Why ROI might be the wrong metric for your brand strategy and what financial metrics you should use
“What’s the ROI on your brand strategy?” As a brand strategy consultancy, we are asked this a lot. And it’s wholly correct to expect a financial benefit from doing brand work. However, if you’re using ROI as your metric for brand strategy work, 1) you’re using the wrong metric, and 2) you’re not asking enough of your brand strategy work.
Why? Because brand and brand strategy are tools for generating long-term business value that’s a net multiple of your investment, and not just an incremental return. The impacts of brand strategy can and should apply to both operational and revenue-generating sides of your business. As such, key performance indicators for brand and brand strategy are not just an incremental increase in the rate of return on marketing or sales, but should stretch into margin-increasing metrics around reduced costs throughout your organization.
If we’re going to ask brand strategy to prove itself as a financially sound metric, we first must make sure we’re using the right ruler.
ROI vs Net Multiple
ROI isn’t the only financial metric. As those who have a finance background know, there are other financial metrics for gauging the value of investments. IRR or MIRR are two metrics that are comparable to ROI, and in some ways more reliable, but are extremely complex. And then there’s Net Multiple, which is used to gauge a different, larger and longer-term outcome than ROI, and for which ROI is not particularly insightful or appropriate.
Additionally, on the operations side of the house, metrics such as operating expenses and profitability (margin = gross revenue - expenses) are also value metrics for understanding success - in fact, the bottom line can give you a much more complete picture of the impact (and success or lack of success) of your brand strategy efforts than top line or rate of return ever could.
Both Net Multiple and Bottom line growth are better gauges of brand strategy success than ROI, and should inform how you think about the impact and KPIs of your brand strategy work.
The way ROI is typically used in marketing conversations is as an incremental measurement: If I spend $100 on this channel, can I earn back more than $100 in terms of customer impressions, clicks, leads, and qualified leads? Most returns on marketing are incremental, meaning that you would get something less than $200 back. Typically, you’re measuring ROI (or some companies might use IRR or MIRR) for shorter time frames, say within a year. In a much appreciated push for marketing to be more financially accountable, companies routinely apply a ROI metric to measure success of marketing campaigns. This metric can be used for all revenue-generating activities - such as sales, marketing, or partnerships. For marketing and sales, often the rate of return is set within a short time frame such as within several months, a few weeks, or even in one day. In fact, ROI is not a great metric for longer term investments.
Net Multiple is a term perhaps most appropriately used in venture capital or private equity, where you make an investment with the goal being to walk away with a multiple of your initial investment - that’s investment x whole number = net multiple. A “successful” multiple might be anywhere in the vein of 5x to 10x or more. If I put $100,000 into a start-up, I’m hoping for somewhere north of $500,000 back when I ultimately divest that asset, likely years later. I’m aiming to multiply my investment. These investments are different from typical ROI or IRR metrics, in that they have a much longer timeline to achieve the goal. Additionally, to hit that multiple, you must increase revenue investments, AND you must efficiently scale operations. Net multiples are likely not achieved without both investment and operational excellence - so that as spending increases, the relative cost of doing business actually decreases.
The difference between ROI and Net Multiple can be summarized as follows:
Shorter time frame
Incremental % return
Gets larger as investment increases
Best if impact is narrowly focused on revenue
Longer time frame
Highest rate of return is achieved only if investment increases AND operations become more efficient
Scope of success is broad and includes both revenue and operational sides of a company
You can apply ROI (or IRR) to brand work that is solely intended to sharpen your voice or expression and resonance in marketing or sales materials.
However, this isn’t asking nearly enough from your brand strategy efforts.
Brand strategy at its highest and best use and value should deliver a net multiple for your company, and if used as a tool for alignment, clarity and focus throughout your organization, should be expected to deliver many multiples on your investment.
If you’re hiring a brand strategy firm to “dress up” or “sharpen” your marketing or sales work, it might be ok to ask only that it increase your rate of return on your existing or planned marketing and sales efforts. However, brand strategy can do much more than that, when run and executed well and throughout your organization. Brand strategy can be the force that unites the operational and revenue sides of your business behind a single purpose, customer and market truths or insights, and differentiated promise, and helps to align, clarify and focus all parts of your organization - from HR and legal, to product and R&D, to marketing, sales and service.
