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The formula for calculating martech ROI

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The formula for calculating martech ROI

I run a MarTech company and everyone on our team clearly understands the importance and value of MarTech and yet, when I or someone else makes a pitch for a new addition to our stack, the first question my co-founder asks is “what’s the return on investment (ROI) if we buy that product?” It seems we’ve been discussing ROI a lot lately and because we’re a relatively small team a discussion usually suffices.  A discussion won’t suffice as we scale, we need to bring more discipline and structure to the process so this week I’ve been researching (aka googling) how others approach this challenge. I didn’t find anything specifically related to MarTech but did find a number of articles1 related to calculating ROI for IT technology which were helpful. 

For products where there is a tangible cost benefit in the form of new revenue, measurable productivity improvements, or cost savings, a straight-forward ROI calculation is workable.

The ROI formula

((Gain – Cost)/Cost) x 100 = ROI%

Some notes about leveraging this formula:

  1. Time period: Three years is the most common period for calculating gain. 
  2. Costs: Costs should include all expenses to implement and manage the product for the three-year period not just the monthly or annual subscription costs. This includes training expenses. 
  3. In calculating the gain and costs it’s important to consider the trajectory of both if you expect to add more product users over the three-year time period. 
  4. An initial ROI calculation is a best estimate, the only way to validate the ROI is to implement the product and revisit your assumptions regularly over time. Measuring actual ROI will provide data that will be valuable in projecting ROI for new products that are similar in structure or value. 
  5. Document your detailed assumptions, it’s the only way you’ll be able to revisit the calculation. 
  6. Set standards where possible. For example: If you are calculating productivity savings you want to make sure that everyone in the organization is using the same hourly rate for each job function.
  7. If you are not sure how to approach this calculation, ask your vendor for help. They should understand the value they bring to your environment and anecdotal data from other customers.  
  8. Some of these calculations will be complicated due to multiple quantifiable benefits. For example: When I look at my product, value can be quantified by reduced technology expenses, productivity gains, cost avoidance, and a host of additional minor elements. If you can get to a desired ROI without quantifying every single element then good enough. The more complicated and the more variables the harder to maintain. Focus on the elements with the biggest impact. 

For some products it’s virtually impossible to quantify the ROI which has got me thinking about how to qualitatively assess the products in my stack and the overall stack itself.

In a previous life, I was involved in an angel investment group and one of the most difficult tasks in funding early-stage startups was to assign a value (valuation) to a company. There are at least eight different formulas (probably more) for calculating valuation but they all are calculated using company financials. In an early-stage venture, company financials are a best guess so any calculation done against those is going to be flawed.  For that reason, most of the angel community relies on a combination of looking at valuations for similar companies and some form of qualitative assessment, the most common being The Berkus Method. The Berkus Method identifies five critical risk factors — idea, team, prototype, relationships/build-on-demand, and sales — and an investor assigns a dollar value to each based on the company’s progress in each area to reach a final valuation number. 

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A ‘Berkus Method’ for martech

We need a Berkus Method equivalent for marketing technology, a method that provides the ability to quickly assess the value of the products we use and the stack overall. Instead of assigning a cash value to each component, the idea would be to assign a rating. I’ve been thinking about the key components and have come up with the following as a first draft:

  1. Satisfies the use case for which it was acquired.
  2. Extensible to support additional use cases.
  3. Integrates with other products in the stack.
  4. Ease of deployment and use.
  5. Data contributor.
  6. Data source.
  7. Contributes to driving revenue and customer lifetime value.
  8. Contributes to lowering customer acquisition costs.
  9. Contributes to creating a positive customer experience.
  10. Contributes to customer engagement.
  11. Enables new marketing capabilities.
  12. Enables new marketing channels.
  13. Supports data compliance requirements.
  14. Enhances security.
  15. Critical to marketing.

For each component, the user would assess contribution on a scale (1 to 5 or 1 to 10) and then total the assessments and divide by the number of components rated.  Not every component would be relevant to every product so the number of components rated would be variable product to product. Are these the right components? Should there be more or less?

I’d love some help from our MarTech community in refining this idea, finalizing the component list and thinking through how to extend this to create an overall stack value. Please reach out directly with your thoughts.  Have any of you created something like this or an alternative within your organization that you would be willing to share? With more and more money being spent on marketing technology now is the time to jump on this before we are under or pressure to reduce technology costs.


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Investing in new business tech: How to calculate ROI;

Top benefits of calculating ROI for technology investments;

Calculating ROI on Information Technology projects;

7 Tips for How to Calculate ROI Percentage for Technology Investments.


Opinions expressed in this article are those of the guest author and not necessarily MarTech. Staff authors are listed here.

