Called to the CEO's office and asked to justify last year's marketing budget, what do you say? It is no use talking about customer feedback or sales leads - these are about the campaign's effectiveness. Just as the manufacturing director before you will have had to justify factory investment with measurable results, so marketing now has to measure and show a return on investment (ROI). It is all about accountability and showing the financial impact on the business.

Being able to demonstrate Return on Marketing Investment (ROMI) is becoming increasingly important in big and small companies. There are a number of reasons for this. One seems to be the current economic and business climate and the other is the increasing number of tools and techniques now available. These tools range from simple database tracking systems to more sophisticated technology. If you choose to invest in such tools, you need to understand which tool works best for your company's marketing profile and why.

No exception to the trend, 3M is grappling with ROMI. There is the standard formula to calculate ROMI - 'Increase in sales attributable to the activity' less 'Cost of the activity' (ie the investment) divided by 'Cost of the activity'. But like many companies, the big problem is knowing which sales are attributable to the activity. If you can't work out what influenced the sale, how can you work out ROMI?

Many different factors influence a sale - including the distributor or retail channel, brand loyalty and other marketing activities. And, the internet has added a complexity to the raft of media activity, field sales, exhibitions and events already underway. Also what time span do you measure? As activities frequently overlap in terms of time, how do you know where the impact of the new activity kicks in? And when do you say a programme / campaign has ended as benefits may continue?

Linking marketing activities directly to sales proves to be complex, but one area which should not be neglected is measuring cause and effect through the purchasing process. For example, if a customer visits our Innovation Centre what caused them to do this? Or if a new customer calls to place an order what caused them to do this? Understanding what caused a sales lead, or the various links that drive sales, can help to build a more coherent picture.

Creating a figure for the return on investment is in some ways less important than understanding how you got that return. Only in this way can you know what activities work and how you might improve on them next time. The key in using ROMI is not to analyse what happened in the past but to take the learning and ensure you do things better in the future.

One recently introduced initiative at 3M is that of capturing campaign results into a common database for improved analysis and learning. Of course, different campaigns have different objectives. Sales promotion is easier to measure as it is about driving sales whereas campaigns which are about building brand awareness involve research about customer perceptions. For example, 'Did the brand perception influence the customer purchasing decision?' In each case, it is important to be clear about the particular campaign's specific objectives and to collate results to build an organisational picture.

In 3M's case transferring the learning also poses a challenge because of our diverse products, which spans 35 technologies, ranging from 3M Touch Screen Sensors to Scotchprint® graphics . It is important to understand what you can compare and the lessons that are transferable.

One of the key benefits of focusing on ROMI at 3M will be a greater move to collaboration across the divisional marketing teams. It will enable us to share best practice and develop some key principles which are not market specific but help across all sectors. In turn, this should help us understand better the returns we should expect - depending on the target audience, the particular product and the marketing mix.

Should you seek external expertise to help with understanding and evaluating ROMI? A lot will depend on the scale and scope of the marketing investment in your company. Where there is not the resource or expertise in house it may be wise to get specialist knowledge to at least help you to understand what you can measure and test. Testing direct mail campaigns, for example, we have found that the understanding and refining of the campaign can benefit from external specialist knowledge.

But it is easy to get bogged down in the detail. The priority is to maintain a strategic focus and remember that ROMI is about enabling you to prioritise marketing investment; if you are spending the budget then make sure it is hitting the right audience through their preferred channels. One theory is that you should start with a zero marketing budget and spend only in those areas where you can demonstrate a high return.

Does this restrict creativity? No, quite the opposite. Many will know the ad agency saying: 'Give me the freedom of a tight brief'. The benefit of understanding ROMI is that knowing what you are trying to achieve, and having the data to support this, can encourage creativity. There is inevitably some sensitivity around ROMI as some marketers may worry, understandably so, about being judged. But the most important thing is that it is a tool to learn continually - and improve the return for every marketing pound spent.

Used properly, ROMI can give marketing the information to do its job much better and ultimately positions it as a more valued, strategic business function.

About the author
Pip Frankish is General Manager, Corporate Marketing & Communication at 3M UK plc, where she leads a team of in-house consultants, providing specialist communications and strategic marketing expertise to 3M business units. 3M is a $18 billion diversified technology company providing innovative solutions to customers in health care, safety and security, electronics, telecommunications, transportation, industrial, consumer and office supplies, and other markets.

For further information on 3M see www.3M.com/uk or contact innovation@uk.mmm.com or call 08705 360036.