Is all of the time, effort and money you’re spending on your brand generating a real financial return for your business? Those pesky bean counters ask this ridiculous question of marketing people every day!

The marketers answer a resounding "YES!" But ask for hard financial data to prove it and those same marketers will scurry away to watch a focus group somewhere. They might also point out that any number of corporate activities don’t have hard numbers to prove their return to the business: HR, training and innovation to name a few (this is an observation, not an excuse for marketing to sit on its hands regarding Return On Investment - ROI).

There’s an old adage: "I know that half of my advertising works. I just don’t know which half!" While an ROI can be relatively easy to determine on specific marketing media such as direct mail, pay-per-click advertising and on specific campaigns, it is inherently difficult to measure an accurate ROI on the complete marketing effort’s effect on brand and consequently, the business’s bottom line.

Demonstrating a clear, quantifiable nexus between brand strength and business return is a challenge. What is a result of brand, versus personal selling, versus general economic conditions, versus competitor activity? Isolating the effect of brand in the equation requires assumptions to be made about the contributions of the various elements.

Also, there is usually a lag between your marketing efforts to build brand equity and the ensuing business benefit. Brand equity is built cumulatively over time along with the business benefit it brings. This timing effect makes it difficult to accurately measure cause and effect and to demonstrate it in a time-bound report (eg. a financial year). Many of the expected returns from marketing efforts are intangible, long-term (ie. can’t be measured on a financial year basis) or deliberately deferred. Revenue cannot always be attributed to marketing effort within a specific time-frame.

While progress has been made in measuring the return on investment for marketing and branding activity as a whole, it is not an exact science and very few organisations do it well.

Some of the most common metrics that are used by marketers include brand awareness, brand association, satisfaction, loyalty, retention, market share, marketing spend, sales pipeline, page views, recall and TARPS. These are marketing metrics - none of which really align with business objectives and outcomes. The key is to align brand and marketing ROI metrics directly with business performance metrics, which are typically revenue, profit and balance sheet related. Marketers can then more clearly demonstrate a link between marketing efforts, brand equity and business outcomes. But to do this, marketers must learn to talk in finance terms and speak the language of CEOs and CFOs.

Three key metrics used to measure brand and marketing ROI are brand asset value, contribution to increased sales and profit and the cost per sale generated through marketing efficiencies.

Brand asset value is the value attributed to this intangible on the company balance sheet. The majority of value in many companies today is in intangible assets. Brand Finance attributes around 50% of the value of the S&P 500 to intangibles. The top three of those intangibles are brand, intellectual property and customers, all of which are driven by marketing.

Brand Finance values brands using a discounted cash flow technique. Future royalties are estimated (the royalty rate is applied to future revenue to determine an earnings stream that is attributable to the brand) at an appropriate discount rate to arrive at a Net Present Value. The royalty rate refers to the royalties that would be payable if the brand intangibles were owned by a third party.

Listed below are the world’s top ten financial services brands by brand asset valuation.

Australian finance brands in the top 500

On aggregate, a well managed brand should increase sales and improve profitability relative to peers over time. Relative to peers is the key here as it acts to isolate environmental factors that may be largely outside of your control.

The next challenge is to determine how much of this is attributed to your brand. It is difficult to isolate the effect of brand equity alone from all other tactical marketing activities such as selling, advertising and call centre. Calculating the ROI for any specific channels, media or campaigns that you run is an easier proposition as they are more discrete areas with discrete outcomes and as such are more easily measured. In financial services, brand delivery is a composite of many different activities and media, so overall brand and marketing ROI are best pooled together.

At a basic holistic level, the following calculations form a total brand and marketing ROI (they can also be calculated by product, region, campaign, channel, etc.). This approach has plenty of limitations including ignoring the effect of overhead and other non-direct costs on the bottom line (ie. it uses a gross profit).

One of the other limitations of this approach is it ignores the total lifetime value of previous period marketing efforts.

To better deal with this issue, carve out the ROI for new business marketing initiatives by isolating the revenue and profit from new business for the time period in question.

In calculating ROI, some assumptions will need to be made in relation to time lags and what expenditure is included in the ‘marketing spend’. Don’t bring your whole operation to a halt by trying to be a perfectionist - apply the 80:20 rule and spend your time analysing the data and acting on it.

These measures can provide an overall indication of ROI subject to the limitations mentioned. Depending on your business and the nature of the data you have available, it may be better to chunk-down brand ROI to tie specific brand-related data to financial data. For example, your share of voice (a brand’s advertising weight) can be linked to sales in each region.

This chart highlights an underspend or ineffective marketing in region D. Further work can be done to understand the cause and address the low ROI. Equally, regions A, B and F can be analysed to determine what is working so well.

This is using ROI metrics to reduce the cost per sale by identifying and eliminating the less-productive campaigns and channels. This is particularly useful in tighter budgetary environments where you must deliver the same for less and also to redirect expenditure into new areas without seeking an increase in budget.

This is where the rubber hits the road. The frequency of measurement and reporting needs to be meaningful for your business. Solely relying on annual reporting is useless as it does not keep brand and marketing ROI top of mind to influence organisational behaviours and it is also too late to make adjustments for the year just passed. Reporting should be weekly, monthly and quarterly to allow for adjustments to marketing strategies and tactics and provide the business real metrics on progress.

Keep it simple. Use scorecards to align and report on both marketing and financial targets to generate a clear nexus between them. Use the data to develop insights and key learnings that marketing and the business can use for both short and long-term planning and direction. Develop ROI scorecards for both campaigns and the overall branding and marketing effort.

ROI Scorecard for a Campaign

Digital dashboards can be developed for access by all key staff to track progress and marketing outcomes for the business. If you measure activity to clearly show how marketing and brand deliver business objectives you will no longer see marketing as a cost, but as an investment with some certainty around return.

Not all marketers will be keen to measure brand and marketing ROI as it introduces a whole new world of accountability for them.

Don’t let ROI completely dictate your marketing program. Use brand and marketing metrics as a way to generate better insights and strategies. Don’t let it force a focus solely on short-term tactical marketing at the expense of creativity and investments for the future such as product development, geographic expansion and market penetration. You need to continue to do things that are consistent with your brand positioning for the health of your long-term brand equity.

ROI enables marketers to fine-tune efforts, demonstrate cause and business effect and gives them more power to justify additional marketing spend to generate real business return.

Set business objectives for marketing, ask them to talk in finance terms (not marketing), measure and report at a frequency that is meaningful to your business and look at marketing in a whole new light.

Bruce Stafford