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About The Author

Heres how startups and small companies should build their marketing

Anita Brearton is founder and CEO of CabinetM, a marketing technology management platform that helps marketing teams manage the technology they have and find the technology they need. A long-time technology marketer, Anita has led marketing teams from company inception to IPO and acquisition. She is the author of the Attack Your Stack and Merge Your Stacks workbooks that have been written to assist marketing teams in building and managing their technology stacks, a monthly columnist for CMS Wire, speaks frequently about marketing technology, and has been recognized as one of 50 Women You Need to Know in MarTech.

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MARKETING

Trends in Content Localization – Moz

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Trends in Content Localization - Moz

Multinational fast food chains are one of the best-known examples of recognizing that product menus may sometimes have to change significantly to serve distinct audiences. The above video is just a short run-through of the same business selling smokehouse burgers, kofta, paneer, and rice bowls in an effort to appeal to people in a variety of places. I can’t personally judge the validity of these representations, but what I can see is that, in such cases, you don’t merely localize your content but the products on which your content is founded.

Sometimes, even the branding of businesses is different around the world; what we call Burger King in America is Hungry Jack’s in Australia, Lays potato chips here are Sabritas in Mexico, and DiGiorno frozen pizza is familiar in the US, but Canada knows it as Delissio.

Tales of product tailoring failures often become famous, likely because some of them may seem humorous from a distance, but cultural sensitivity should always be taken seriously. If a brand you are marketing is on its way to becoming a large global seller, the best insurance against reputation damage and revenue loss as a result of cultural insensitivity is to employ regional and cultural experts whose first-hand and lived experiences can steward the organization in acting with awareness and respect.

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How AI Is Redefining Startup GTM Strategy

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How AI Is Redefining Startup GTM Strategy

AI and startups? It just makes sense.

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More promotions and more layoffs

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More promotions and more layoffs

For martech professionals salaries are good and promotions are coming faster, unfortunately, layoffs are coming faster, too. That’s according to the just-released 2024 Martech Salary and Career Survey. Another very unfortunate finding: The median salary of women below the C-suite level is 35% less than what men earn.

The last year saw many different economic trends, some at odds with each other. Although unemployment remained very low overall and the economy grew, some businesses — especially those in technology and media — cut both jobs and spending. Reasons cited for the cuts include during the early years of the pandemic, higher interest rates and corporate greed.

Dig deeper: How to overcome marketing budget cuts and hiring freezes

Be that as it may, for the employed it remains a good time to be a martech professional. Salaries remain lucrative compared to many other professions, with an overall median salary of $128,643. 

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Here are the median salaries by role:

  • Senior management $199,653
  • Director $157,776
  • Manager $99,510
  • Staff $89,126

Senior managers make more than twice what staff make. Directors and up had a $163,395 median salary compared to manager/staff roles, where the median was $94,818.

One-third of those surveyed said they were promoted in the last 12 months, a finding that was nearly equal among director+ (32%) and managers and staff (30%). 

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Extend the time frame to two years, and nearly three-quarters of director+ respondents say they received a promotion, while the same can be said for two-thirds of manager and staff respondents.

Dig deeper: Skills-based hiring for modern marketing teams

Employee turnover 

In 2023, we asked survey respondents if they noticed an increase in employee churn and whether they would classify that churn as a “moderate” or “significant” increase. For 2024, given the attention on cost reductions and layoffs, we asked if the churn they witnessed was “voluntary” (e.g., people leaving for another role) or “involuntary” (e.g., a layoff or dismissal). More than half of the marketing technology professionals said churn increased in the last year. Nearly one-third classified most of the churn as “involuntary.”

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Men and Women

Screenshot 2024 03 21 124540Screenshot 2024 03 21 124540

This year, instead of using average salary figures, we used the median figures to lessen the impact of outliers in the salary data. As a result, the gap between salaries for men and women is even more glaring than it was previously.

In last year’s report, men earned an average of 24% more than women. This year the median salary of men is 35% more than the median salary of women. That is until you get to the upper echelons. Women at director and up earned 5% more than men.

Methodology

The 2024 MarTech Salary and Career Survey is a joint project of MarTech.org and chiefmartec.com. We surveyed 305 marketers between December 2023 and February 2024; 297 of those provided salary information. Nearly 63% (191) of respondents live in North America; 16% (50) live in Western Europe. The conclusions in this report are limited to responses from those individuals only. Other regions were excluded due to the limited number of respondents. 

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Download your copy of the 2024 MarTech Salary and Career Survey here. No registration is required.

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