CUES members can access ROI spreadsheets in CUES Members Share. Enter your CU's marketing piece in the the CUES Golden Mirror Awards.

Many Happy 'Returns'
Why it's difficult—but important—to measure the ROI for dollars spent on marketing initiatives.

By Jamie Swedberg

Editor's note: The following first appeared in the October 2007 issue of Credit Union Management.

When you think of your marketing department, "number crunchers" probably isn't the first phrase that springs to mind. After all, compared to the rest of the departments in a credit union, marketing has a glamorous reputation. Aren't they the ones out shooting commercials on a sound stage?

"The reality of it is, we do that kind of thing maybe once every two years," says Roger Rassman, chief brand strategist at Stellar Strategic, a division of JMFA Direct, Rochester, N.Y. "The rest of the time, we're crunching numbers. There's a lot to be said for doing analysis. You really can't get to the point where you're doing the fun stuff unless you are doing the hard stuff, too."

Spreadsheets might appear to be the sole domain of the finance department, but that's not 100 percent true. To be truly effective, marketers must calculate and interpret the return on investment for all their initiatives—from the simplest direct-mail campaign to the most ambitious branding effort.

"In the four different financial institutions I worked at, we were all about the numbers," Rassman recalls. "I don't know how you can manage the marketing function without it. I think we move as many numbers as the finance people do; we just have more fun doing it."

Fun? That depends on who you ask. Unfortunately, many marketers regard calculating ROI as a difficult, time-consuming chore, on par with changing the toner cartridge in the photocopier. But just like swapping the cartridge, it's absolutely necessary.

"I can tell you why in one word: credibility," says Kathleen Litman, VP/marketing at $1.3 billion Technology Credit Union, San Jose, Calif., with  77,000 members. "If you ask me how we did on a certain mailing, I can tell you how many members responded, what those members look like [demographically], and what their propensity is for future purchases. It reassures the CEO and the CFO that I'm not out there spending willy-nilly without bothering to track what I'm doing."

Rassman notes that CFOs and CEOs tend to think like accountants. Marketers need to speak their language to justify their department's expenditures. And perhaps even more importantly, they need to learn what doesn't work so they won't repeat their errors.

"Unless you understand the extent of your successes and how bad the mistakes were, you can't progress," he says. "The only way you can do that is an ROI analysis. Different campaigns will have different costs and different quantities, but ROI puts everything on the same plane and lets you do a true side-by-side analysis. You can figure out what works the best, and why."

Rows and Columns
The benefits are undeniable, but the challenges are daunting. The most common reason marketing departments don't analyze ROI adequately is that they simply don't have time.

"Marketers today have tons of things that we're involved in, and we're getting pulled in a lot of directions," says CUES member Brett Noll, CME, SVP/chief marketing officer at $1.1 billion Langley Federal Credit Union, Hampton, Va. "It's just hard to find the time to sit down and actually do the pre-campaign analysis and the post-campaign analysis. I think time is the No. 1 factor for people not conducting these analyses."

In fact, says Rassman, proper ROI calculations are rarer than you might think in the CU marketing world.

"I work with credit unions all over the country," he says. "It's just not something they tend to do, because, generally speaking, their marketing departments tend to be understaffed. They're always putting out the hottest fire. Return on investment analysis is shoved to the back burner time and again."

And then there are the actual mathematical difficulties. How do you calculate the base level—the amount of money the credit union would make in the absence of the marketing campaign in question?

"One important thing a lot of people tend to not include in their ROI analysis is the opportunity cost," says Noll. "If you're doing a car loan campaign and you're loaning a million dollars out to the membership, you have to factor into your ROI analysis that that million dollars, if you had not loaned it out, would be making the credit union money in some other investment."

What investment? How much? That's tricky. It's the road you're not taking, and no one really knows.

"It's really a hard number for us to come up with, because we market all the time and we don't ever have a dry period," says Litman. "For example, up till now, we had not done a lot of specific marketing on our debit card. But obviously when you look at the revenue potential of a debit card, there's some money to be made. So we decided that we were going to market it heavily for six months. Opportunity cost wasn't really applicable, because there are no periods when we don't market, so we're just using a baseline of the same time the year before."

There's some wiggle room in the baseline of these calculations, Noll says. What's important is that you don't fudge the numbers.

"Many credit union marketers cheat the system a little bit because they don't include business that they probably would have gotten whether or not they had a campaign going," he says. "Say you're trying to bring in 200 car loans in June, and you arrive at your ROI. But the one thing that wasn't factored into the equation is that normally in June you do 100 car loans anyway. I just think it's important that you give some consideration to the business that would come in anyway."

Then you have to calculate two numbers: the "R" and the "I." The former is the more challenging of the two, some marketers say, because it is the sum total of your gains—some easily pinned down, some not.

