How to calculate martech ROI

A client recently asked for advice about adding CRM and marketing automation software to their tech stack.

They were interested in the features that would help them streamline operations and nurture leads, but they were having trouble justifying the expense to leadership from an ROI standpoint.

They explained the consensus thinking: as a young business that doesn’t have a huge amount of traffic or leads, it’s unlikely any performance bump would generate more revenue than the subscription costs. Therefore, better to wait until traffic and leads increase and there’s more to optimize for.

Variations of this conversation come up a lot in our world, and clients often look at predicting MarTech ROI through a similar lens.

Our advice: to make this decision, it’s best to take a more comprehensive view of the factors influencing MarTech ROI.

The Typical Approach to Calculating MartTech ROI

For many small businesses that don’t have a clearly defined process for allocating marketing budget, investing in marketing and sales technology can be more of a gut decision than a calculation of likely return on investment. (I.e., How much money do we have right now, and how bad do we want it?)

While it’s easy to make quick and agile decisions this way, there’s a risk of being driven by emotions and short-term thinking rather than data and long-term strategy.

Some companies opt to use ROI calculators that technology companies provide for prospective buyers. For example, HubSpot’s calculator uses metrics like traffic, conversion rate, deal close rate and deal size amount to let you see expected ROI with their marketing and sales products.

These can be helpful, but the calculations are based on thousands of businesses around the world and may or may not be applicable to your company.

Others opt to perform their own cost-benefit analysis using expected new revenue, measurable improvements to productivity or reduced expenses over a certain period to calculate projected ROI using the standard formula:

((Gain – Cost)/Cost) x 100 = ROI%

This approach makes intuitive sense. For example, let’s imagine I forecast that a marketing and sales enablement platform will increase annual sales by 15% over the next three years. But when I factor in gross margin and account for the software, onboarding and training expenses incurred over this time period, it nets out to a -5% ROI.

That’s a bad investment, and I can pat myself on the back for dodging a hit to the bottom line, right?

The Problem with the Standard MarTech ROI Calculation

There are a few serious problems with calculating ROI this way:

  • The projected outcomes are almost definitely based on questionable assumptions. Take the example above, in which I’ve assumed an increase in sales of 15%. How confident should I be in that number? According to the research, business forecasts are reliably wrong – and that includes larger companies with access to vast amounts of data. So, whatever ROI I’m forecasting should be viewed with a healthy dose of skepticism.
  • It doesn’t account for an improving trajectory over time. The other flaw in my scenario above is that I’m predicting a flat 15% increase in annual sales. In reality, effective technology tends to see increasing traction as adoption grows among the team, features are added and the platform has more data to optimize for.
  • It also doesn’t account for a whole host of other considerations. Let’s assume I was thorough in my ROI calculation above, and along with my (questionable) projected sales increase, I also factored in cost savings from another software subscription that I could cancel by using the new platform. This is still a very narrow assessment that bypasses several important factors – which I’ll get to next.

Other Areas of Value to Consider

Along with the easier-to-quantify company financials, marketing and sales technology has the potential to impact a business in many other ways.

The exact list that you should consider will come down to your business, use cases and the technology you’re evaluating, but let’s look at some that may be relevant.

Does the tech have the potential to:

  • Shorten your sales cycle?
  • Improve customer satisfaction?
  • Increase customer lifetime value?
  • Improve data accuracy?
  • Reduce security risks?
  • Help you meet privacy or security compliance?
  • Let your employees focus on higher-value work?
  • Improve employee satisfaction?
  • Help you allocate budget more effectively?
  • Allow you to do more with fewer resources?
  • Give you a competitive advantage?
  • Create opportunities to test new channels or tactics?
  • Improve the effectiveness of other software in your tech stack?

This is by no means an exhaustive list, but if even one of these are pertinent for your business, it should absolutely be part of the decision-making process. Any one of them could significantly impact ROI.

So, Is Calculating MarTech ROI Impossible?

How does a company accurately assign a dollar amount to something like employee satisfaction or security risk in an ROI formula?

I have no idea.

I’m sure there are some models out there that are designed to quantify at least some of these things (if someone out there smarter than me has a magic formula that solves this, I’d love to see it), but even if we had those models, what small business has time to get bogged down in that rabbit hole?

The best I can do is offer some guidelines that should lead to a more thoughtful assessment of likely MarTech ROI.

  • First, go ahead and do the imperfect ROI calculation with the information you have, but take it with a grain of salt and use it as just one data point – not an actual assumed ROI.
  • Next, create your own list of less quantifiable factors that should be considered.
  • Assign a score to each factor: on a scale of 1-10, to what degree does each factor move you closer to your broader business goals?
  • Accept the fuzziness of this assessment and make a decision.

Your Turn

If you’re struggling with the technology ROI question, I hope the ideas here are helpful. Even if they’re creating more questions than answers, that might not be a bad thing if it leads to a new way of evaluating these types of investments.

If you’d like some advice from a team that works with marketing and sales tech every day, get in touch.