Measuring Return on Investment is Fake Science

Measuring Return On Investment Is Fake Science.  At least the way some people try and convince you that it’s measurable.  Or I could say Measuring Return On Investment of your advertising is problematic. Here’s why and what’s really important.

When I talk to business owners and managers about advertising options, they want to feel good about the money they are going to spend.

Did you see that?

They want to feel good.

They want to feel smart, confident, happy and wise.

Often times this feeling comes from examining facts and figures and from calculating the Return On Investment they will get from spending (investing) in advertising.

This is such an imperfect science that we should eliminate it all together but like I said, people want to feel good when they are going to spend money.

I was talking with a friend recently and we came up with a return on investment that looks like this:

For every $3000 he spends, he needs 3 sales to break even and the 4th sale produces a profit. This is based on 3 years of being in business and the knowledge that he has of his average sale, expenses and those operating numbers.

Great information, I wish more business owners knew this.

What we don’t know is how to accurately track the Return On Investment of each individual advertising and marketing message.

Here’s why: His truck is logoed up and has his contact info. When he is driving down the road or sitting in traffic, his truck is planting marketing seeds (impressions) on future customers. You can’t accurately measure the Return On Investment of his vehicle wrap can you?

He takes part in consumer trade shows. Hundreds of people have seen his display and dozens have spoken with him each year. Only a small percentage of the people who see his display (the ones he talks to and gets contact info from) are trackable for Return On Investment measurement.

Advertising and marketing messages overlap. We are exposed to a business via multiple methods which nullifies the results of tracking the Return on Investment of each individual advertising and marketing message.

The web was supposed to be the ultimate source of accurate and fool proof tracking, but it falls victim to the same limitations of measurement that off line marketing has.

You could try combining the two which might help, or produce some really weird and useless ad campaigns like this one from 2012 that tried combining Billboards with QR codes: 

So how do you deal with Return On Investment as a way to measure the success of your advertising campaign and more importantly how do you feel good about spending money on advertising?

Ask the right questions.

Know the limitations.

Deal with trustworthy people.

Here’s a question I usually ask when I am talking with a potential advertising partner:

How are we going to determine the success of your advertising?

And then we will dig in with the knowledge of the limitations I mentioned and come up with an agreeable formula.

Or sometimes we won’t.

In the situations where we know it is impossible to track a Return On Investment of dollars spent versus dollars earned, we look for other methods to determine the success.

Those methods can include:

Year to Year growth.

Perceived name recognition.

Anecdotal stories.

Increased website traffic.

I even have some advertising partners who spend money with me because of the extra stuff that I do that others don’t.  The marketing consulting and coaching that I really enjoy.

I strive to provide value that goes beyond dollars because I see things differently.   I have a few decades of experience working with a few hundred business people and organizations that were my real life laboratory in this science.

That’s why I say Measuring Return On Investment Is Fake Science. In the advertising and marketing world, it’s an ongoing combination of art and science with the knowledge that it is rare, possibly impossible to be 100% accurate.  But that’s okay.