Mythbuster: Marketing's obsession with efficiency
Les Binet and Sarah Carter get a little bit angry about some of the nonsense they hear around them... like marketing's obsession with efficiency.
We had an email exchange with someone the other day. It was about measuring the profitability of a campaign. It seemed we were talking at cross purposes, until we realised why. We thought we were talking about profit. But they were talking about RoI, and thought it meant the same thing.
This seems to arise a lot now. In much the same way that 'brand equity' was used a decade or so ago, there is a perception that 'RoI' is a good thing, without much real appreciation of what it means. People talk as if profit and RoI (Return on Investment) were interchangeable, but they are not, and it's important to understand the difference.
Suppose you spend £10 million on an ad campaign, and that the profit on the extra sales generated amounts to £11 million. Then the net profit, after subtracting the cost of the campaign, would be £1 million. Net profit is a good measure of effectiveness – the more profit, the more effective the campaign.