ROIing To the Poor House

It’s vitally important to measure the effectiveness of marketing campaigns. 

It’s also vitally important not to measure the effectiveness of marketing campaigns with ROI. 

I understand its allure. “Marketing is an investment,” we say earnestly to skeptical finance departments. “You must spend money to make money. See? That number is positive!” 

But let’s say you are optimizing for ROI. You can make it a little better by lopping off the bottom quarter of your audience, even if they are making money. And your ROI goes up. So, you cut a bit more, and ROI goes up a bit more. Rinse and repeat. 

Pretty soon, your target list of 100,000 people becomes 75,000, then 60,000, then 50,000, and so on. Each time, ROI goes up, but the thing you actually need—net revenue—goes down. 

You get better and better at fundraising from fewer and fewer people until the point at which you are the world’s expert on getting no one to give. (Or maybe one person; I know I could always count on my mom to donate to a piece I’d written. 100% response rate, strong ROI.) 

OK, you say, but what if we held the audience constant in a classical A/B test, for example? 

Would you rather spend $50,000 to get $100,000 for a net ROI of 100% or spend $100,000 to get $180,000 for a net ROI of 80%? 

Or, to simplify, would you rather have $50,000 or $80,000? This sounds like a second-grade math test (the Pac-Man eats the larger side!) But if you make your decisions based on ROI, you may be picking the smaller dollar amount to get the larger percentage. 

A good rule of thumb is that if you must choose between percents and dollars, remember that only one of them says right on it that it’s good for spending on all debts, public and private.  

This is far from an academic exercise. As costs increase in all channels, it’s natural and correct to think about how to cut costs without sacrificing results. But it’s also good to look at the other side of that coin—how can you spend more to make even more? 

It’s especially relevant as we talk about the value of 1:1 marketing. It costs a bit more – in time, thought, and treasure – to customize your communications beyond [FNAME] and ask strings. Your costs will increase slightly. Your ROI may even go down (although not likely). But your net revenue is likely to rise as you get closer and closer to the personal, individual reasons every donor has for giving. 

Over time, that investment will have a return, whether it shows up in your ROI calculation or not. Down the other road lies only managing decline.