Mastering Marketing ROI: How to Escape the Budget Black Hole

The rise of digital platforms has significantly enhanced marketing accountability and efficacy. In the pre-digital era, validating the impact of advertising, such as the halo effect from television or impressions from magazines and print, was challenging. However, with digital technologies, we have witnessed the emergence of ad tech, the rise of SEO and SEM, and the introduction of numerous attribution software tools. Now, marketers have a diverse set of opportunities and tools at their disposal to formulate robust ROI strategies that are measurable.

Despite these advancements, many companies still grapple with marketing spend. Understanding how to effectively track returns within the pipeline, especially in larger organizations, remains a significant challenge. This has led to a notable disconnect between marketing and finance. Surprisingly, even in technically advanced startup environments, there is often a failure to establish sound marketing operations early in the journey.

We welcomed Samantha Lloyd, co-founder and Managing Director of Skeleton Crew Agency. Lloyd’s extensive experience includes a decade of building organic growth brands and digital marketing channels for various B2B companies. Lloyd provided great insight into this current disconnect, why it still exists and how startups can develop sound marketing strategies that are measurable and meaningful.

Lloyd emphasizes the importance of understanding what to track and why, for both business growth and the long-term sustainability of the company.

Unraveling Marketing Misconceptions

There has been a historical aversion to marketing, especially in the early stages of startups. For companies who focus on the product or service they are selling, Lloyd highlights a prevalent perception of marketing as a budget black hole, viewed as an uncertain investment with potential returns.

“Typically, I find it very rare that there is a marketing brain in the founding team. As a result, you have highly technical or business minds who aren’t familiar with how to position and message on marketing channels and determine which ones are the best ones to go after. And as a result, they fear that they’re going to waste a lot of money and come to the conclusion that putting the time and attention into building a proper strategy is not realistic for them. And then of course, as the business grows you create this confusion because there are no marketing operations in place.”

Lloyd emphasized this fear of wasting money on ineffective marketing strategies can hinder startups from investing in this crucial aspect of business growth. The absence of a well-defined marketing strategy early on can lead to confusion as the business gains traction. Customers recognize the brand, but there’s uncertainty about how or where they became aware of it, creating a communication gap that can escalate as the business expands.

This is not endemic to only startup organizations; in corporate environments, the misperceptions about marketing contribute to imbalance in budget allocation, leaving marketing to continuously battle against being a lower budget priority. Lloyd said marketing tends to be overlooked, even in today’s business landscape. Despite the undeniable importance of growth in measuring a company’s success, marketing tends to be the last consideration, particularly in the technology sector.

Attribution: Show me the Money!

Lloyd cites the issue of traceability. In companies, the sales team’s outbound messages and activities are closely monitored through the CRM, allowing for clear visibility into returns and enabling prompt action. However, when it comes to marketing, despite being part of the go-to-market (GTM) strategy, there is often a sense of fuzziness. The absence of a robust operations stack hinders the seamless tracking of marketing activities through to the CRM.

There is a challenge in connecting marketing efforts to tangible outcomes, such as client acquisition and revenue generation. Whether in corporate or startup settings, Lloyd contends there seems to be a persistent difficulty in comprehending the marketing pipeline. She underscores the importance of providing leadership and the entire organization with the ability to understand these processes. Lloyd believes it’s the responsibility of marketers to ensure that the metrics they present are meaningful and clear to their audience. The goal is to enhance visibility, provide clarity, and demonstrate how marketing efforts contribute to the overall success of the business.

A recent article cited: “More than 50% of CMOs we surveyed said they face pressure from non-marketing leaders who tend to focus on the short-run effect of marketing spend and they are not patient for the long-run effects of marketing spending.”

This is ever-present when it comes to reporting activities with the ensuing performance outcomes.

One challenge with marketing, applicable to all leaders regardless, is the reporting frequency, often happening on a quarterly basis or even more frequently, especially in more dynamic environments like startups. Monthly reports are common, given the rapid pace of activities that necessitates updates to the board. Lloyd stressed the critical timeline for project initiation and demonstrable returns within two to three months, which provide the necessary metrics to support the continuation of these efforts.

This challenge becomes more pronounced when dealing with organic initiatives. While Lloyd maintains that returns on organic marketing can be realized relatively quickly, she suggests looking at the three to six-month timeframe for substantial results. As investment in channels grow, whether through increased content production or social media efforts, a more consistent and frequent return becomes visible—perhaps on a monthly or even weekly basis. However, in the initial stages, especially when experimenting to find the most effective strategies, immediate returns might not be as apparent.

