not an exception. Measurement of marketing effectiveness enables an organization to see what strategies work and which one does not (Solcansky & Simberova, 2010). After the measurement, organizations can direct their money or investment towards the marketing campaigns that are most effective in the achievement of marketing success. It is also important to measure marketing effectiveness to make decisions on whether to double or cut down investment in marketing strategies and to understand the strengths and weaknesses of marketing plans, as well as the existing threats and opportunities for marketing. There are many key performance indicators (KPIs) or measures that are used to evaluate the effectiveness of marketing campaigns. Some common measures used by organizations to evaluate marketing effectiveness include Return on Investment (ROI), Cost per Lead, Incremental Sales, and Customer Lifetime Value (Solcansky & Simberova, 2010).
Measuring Marketing Effectiveness
Return on Investment (ROI)
ROI is a measurement of the sales revenue that a marketing campaign brings on every dollar or unit of currency spent. If a $1,000 marketing campaign generates $5,000 in sales, the ROI is $4,000 or 400 percent. It measures the gain or loss realized by investment in relation to the money invested (Brooks & Simkin, 2011). Effective marketing campaigns reflect a high ROI.
Cost per Lead
Cost per lead is a measurement of the cost-effectiveness of a marketing campaign (Brooks & Simkin, 2011). It focuses on the leads that a campaign generates, factoring out the sales. If a $1,000 marketing campaign results in ten sales from 20 leads, the cost per lead is $50.
This is a measure of the contribution of marketing campaigns toward the sales numbers. It shows the effectiveness of marketing campaigns in the generation of sales and provides information that can be used to compare marketing campaigns or efforts. If a $1,000 marketing campaign generates $5,000 sales and the total monthly sales were $500,000, then the campaign generated one percent of total sales.
Customer Lifetime Value
Customer lifetime value is a measure that evaluates the lifetime value of a business’ customers using the formula: ‘average sale per customer’ multiplied by ‘average number of times that a customer buys every year’ multiplied by ‘average retention time in years for a typical customer’ (Pepe, 2012). The outcome date may take a lot of time to compile. However, a calculation of the customer lifetime value shows which marketing campaigns generate a company’s best customers.
Discussion and Conclusion
The measures used for evaluation of the effectiveness of marketing campaigns are not self-contained. They interact since data used in each measure is used in other measures. ROI data is used in the computation of incremental sales, for instance. However, the effectiveness of each measure in calculating the effectiveness of marketing campaigns is independent. The effectiveness or accuracy of these measures is, however, not the same since some measures are better than others. ROI is, in my opinion, the best and most important measure. This is because ROI also measures the quality of leads generated by marketing campaigns besides measuring the total sales generated. Cost per lead is the least important since it only factors in the leads generated without considering their quality.
Brooks, N., & Simkin, L. (2011). Measuring marketing effectiveness: an agenda for SMEs. The Marketing Review, 11(1), 3-24.
Pepe, M. (2012). Customer lifetime value: A vital marketing/financial concept for businesses. Journal of Business & Economics Research (JBER), 10(1), 1-10.
Solcansky, M., & Simberova, I. (2010). Measurement of marketing effectiveness. Economics and management, 15, 755-759.
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