Ditch ROI: a Practical Guide to Calculating the Value of Marketing Automation
Several years ago, Connie Hill, a frequent commentator on Marketing trends with her own firm on the West Coast, observed that the term “Marketing Automation” was already well established 10-years in the making (1, see footer). Yet, in the nearly eight years since she wrote her article, not much science has been applied to the work associated with automated marketing tasks. Sure, more platform solutions have entered the market and consulting companies have added to the noise attempting to sell configuration services to companies that didn’t even know they had a problem. Even in 2009, the idea of a Marketing Automation - Return on Investment (MA-ROI) was top of mind. Interestingly enough, that calculation continues to elude many marketers attempting to solve these new found problems.
What is old is new again. Whether it’s the color avocado of the kitchen refrigerator or vintage turntables spinning in the bedrooms of Millennials playing long forgotten vinyl records, some of the ideas of the past remain viable today as reliable solutions to today’s business problems. Companies are looking at competitors successfully making a more pronounced splash with campaigns and want to mimic the results; many are exploiting task automation. Deciding to add technology capabilities to an existing application portfolio should be based on the value of incremental sales in excess of the capital expenditures necessary to acquire and configure the application, train staff, and manage ongoing upgrades. This is not a new idea. At the same time, it is not one of the more popular metrics typically seen as part of the go no-go analysis as it requires a commitment from the sales team to sell more products and services to cover the cost of the software.
How many articles and studies have you read that describe the calculation of ROI in Marketing without providing any practical guidance of how that might be accomplished? My own stream of consciousness started as a series of related thoughts drafted to raise an awareness of the risks associated with companies embarking on marketing automation efforts without having conducted a full assessment of their marketing infrastructure. Although the idea of automation has evolved to be specific about the quantified metrics, it is the smaller companies that have taken automation to heart while eating away at larger companies’ market shares. They have accomplished this by using a content infrastructure that creates brand ambassadors at every interaction during the buying process. Increasing loyalty among existing employees and clients extends the reach of the message by accessing the social media connections of each person. The results can be considerable compared to the traditional approach to broadcasting the company message.
The important number necessary when evaluating MA solutions is the incremental increase in sales necessary to pay for the automation software and services. These costs are in addition to the constant Cost of Goods Sold (COGS) and add to the yearly carry costs of acquiring new accounts and selling more products within existing accounts. Listed below are the elements required to calculate the benefit of Marketing Automation.
Marketing Automation cost of Subscription per year (MA-cS sm)
Marketing Automation cost of Configuration (MA-cC sm)
Marketing Automation cost of Integration (MA-cI sm)
Marketing Automation cost of Maintenance (MA-cM sm)
Marketing Automation cost of Training (MA-cT sm)
Summation of all Marketing Automation costs
Marketing Automation – Incremental Cost of Goods Sold (MA-ICOGS)
Make every effort to deny the urge to skip the Training (MA-cT) component as that exercise pays significant dividends in the future as the team embraces the new capabilities.
I suggest that the focus of the value of marketing automation be placed on the all-in incremental costs of the automation platform versus expected in typical formulas used to calculate ROI. Based on the MA-ICOGS, the selection of the vendor can now be based on two factors. First, the Sales’ team commitment to higher sales and second, whether MA-ICOGS exceeds the value of the additional anticipated sales.
Case Study / Example
The cost of Hatchbuck platform subscription for MA is $7,200 per year (assuming three licenses with a small sales team).
Note: Other services like HubSpot carry subscription prices that are twice the cost of Hatchbuck at approximately $12,600 per year with only 1,000 contacts raising the Increased Sales Commitment in proportion to the additional expense.
From a Marketing perspective, with a solid grasp of sales goals, decisions are more aligned with resources to best amplify thematic programs. Being agile, marketers can quickly pivot campaigns to meet evolving buyer’s expectations useful for late breaking industry news and events. This is easier to accomplish with a smaller staff but not out of the reach of large well-organized teams where established process and procedures are even more important to be kept up-to-date. This nimbleness allows the incorporation of continuous feedback from Sales engagement activities with customers to adjust the tone and frequency of Marketing Automation touch-points.
One final caveat, it should be clear that all products and services are purchased in a unique way based on the audience and the place in the buying cycle with the consumer. Using MA-ICOGS sm illustrates, using real numbers, the benefits of automation on the bottom line.
About Carnegie Agency
Carnegie Agency is a full service, digital-first marketing agency, serving small-to-medium-size businesses with modernization of Websites, SEO, Writing/Editing and CRM implementation and monitoring. For more information, please visit www.CarnegieAgency.com