Tuesday May 8, 2012

Marketing and the Infinite Test: Improving ROI Without a Visible Ceiling

In my opinion, the biggest reason that marketing can be frustrating to business owners is this: when you're dealing with marketing, you're dealing with probabilities. With most other phases of production, you can make projections based on some concrete numbers - if you put in x number of hours and y amount of materials, you'll end up with z products. With most marketing channels, you can plan what you put in, but you can never really know what you're going to get out, and even then, it's difficult (and sometimes impossible) to know if you could've gotten more. Sure, big businesses have elaborate models to estimate market saturation based on reams of data, but most of us don't have access to a sample large enough to make those conclusions.

The problem is that the fickle nature of the field of marketing doesn't excuse an uninformed approach - you can't just throw your hands up and sink money into something without some way to evaluate a return. You must be able to evaluate because you must be able to optimize. The good news is that you can still do both, just like with any other business process - you just have to get comfortable doing it without a visible ceiling to your results.

Any successful business owner or executive knows how crucial it is to measure results, and marketing is no different - but not everyone is utilizing that information to optimize campaigns and investments. Many of our clients manage marketing channels like this:

  1. Investigate channel that was suggested or discovered
  2. Determine level of investment based on current budget
  3. Execute
  4. Analyze results
  5. Drop channel, continue channel, or increase investment in channel

It's a simple and intuitive thought process, but it's incomplete. What's missing? The optimization.

Everyone should view every single marketing campaign as a test, even if that channel has already proven to be profitable. Since you often don't know if you've achieved saturation for a given channel, you always have to assume you can do better.

Here's a hypothetical example: Company X is running online ads via a network that is targeted to its ideal audience. Company X is testing two different ads with distinctly different copy - one ad focusing brand-heavy message to differentiate it from its competition, and the other ad taking a more basic approach and just listing Company X's services. Company X's budget for the channel is split evenly between the two sets of copy, so they'll receive the same amount of impressions. After a few months, Company X evaluates results and sees that the latter (basic) set of copy performed significantly better than the former, and that the results produced by the more successful set provided a positive ROI.

At this point, many companies would simply drop the poor performing ad, focus the entire budget on the better performing ad, and re-evaluate next year. Company X, however, decides to divert just three quarters of the budget to the better ad, and use the remaining quarter for further tests. Now that they know that customers will respond to the "basic message," all new tests will feature different approaches to this message. For example, the first test may list pricing, the next test may try a different headline, and the third may list products or services in a different order. Each test that outperforms its control group will become the new control group for further tests. Company X may never know when their online ads have reached peak effectiveness, but they will know that they're always moving in the right direction.

By treating all of your marketing campaigns as tests and constantly improving your tactics based on your data, you can be confident that you are maximizing your ROI, even when you are dealing without a line of sight to your ceiling.

Michael Holley
Simple Machines Marketing

Written by Michael Holley | Tags: ROI

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