Impact of Brand Strategy Should be Measured by the Bottom Line, not Just Top Line
In addition to measuring the net multiple of your brand strategy efforts, you should also look at your bottom line and ask that your brand strategy positively impact key metrics that drive bottom line profitability and scale. Brand isn’t just a function of revenue spent - in fact, brand should help you spend less revenue while reaping the same return. That means that OpEx should go down when you apply brand strategy to your organization. Key bottom line metrics that increase profitability, and that brand can impact are:
- You’ll be able to command a premium price point: Your products will be worth more to customers because they will have meaningful differentiation in their lives that they can’t get from anyone else, and they’ll know they can count on it from you
- Reduced rate of employee attrition: You’ll be able to lower the cost of doing business over time by retaining employees who feel connection to your company and who have a sense of purpose, which is tied to employees bringing their best to work
- Reduced cost to recruit/hire: New employees will want to work at your company, because they know your purpose and want to be part of it
- Reduced time to market for new innovations or product improvements: Teams will know what “right” looks like, know the problems you’re trying to solve, and will feel empowered to innovate against a clear, focused brand strategy - resulting in less spaghetti on the wall, and faster, more inspired product launches that build equity rather than distract your workforce (and customer)
- Reduced cost of overhead in terms of management hours: With an empowered workforce that’s operating from the same purpose, you’ll be able to decentralize decision-making so your business can be more agile and responsive to the market and customer needs without wasting a lot of time and money
- Reduced required investment in sales and marketing channels: You’ll create a new marketing channel through your loyal customers and employees who spread word-of-mouth accolades that garner new customers – for free
- Reduced cost of cross-selling to existing customers: You’ll be able to introduce new products with greater ease and with a reduced cost to cross-sell
- Reduced churn in customer base, increase in customer retention: You’ll be able to lower costs by retaining customers (which is far less expensive than constantly finding new customers)
- Reduced cost of acquiring new customers, and even the elimination of the need for marketing channels (just look at Starbucks in the ‘90s, or Glossier today): Everything you do and everyone who works for you or buys from you will become sales and marketing channels - increasing the level of owned and earned channels, and decreasing the need for paid channels
And, for good measure, there are two more metrics that only matter in crisis - but when crisis hits, you’ll be better off:
- You’ll have a protective barrier should a crisis occur – a competitor appears or the market shifts – your loyal base will be emotionally tied to your products in a way that will take longer to disintermediate, buying you time to address and “fix” what’s needed before customer attrition occurs.
- Your meaning – as defined by the purposeful goodness you resolve in the lives of your customers and in the world - will be more than what you make, thus making you able to pivot and weather change with more forgiveness and with greater latitude from your employees and customers.
All of these metrics should be measured and held within your sights as you embark on brand strategy work. Which ones are the priorities? How are you including those parts of your organization in your brand strategy so that you can reap these cost savings? Have you set your organization up to align behind a singular, clear idea of purpose so you can achieve these financial goals?
Tune Brand Strategy toward Performance
A purpose-driven brand that delivers goodness to the market is the best way to ensure your sustainability for the long-haul. Brand strategy is simply a disciplined approach to articulating your brand through concepts that define, clarify, and seek to align your organization. Next time you ask what the rate of return or ROI is on your brand strategy, ask yourself if you’re expecting too little from your investment. Perhaps instead, you should be considering the net multiple impact that a strong, unifying brand strategy can have on the bottom line, and put in place metrics throughout your organization to measure success accordingly. Identify those metrics from the bulleted list above ahead of your brand strategy work, and then tune the work toward performance. When all your teams are accountable to delivering on the brand strategy, you’re likely to realize that multiplier effect even sooner.
The foundation you build now with an investment in your brand will create a ripple effect on your business – from the products you create to how you market. Lasting success and growth begin and end with a strong brand strategy. How have you invested?