Andrew Keene is President & CEO of AlphaShark Trading, which he originally founded as KeeneOTheMarket.com in 2011. Previously, Andrew worked as a proprietary trader at the Chicago Board Options Exchange. He began his career in the prestigious Botta Capital 'clerk-to-trade' program, and would eventually co-found KATL Group, where he was the largest, independent on-the-floor Apple trader in the world.
If you've ever worked with a digital agency to market or advertise your products and services online, you were probably told your campaign's ROI is the most important measure of performance. For many firms, this is true. If your company is working with a thin marketing budget or high overhead, it's important to spend every dollar efficiently.
I am fortunate enough to run an online business that has low overhead and solid cash flow. Because of this, marketing ROI becomes less important to me. I offer customers a digital product, so the marginal cost to add another customer is almost zero. If someone tells me that I can acquire a new customer for $90, and I know I'll make $100 total from that customer, I'll do it every time. I'll spend any amount of money if I know I can make even a fractional return on my investment.
Put simply, if margins in other areas of your business are good, you shouldn't obsess over the ROI on advertising spends. This might seem counterintuitive, so let me explain why this makes sense for many businesses.
Every Dollar in Profit Matters
Profit (not profit margin) matters above all else. I can afford to make investments that have low ROI because they still add to the bottom line. When we run an ad campaign pushing a particular product or service, I track important metrics. One of these metrics is ROI, but I don't pay too much attention to it. I have an established customer base and solid monthly cash flow. I can afford to spend money on advertising even if the initial ROI is low. While I can't afford a razor-thin return on every single campaign I run, those who are obsessed with ROI leave money on the table when they choose not to run lower-performing campaigns.
For brick-and-mortar businesses, this probably doesn't make much sense. But for businesses that exist almost entirely online and deliver their products/services digitally, the low marginal cost of adding a new customer can give you a low break-even point. Understand how much your customer acquisition costs are and know that if you can get even $1 more, you will be profitable. I don't want to leave money behind, even if it may seem like it's not worth the initial cost.
When Your Business Runs Like a Machine, ROI Isn't as Important
When a new prospect clicks on one of our ads and provides us with contact information, the process of trying to sell that person is almost completely automated. We achieve this using some amazing marketing automation technology that in recent years has become very affordable. Once someone expresses interest in our services or products, we can send them emails and information at a pre-determined cadence. This means that I don't need salespeople calling them to pitch products, and I don't need to worry about someone on my team following up via email. We can automatically change the sequence of messages a potential customer will receive based on their actions as well.
There are now dozens of platforms that allow for dynamic and automatic engagement and can help you transform into a leaner organization -- once again, making that ROI number less and less important.
There Are Intangible Returns You Can't Measure
Any customer from whom I can turn a profit is a good customer. If an ad campaign has an ROI of only 1 percent, the returns I get by growing my brand and exposure still increase. Two years after I started my business we grew exponentially without spending a single dollar on advertising or marketing. We did this via word of mouth and social media outreach, so I know firsthand how valuable this exposure can be.
I would love to have kept things this way, but the targeted nature of digital advertising allows me to gain exposure to key demographics that are more likely to buy my products. If I can turn a profit on these campaigns (however small), I also gain intangible value in the exposure it gives my brand. The foundations of my business are built on exposure like this. A customer I might profit $1 on could bring me three more customers via word of mouth, effectively lowering my cost per lead on the campaign. This can't be measured effectively, so it's impossible to boil the success of a campaign down to one number like ROI.
Not everything here will make sense for every business. We are selling an extremely scalable product with a fixed production cost and no marginal cost of delivery. But if your company can leverage technology and make the process of nurturing new leads and turning them into buyers more automatic, you can stop worrying so much about ROI -- and start focusing on how much money you're bringing in the door instead.