For marketing leaders, the struggle lies in having tangible results to report promptly, demonstrating effectiveness and justifying budget allocations. This ongoing need for evidence, as per Lloyd, becomes crucial as they navigate the complexities of identifying and investing in channels that prove to be the most impactful for the business.

The Elusive Halo Effect

The halo effect is a phenomenon where the impact of certain marketing efforts, especially traditional ones like TV commercials, is challenging to directly attribute to specific outcomes. Large organizations have historically recognized the value of TV and mass media for building brand awareness and influencing sales, even if the direct connection remains elusive.

Lloyd cautioned about the complexities of the halo effect, emphasizing its potential to lead to reliance on “vanity metrics.” When viewers repeatedly encounter a TV commercial and eventually make a purchase, tracking the direct impact becomes a complex task. Despite efforts like QR codes or specific web pages, the connections can feel loose, relying heavily on assumptions.

Lloyd illustrated the point: A press release triggered a significant increase in inbound traffic, yet the actual clicks on UTM(urchin tracking module)-coded links, snippets added to the end of a URL to determine attribution, were minimal. This discrepancy highlights the challenge of tracking and attributing results even when proactive measures are in place.

The uncertainty arising from the halo effect can lead to a reliance on vanity metrics, such as viewership numbers for TV commercials or digital impressions. These metrics, like their traditional counterparts, lack full trackability in ways that truly benefit businesses. Lloyd advised that these metrics may not provide the clear, actionable insights needed to make informed marketing decisions.

The KPIs that Matter

Determining the effectiveness of different channels is important. Lloyd believes the ultimate metric for gauging the effectiveness of any marketing channel is its contribution to the sales pipeline. She emphasizes the importance of understanding the quantity and quality of customers who are converting. Are these big industry players, or are they smaller entities with faster onboarding processes and quicker closures within 30 days? The core of effective measurement, as per Lloyd, is the sales conversion. More importantly, the quality of customer will impact the customer lifetime value and benchmarks will be established through churn rates, and product or service engagement over time.

Lloyd points to the significance of website traffic and traffic-to-lead conversion rates. These metrics serve as critical benchmarks for assessing how effectively the marketing efforts are converting prospects into leads, ultimately influencing the sales pipeline.

For events, which can seem harder to measure, Lloyd recognizes that benchmarks can vary based on the event type. Rather than relying solely on published benchmarks, she creates tailored forms for the sales team to collect leads. She, then, evaluates the engagement of these leads in the sales pipeline, considering factors like contract size and the time it takes to close deals post-event. Lloyd says, typically, it takes one to two events to close a customer and stresses the importance of ongoing relationship-building.

Brand building with offline channels needs to be treated differently. Lloyd states that while impressions can be approximated based on city demographics, precise measurement becomes elusive. She notes the importance of understanding the strategic value of such brand-building efforts, even if direct tracking is challenging. Investing in offline channels, she suggests, requires a belief in their alignment with the brand positioning, recognizing that these efforts may not be as easily tracked as their digital counterparts.

David vs. Goliath

Competing against larger, more tenured companies and carving out a niche can be daunting, especially against established giants. Lloyd shared some insights to accomplish this using the modular furniture business example.

For startups in the modular furniture industry, competing with a behemoth like Ikea presents clear challenges. Ikea’s well-established brand and ubiquitous presence make it the default choice for consumers seeking new furniture. Breaking into this space requires diverting attention away from the Ikea brand, which is made more difficult by ingrained consumer behaviors and habits. Additionally, smaller players cannot compete with Ikea’s substantial budget for both offline and online channels.

Smaller competitors must identify openings that Ikea has not yet explored but align with their target customers. Lloyd suggests several strategic considerations:

• Digital-First Approach: “You can save customers money by being solely digital and direct to consumer.” This approach differentiates startups from Ikea’s extensive physical storefront network, potentially appealing to cost-conscious consumers. 
• Strategic Partnerships: Lloyd recommends exploring partnerships with logistics companies, like Ikea’s collaborations: “Is there a logistics partner you could have that could also put your brand logo on more things to get you in front of more customers?” This strategic move leverages partnerships to enhance brand visibility. 
• Social Media Advertising: Leveraging social media, Lloyd underscores that “social ads are great channels if you’re a direct-to-consumer or a B2C brand… it’s a really good and inexpensive way to test the market.” This cost-effective approach enables startups to compete with established players by reaching their target audience through targeted ads. 
• Hyper-Local Focus: By concentrating efforts on specific localities where shipping costs are minimized, startups can foster local interest. Lloyd suggests, “…focus on the area where maybe shipping is the least expensive for you.” This hyper-local strategy enhances visibility within communities, potentially creating a loyal customer base.

