Of the folks who agreed to participate in The Marketing Hot Seat (all of them marketing practitioners in some form), Aaron Strout is the only one who is currently a CMO.  At Powered, Aaron is in a position to talk with peers on a regular basis about justifying the ROI on community. I’ve gotten to know Aaron over the last few years, before he became a Boston-to-Austin transplant, and he was one of the first ten people I started following on Twitter in mid-2007.  Several months ago Aaron asked me to participate in the Experts in the Industry Series (many of the Hot Seat contributors are fellow alums), and it was around that time I began to refer to Aaron as “the Kevin Bacon of Social Media.”  Aaron is the consummate connector and has a relevant, practical and thoughtful approach to the Marketing Hot Seat challenge.  It’s not what I expected, I’m guessing if you know Aaron and his background you might be surprised too.  (If you like what Aaron has to say I’d also recommend checking out his weekly Quick n’ Dirty Podcast with Jennifer Leggio where the talk of social media case studies is an informal breath of fresh air).

• You’re the CMO.  You have a marketing budget of $1M.  Your company is a consumer product company, relatively unknown / early stage.  Customers who know the product like it. CEO wants ROI within 12 months.  What do you do?

Let me start by saying this is a brilliant exercise Adam for two reasons:
1) you’re getting some great advice from some of the smartest minds in the industry (well, from the other participants at least).
2) the rules of this “exercise” not only require us to be pithy but we also have to prove out an ROI, with all due respect, a topic that many bloggers can usually skate around.

What’s a little tricky about this exercise is that although you’ve specified that we are the CMOs of a “consumer product whose customers like our product,” the fact that we don’t know whether we’re selling soft drinks, software, or soft pillows — products that all require different channels of distribution — makes developing a marketing strategy tricky. Because I’ve only ever worked for companies that sell services and/or software, I’m going to pretend that the product is consumer software (delivered SaaS style).

Now that we know what we sell, I’m also going to assume that we make a profit of $20/month or $240/year/new customer. With these assumptions, we can start to create a budget and an ROI construct. For starters, I’m going to go out and hire three people to manage our marketing activities. You may or may not have intended us to include this in our plan but I’m going to exclude salaries because most companies bucket this as an operational cost:

• manager of lead gen/SEO
• manager of social media/PR
• manager of event marketing

And here are the areas we’re going to spend our money:

• $400,000 – paid search
• $100,000 – event marketing/sponsorships
• $125,000 – PR (think someone like SHIFT)
• $300,000 – e-mail list rentals
• $75,000 – research subscriptions/CRM/listening tools

Without going through all the math, lets say these paid activities drive 4,000,000 prospect touches with an average response rate of 2% resulting in 80,000 interested prospects. Assuming a 5% convert, that gives us 4,000 new customers at $240 per customer for a total profit of $960,000. [Note: these numbers may or may not be on target but for the sake of this exercise, it shows you that this is one way to think about the math behind marketing ROI].

Uh oh. That leaves us $40,001 short of our goal. But wait, that’s where social media comes in. Because we’re a smart company and we signed up for a listening service right out of the gate so we know where our potential customers are hanging out. We also have a manager of social media (along with our savvy CMO) that is blogging participating on Twitter, Facebook, Youtube and LinkedIn. All of these activities help increase reach and thus new prospects.

Let’s assume that if we’re doing our job right, we hit an additional 5,000 interested prospects with the same math as above. That gives us 250 incremental customers, so at $240/customer, we bring in an additional $60,000 and voila, we’re now at $1,020,000 in annual revenue. Yes, we’re squeaking by but we’ve built a great base for future marketing efforts. And while I didn’t include it here because our new company wasn’t quite ready for community, you can bet your bottom dollar that I would budget in a branded online community to the tune of $200-300K for year two. But that’s a blog post for another day…

What do you think?  Did Aaron nail it?  What would you do differently?