Say a CU runs a direct mail campaign in which it spends $30,000 in direct costs," says Ron Shevlin, VP/client solutions at Epsilon a Wakefield, Mass.-based database marketing services firm, and chief blogger for Marketing ROI: Whims from Ron Shevlin. "It generates 100 new customers, who generate $30,000 in immediate revenue. That's great, but what about the lifetime value of that customer? Some customers are going to leave within a year, while some are going to stay for the next four years. How do we know? And how do we attribute that lifetime value? You can't simply say the lifetime value of that customer is all attributed back to the $30,000 initial investment, because obviously a heck of a lot's being done over the lifetime to keep and grow that customer."

Additionally, he points out, marketing campaigns have a cumulative effect on consumers' minds.

"Most firms pick an arbitrary window, like 30, 60, or 90 days, and any sale that occurs after that window is not attributed to that investment," he explains. "But that's ridiculous, because influence builds over time. Repetition builds awareness and impresses an image on the mind. It might take three campaigns before a particular customer responds."

And then there are the cross-sells and unintentional consequences. Noll points out that all kinds of things can happen as a result of a simple car loan campaign: Staffers can sell a higher volume of other services, or the CU can experience a temporary increase in deposits. There's no easy, cut-and-dried way of tackling these effects, but marketers should account for them to the best of their abilities if they want to give themselves credit where it's due.

Nebulous Numbers
Some campaigns are by nature less clear cut in terms of profit and loss. Membership, retention and branding drives all share the goal of long-term enrichment—crucial to the health of the institution, yet notoriously tricky to translate into hard numbers. Sure, you can compare brand awareness indices, but it lacks the oomph of "We made $500,000 on loans."

"From an ROI standpoint, the area that obviously doesn't come in as profitable is our prospect mailing," admits Litman. "On an annual basis I'll go back to all of the prospect groups and I'll identify how many new members came in, how much in deposit balances were brought in, how many new relationships were opened. But typically when you do the initial ROI on a prospect mailing, it's not going to be positive."

On the other hand, some of the benefit of any marketing campaign "disappears" into long-term prospect gains. Litman recalls a campaign in 2006 that touted a money market account with a $50,000 deposit. The CU opened 316 of the accounts in a three-month period. At the same time, it also opened 20 new memberships.

"That doesn't sound like a lot, but [new members] are hard to get," she says. "That happens to us a lot: When we mail some prospects on a specific offer, many of them don't take the product, but they end up becoming members and opening up other products. [The way we calculate it,] it doesn't count toward the ROI for that campaign. But it exists."

You'd think the investment portion of the equation—the bottom of the fraction—would be relatively easy to calculate. How much did you spend to get the new business?

But it's hard to know exactly where to draw the line. Litman says some CUs may dislike figuring ROI because of a sneaking suspicion that they're not nailing down their true costs.

"I think loan promotions are relatively cut and dried," she says. "But what, for example, do you allocate to the operating cost of a new checking account? Are you putting in NSF fees? Are you taking out any ATM surcharges you might be rebating? In our case we do have a data warehouse, so we've got all that information. But you're always working on a set of assumptions."

It's a slippery slope, agrees Shevlin. Marketing dollars are spent all over the place. Should you divide up the department's overhead or fixed costs, such as salaries, and attribute them to the campaigns conducted throughout the year? For that matter, how about the time branch personnel spend servicing and selling the new clients? If you absorb these expenses, the numbers won't look too favorable, but if you don't, do they mean anything?

Shevlin sighs. "So neither side of the ROI coin, neither the investment nor the return component of that figure, is particularly easy to do."

Practical Matters
Of course, just because it's difficult doesn't mean it's not worth doing. The best way to get started is to sit down with senior managers and the finance department and decide together what variables will go into the equation. (After all, if they don't buy into your formulas, you might as well not even bother.) Your analysis of the data won't be perfect—it never is—but if you treat all your campaigns similarly, you'll at least get information you can compare across the board.

"What really helps is to build standardized formats which speed the process," Rassman says. "Start with something simple—for example, a direct mail campaign—and grow from there. Yes, you have to take the time to set it up, but you start to see the benefits right away. While you are creating that campaign, you are envisioning your goals and results. Before you even execute the campaign, you've already set up the tracking mechanism."

Sophistication can grow over time, he says. Begin with the very basic (acquisition cost per account) and track it. Later you can start worrying about things like lifetime value.

Most crucial of all, though, is to make sure your ROI analyses answer the real questions. Columns of numbers don't say much. You'll need to interpret the numbers and help colleagues see what they really mean. Technology CU, for example, assigns one marketing staffer to writing up ROI reports and translating them into terms that everyone can understand.

"She always ends with a recommendation," Litman says. "She always asks what we learned—what worked, and what marketing channels might be utilized in future campaigns."

Shevlin says there is both science and art to reporting marketing ROI. The science is the analytics; the art is the reporting. He says he learned this working with the CFO of a large bank.

"You'd expect a CFO to be very quantitatively oriented," he says. "But he said to the CMO, 'We in finance understand how difficult it is to measure ROI. We understand that there are a lot of things influencing the return. But what we're looking to marketing to do is not just give us a number. We're asking them to give us a rationale for why they spent the money in the first place.'"

Jamie Swedberg is a free-lance writer based in Athens, Ga.

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