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Marketing ROI formula makes business sense; just don't get lost in the jargon.

With a title like "Marketing ROI," how could I not love this book? ROI has been the Holy Grail of marketing since I got into the marketing world back in the early '80s. I'd been looking forward to reading it, and I eagerly picked up the 256-page volume expecting to find the answers to all the questions I am continually peppered with in my newsletter and when I make speeches.

It wasn't long before I started to feel incredibly stupid. I knew there must be good stuff here; I just couldn't quite figure out how I was supposed to go about using it. When I'd read the same paragraph for the fourth time, I decided that either I was unspeakably dense, or this was a book full of good ideas terribly presented.

Author James D. Lenskold's basic premise is that businesses make decisions based on the percentage of return on investment. They look at a variety of strategies, calculate the percentage of return they expect to glean from the investment, and voila, the numbers make the choice very simple.

He argues that there is no reason why marketers can't make decisions the same way. Rather than look at metrics such as customer acquisition costs and long-term customer value, Lenskold believes that the "marketing ROI equation" is all you need.

For the record, the ROI equation is:

[Net Present Value (NPV) of Profits & Expenses - Investment]/ Investment

with the investment being the cost of the marketing activity, and the NPV being the incremental profits received from the customers, discounted to reflect the time-value of money.

Let me be the first to say that if Lenskold succeeds in his mission to convince everyone to calculate ROI based on this equation, he will have done us all an enormous favor. Because his theory and his math are far more solid than those of most others out there who claim to be able to calculate ROI based on number of hits, ad equivalency or other similar fallacies.

Lenskold makes a solid case for his arguments, with numerous tables and spreadsheets illustrating the improved return from his methods versus others. The problem is that he speaks almost exclusively in finance-ese, liberally sprinkling acronyms throughout. By the second chapter, I was reading every paragraph at least twice and found myself wanting desperately to hear some real-life stories about how this works. Unfortunately, all Lenskold provides are general examples that sound more like a math quiz than reality.

There's lots of theory, but other than some examples from his former employer AT&T, there are few tangible cases of how this stuff really works. He makes a great many assumptions on the availability of certain statistics like "customer lifetime value" and "net profit" per customer.

While I have no doubt that AT&T and many other major corporations have such data at their fingertips, anyone in a small or medium-size company with numerous divisions and squabbling product lines would spend weeks trying to nail those numbers down.

I'll be the first to admit that I'm more of a word person than a numbers person, and my major was Asian studies and history, not math. But then again, how many marketing people do I know who majored in economics or math?

And there's the irony. Lenskold speaks eloquently about targeting your audience efficiently, but he seems to be intent on speaking in a language that will sound like ancient Aramaic to the vast majority of his audience. The author is clearly a smart man with impressive credentials, and if you're an economist or finance major you'll love what he's written. But for the average communicator, it's nearly incomprehensible.

My advice--keep your US$30 and go to Lenskold's web site (www.lenskold.com) and download free excerpts from the book. Then e-mail the author and get him to explain it to you (jim@lenskold.com).

Katie Delahaye Paine is publisher of The Measurement Standard (www.themeasurementstandard.com) and CEO of KDPaine & Partners (www.measuresofsuccess.com).
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Title Annotation:bookmark
Author:Paine, Katie Delahaye
Publication:Communication World
Article Type:Book Review
Date:Jan 1, 2004
Words:665
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