Although industry giants may have more resources, it doesn’t rule out opportunities for startups. Success stories, like Wayfair’s emergence, showcase that it’s possible to enter the market, even against formidable competition.

While the competition is fierce, strategic thinking, differentiation, and understanding where industry giants’ presence might create gaps for startups are key elements in the quest for success.

Bought, Owned, and Earned Channels and Managing the Funnel

The concept of “bought, owned, and earned” properties was introduced. This categorization of media properties became synonymous with the rise of digital, where marketers realized the internet could not easily segregate audiences effectively as previously, through print, direct mail, TV and radio. Suddenly, the internet has become a medium where your digital storefront, your social channels, your paid ads, and your PR all converge. Each one has a variability of control:

• Owned channels are where marketers have entire control of the brand: their website, their email marketing, their product channels, their social media.
• Bought channels involve purchased marketing, such as press releases and paid advertising. Performance is correlated with spend, audience constraints and precise targeting.
• Earned media is a function of influence, ie the size and engagement of the audiences in social media channels, PR and email marketing. Outlets can approach a company for featuring owned channels, like social media and email marketing.

The fine-tuning of strategies across these channels is imperative especially when identifying new customers and where across this Bought/Owned/Earned spectrum they come from.

“…it’s not a question of spend at the top of the bottom, at the top or the bottom of the funnel. It’s yes, and there’s a misunderstanding with other executives that you can steal from Peter to pay Paul, but it doesn’t work. Brands have to be more differentiated. They have to knock on the door and say hello to customers. We don’t do a better job of this, and I don’t think customers are going to care if we provide an offer”.

As per Lloyd, there is a constant juggle between competing teams’ priorities and shares her ideal marketing budget where investments flow seamlessly into all stages of the funnel. However, in the real world, strategic budgeting involves setting aside around 10% for experimentation—a crucial element in discovering new, impactful channels.

Attribution back to the pipeline is the catalyst to making this real but, as mentioned earlier, this is still a challenge. LLoyd outlines key metrics that matter to marketers and financial organizations alike. For B2B marketers, she stresses the importance of a 10% month-over-month increase in site traffic, reflecting engagement and content effectiveness. Conversion rates from traffic to leads, standing at around 1.8%, become a benchmark for success. Lloyd marks the importance of the lead qualification process, emphasizing the importance of filtering out non-relevant leads early on.

Let’s not forget the critical role of sales-qualified opportunities (SQLs) in understanding the pipeline contribution. The data exchange between marketing and sales is imperative for gauging the health of leads and determining the time to close, underscoring the significance of balanced contract sizes and understanding customer behavior post-closure.

LLoyd advocates for a holistic approach to marketing budgeting, dispelling the notion of an either-or scenario between top and bottom funnel strategies.

Decoding Customer Insights: Building an Optimal Tech Stack

The tech stacks a marketer uses today will be integral to obtaining comprehensive analytics across the pipeline. Lloyd underlines, “You could look beyond the actual sale itself and determine over the long haul which ones are your best customers,” setting the stage for a profound exploration of customer behavior.

Lloyd acknowledges that while budget may be constrained, she recommends Google Analytics as the foundation. With its simplicity and cost-effectiveness, it provides a fundamental layer of data tracking, ensuring a repository for future analysis.

In addition, Mixpanel is a valuable addition. Beyond website tracking, Mixpanel monitors product usage, offering a holistic view of the customer journey. Lloyd notes the importance of understanding both website and product usage to grasp the flow from lead generation to conversion.

Lloyd dispels the reluctance some marketers harbour towards Customer Relationship Management (CRM) systems. “A marketer has to be in the sales CRM and understand what’s happening,” she asserts. Whether it’s HubSpot or Salesforce, the CRM is the nexus where marketing efforts and sales activities converge, and marketers need to know how to the setup attribution models and events tracked within the CRM to create a seamless connection between marketing and sales teams. This ensures visibility into product usage data, an integral part of understanding the customer’s interaction with the brand.

Lloyd also advocates leveraging internal tools like Slack to foster real-time collaboration and data visibility. Integrations with Slack enable automated publishing of analytics and social media performance, providing teams with instant insights and encouraging active engagement, delivering much more efficiency in the process.

The tech stack is not just about capturing immediate metrics; it’s about fostering a deeper understanding of customer behavior over time.

The Budget Black Hole is Now More Transparent

Digital will become ever more complex over time with the use of generative AI to build more insights and automation into the business. For startup founders, developing a holistic mindset from the beginning that allows for functional accountability, tracking, collaboration and cross-functional integration is essential in paving the way for, not only, strategic alignment but also pipeline performance across the organization, in a way that’s sustainable.