This the presentation from Eric Jacobson, from of the Marketing Roundtable-Marketing Return on Investment program.

1. Thoughts on Marketing ROI
From A Financial Perspective
Eric Jacobson, Chief
Financial Officer
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2. The Calculation of Marketing ROI
Marketing ROI = (Net Present Value of Customer)
(Marketing Cost to Acquire Customer)
For One-Time Sales, NPV = Net Profit (inc. subtracted marketing cost)
For recurring revenue businesses…
NPV=[Sum of Residual Cash Flows/ (1+r)^n] – Mktg Cost – Setup Cost
n= f(churn)
r = firm’s cost of capital
Calculate your ROI based on profit, not revenue
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3. Problem: Overvaluing NPV
• Marketers tend to overvalue new customers
because they overestimate the lifetime value
of customers’ cash flow
– Recurring Revenue disappears as customers churn
out
– Include a churn assumption in your ROI
calculation
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4. Problem: Chasing Bad Customers
• Companies want to acquire customers faster
– Therefore, spend more to acquire each customer
and offer price discounts
– People who respond to price discounts also churn
out the fastest
– Conclusion: Know and accept the natural limit of
demand for your product at its price
– Profit max: marginal revenue = marginal cost
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5. 5
Customer Retention
• This is a good place to spend money
• Much easier to get more revenue out of existing
customers than to attract new ones.
• But incremental benefit is difficult to measure
• Participation in loyalty efforts is self-selecting
• Need a control cell of people not offered the program
• Best loyalty comes from great customer service

6. Opinion: Good ROI
• WORD OF MOUTH MARKETING (Amplifinity)
– Use your customers to recruit others
– Turn them into advocates
– Motivate them with rewards
– Customers acquired by customers
• Spend more
• Churn less
• Become advocates themselves
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7. Opinion: Good ROI
• WORD OF MOUTH MARKETING (Amplifinity)
• Public Relations
• Outside / Inside Salespeople
• Tradeshows
• Website
• Google Advertising
• Social Media: Blogging, Facebook and
Twitter... can be almost zero cost
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8. Opinion: Bad ROI
• Printed Collateral
• Trinkets
• Print Advertising (Help company’s ego, but massive
investment needed to build brand.)
• 3rd Party Direct Mail
• Expensive creative
• Analyst relationships (everybody knows their
credibility is for sale)
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