When you spend money on branding, how much can you expect in return?
First things first — there’s a distinct difference between branding and marketing. David Ogilvy famously defined a brand as “the intangible sum of a product’s attributes: its name, packaging and price, its history, its reputation and the way it’s advertised.” More recently, the definition has been expanded to your brand being whatever your customers say it is — your essence and the stories being told by your prospects and customers. At Toolbox, we define branding as a long-term investment in positioning your business.
Marketing, on the other hand, is a business activity that involves spending money to generate revenue, either as a one-off tactic or an ongoing campaign. Calculating your return on investment (ROI) for both present challenges.
“Half my advertising is wasted; I just don’t know which half.”
— John Wanamaker, U.S. department store merchant
A strong brand is one of the most important assets a business has
Of course we believe a brand is a valuable asset; branding is Toolbox’s bread and butter. And thanks to a successful track record, we know that a strong brand builds trust, loyalty, familiarity and brand recognition, resulting in more people being interested in what you do. The result of a strong visual and verbal brand, when backed by consistent marketing tactics and reliable business practices, will be steady growth. When people are familiar with and trust your brand, you can expect them to more quickly convert from an anonymous website visitor to a prospective customer. That means never letting your foot off the marketing pedal. More on that later…
Calculating branding ROI
The benefits of branding are substantial and tangible, but can be tough to calculate. When you’ve positioned your company with a strong brand, word of mouth increases, which expands reach and awareness. A strong brand reinforces your reputation, which accelerates the growth of your business. Your brand is also an asset you need to maintain and manage on a regular basis. You can measure the effectiveness of a strong brand in several ways:
- Your ability to explain your business to people, interact, position yourself as a thought leader, sell prospects on your ideas and, ultimately, secure new customers
- Differentiating your company from your competitors
- Word of mouth
- Loyalty, repeat business and customer retention
- Customer lifetime value
- Google search volumes — by monitoring search volumes on your branded terms and watching for fluctuations, you can see if your branding efforts are paying off
Calculating marketing ROI
Calculating marketing ROI can be easier but relies on how you measure impact and costs. Formulas and algorithms vary from company to company and campaign to campaign. Focusing on one simple metric, your revenue-to-marketing cost ratio, can help you determine the success of your campaign.
Revenue-to-marketing cost ratio represents how much money is generated for every dollar spent on marketing. On a scale of 1 to 10, a good ratio is 5:1, right smack in the middle.
A good marketing ROI is 5:1
- Five dollars in sales for every dollar spent on marketing yields a 5:1 ratio
- A ratio of over 5:1 is considered a strong marketing ROI
- A 10:1 ratio is exceptional. It’s possible but shouldn’t be expected
- 2:1 marketing ROI is break-even and an opportunity to consider soft metrics (see next bullet)
- Soft metrics, like brand awareness and social media likes, may (or may not) drive future sales
- Your target ratio is largely dependent upon your cost structure and will vary depending on your industry, market and the economy
- Marketing is a long-term process requiring multiple touchpoints that lead to sales growth over time
- ROI in the early months of your marketing campaign may be low or flat as your campaign starts to penetrate your target market
Calculating revenue generated for all marketing activity is no easy task. Certain tactics like social media and online channels target audiences long before they finally make a purchase. Just because a marketing activity can’t be precisely measured doesn’t mean you shouldn’t consider trying it.
There are plenty of other factors that affect whether or not your marketing is working, including the customer experience once you get them in the door and the quality of your product or service. As we like to say here at Toolbox, “We can only get customers into a bad restaurant once.” And to quote David Ogilvy one last time, “Great marketing only makes a bad product fail faster.”
We work hard to ensure a good return on your branding and marketing investment. We ask that our clients work hard to ensure they provide a product and service that has their customers asking for more.
About Toolbox Creative:
Toolbox Creative offers a powerful engine to grow technology brands and take on the big players in the field. We help innovative technology companies look and sound as good as they truly are, increasing brand equity, boosting media buzz and making the most of marketing dollars.