Changing economic realities are leading us to challenge traditional ways of doing things, and these days every expenditure and investment made by a firm is subject to close scrutiny. Those responsible for making decisions about a firm’s marketing spend are being increasingly pressured to demonstrate that resources allocated to business development are generating a solid return on investment. However, measuring marketing ROI using conventional models and metrics is something that is difficult, if not impossible, to do. Here’s why conventional ROI models and metrics don’t work.
1. TOO MANY VARIABLES. When firms try to measure marketing ROI by tracking supposed performance indicators (e.g., increases in billable hours, revenue), the figures that flow from the analysis don’t often provide an accurate read on actual marketing ROI because there is almost never a direct causal link between any given marketing initiative or activity and a change in quantifiable aspects of performance.
Changes in “numbers” typically reflect the combined impact of a wide-ranging set of constantly shifting variables — not the impact of one isolated business-development initiative or activity. Without a direct causal link between a marketing activity and a change in numbers, traditional ROI measures break down.
2. RESULTS ARE NOT IMMEDIATE. Law firm marketing efforts generally don’t lead to concrete, measurable results for a long, long time — often for many years. We are all familiar with situations in which a potential client has been pursued without success for extended periods of time, and then suddenly and unexpectedly – years or sometimes decades later – they sign on as a new client. Results typically don’t come quickly.
Unfortunately, traditional ROI formulas aren’t designed to capture “success” that accrues over the longer term — a limitation that seriously compromises how helpful such formulas can be, and that has the added downside of actively discouraging marketing activity that won’t provide results measureable in the short term, because such activity won’t be recognized or rewarded.
3. INDICATORS OF SUCCESS OR RETURN OFTEN CAN'T BE MEASURED BY NUMBERS. Measuring ROI is all about assessing progress and success against well-defined marketing objectives. While it may be true that marketing objectives might ultimately relate to increased billings or revenue, it is often most appropriate for a firm to measure returns that reflect progress along the road to quantifiable success. Examples of soft objectives that can’t be measured by numbers include improved relationships with existing clients, improved client retention and increases in business development efforts and activity. These are good working objectives, but because they can’t be quantified, they don’t work with old-school ROI measures.
So, if conventional methods of measuring ROI don’t work, how should a firm assess its return on marketing? Simple: use an unconventional approach. Instead of asking what would happen if you made the investment, ask what would happen if you didn’t make the investment. Think in terms of assessing the cost of not acting.
In order to do this kind of analysis, you need to take a look at the likely outcomes of both making the investment and not making the investment. You may find that the “cost” of making the investment (in terms of dollars spent, time spent and human capital) is less than the cost of not doing it (in terms of lost dollars, lost time and human capital). If that’s the case, you have a strong basis on which to conclude that the “return on investment” is a positive one. Even though you might not have a concrete number, you know that investing will cost less than the alternative.
Interestingly, sometimes it’s much easier to quantify the cost of inaction than the return on investment. For example, if your lack of business-development initiative leads to the loss of a major client who generated a consistent amount of billings on an annual basis, the cost of not preserving that relationship is pretty clear and easy to attach numbers to. Similarly, if you don’t provide your lawyers with adequate marketing support and training, it’s relatively easy to assess the cost to the firm of lawyers who can’t generate work or who leave the firm.
Sometimes the best way to figure out what you need to do is to figure out where you would be if you didn’t do it.
Donna Wannop, LLB, MBA, is a practice-development coach (www.wannop.ca) who has worked exclusively with the legal profession for over 20 years. She can be reached at [email protected].