What Is the Best Way To Find the ROI of Your Fractional CMO?
Businesses measure and study their marketing campaigns' return on investment (ROI) to shape new strategies. They also measure the ROI of new marketing services, such as hiring a fractional chief marketing officer (FCMO). ROI determines whether hiring a CMO consultant is worth the investment.
This guide is about the best way to find the ROI of an FCMO. Here are the steps:
- Define goals and objectives.
- Estimate the cost/benefits of an FCMO.
- Determine the time frame.
- Calculate ROI.
- Consider intangible benefits.
- Track progress.
- Compare hiring an FCMO with alternatives.
Learning the ROI can help businesses make informed decisions. Let’s go!
Wondering what a Fractional CMO can do for your business? Watch this video below.
1. Define Goals and Metrics
Before a marketer measures the ROI of an FCMO, they must first define their marketing goals. With clearly defined goals, they can assess the effectiveness of the CMO consultant and decide if they should continue with their service.
Marketing goals vary depending on the business or industry. Marketers must create clear or specific goals and metrics to measure the success of these goals. Marketing goals include increasing brand awareness, lead generation, conversion rates, revenue growth, etc.
When it comes to metrics to measure goal success, marketers check website traffic, social media engagement, sales figures, etc.
2. Estimate the Projected Cost/Benefits of Hiring a Fractional CMO
After defining marketing goals and their corresponding metrics, determine the cost of hiring a CMO consultant. The cost varies because consultants charge differently. Some charge a retainer fee or an hourly fee.
They also include the cost of tools or resources they need, including other related expenses. Include the consultant’s salary, benefits, office space, and additional relevant expenses.
Determine the CMO consultant’s benefits to the campaign. This helps estimate the potential ROI from their services. Consultants offer tangible and intangible benefits. Focus first on the real benefits a consultant brings to the business to calculate the possible ROI from their services. FCMOs bring tangible and intangible benefits to the company. Focus first on the actual benefits such as the following:
- Better audience targeting
- Increased brand visibility
- Enhanced customer engagement
- Increased margin on sales
- Cost/error reductions
- Increased efficiency/throughput
- Increased sales
Assign a monetary value to these benefits. For instance, if the fractional CMO's services are projected to increase revenue by a certain percentage, calculate the expected increase in revenue. If an FCMO is estimated to improve customer engagement, compute the anticipated increase in engagement on various platforms.
3. Determine the Time Frame To Expected Results
While assigning goals to an FCMO, create a reasonable time frame within which you expect results. For example, an FCMO improves online brand visibility in six months or increases sales in a year. Remember that marketing efforts usually take time to produce a significant impact. Thus, consider both short- and long-term goals.
For example, a spa hires a fractional CMO to increase brand visibility within a year. They assign short-term goals to eventually reach this long-term goal. Some short-term goals are audience segmentation, content creation, social media optimization, website strategy, search engine optimization (SEO) strategy, paid ad campaigns, and partnership outreach.
4. Calculate the ROI of an FCMO
Knowing the FCMO's estimated benefits and costs can help calculate the ROI. The formula to calculate ROI is:
ROI = (Net Benefits - Cost of CMO) / Cost of CMO * 100.
- Net Benefits: estimated monetary benefits less the cost of CMO.
- Cost of CMO: the total cost of hiring the fractional Chief Marketing Officer
Here is an example of computing the ROI of an FCMO:
A business hires a fractional CMO on a retainer for $5,000 per month. Over a year, this should be $60,000.
- Projected Net Benefits are the expected monetary benefits the business gains from hiring the fractional CMO. Benefits can be increased revenue, cost savings, or other financial profits.
The company anticipates that the CMO's efforts will increase its annual revenue by $150,000 using improved marketing strategies, better targeting, and increased customer engagement.
To calculate the net benefits, subtract the Cost of CMO from the Projected Net Benefits.
Net Benefits = $150,000 - $60,000 = $90,000
To calculate the ROI, add the values to the formula and calculate.
ROI = ($90,000 - $60,000) / $60,000 * 100 = ($30,000 / $60,000) * 100 = 50%
From this example, the ROI for hiring the FCMO is 50%. It means that for every dollar the business invests in the FCMO, it gains $1.50 in net benefits. For every $1 spent on the fractional CMO's services, they earned an additional $0.50 in profit, in this case, $30,000.
Having a 50% ROI suggests that the investment in the fractional CMO produces a positive return and is a financially sound decision.
This is just a basic formula for calculating ROI. Calculations can become complex when marketers consider the time it takes to see results and the long-term benefits after their initial investment. For this, it is critical to gather additional data and monitor the impact of the CMO consultant over time.
5. Consider the Intangible Benefits of an FCMO
As mentioned earlier, hiring a fractional CMO can bring various intangible benefits to the business. These benefits might not be immediately quantifiable, but they are valuable for the growth and success of the company. Intangible benefits vary depending on the industry, market, or niche. Here are the most common ones:
- Strategic expertise
- Enhanced brand reputation
- Market insight
- Access to network
- Team development
- Risk mitigation
- Time savings
It is challenging to assign monetary values to these intangible benefits, but they can significantly contribute to the overall success and competitiveness of the business. Thus, when evaluating the ROI of a fractional CMO, consider both the tangible and intangible benefits for a comprehensive view of their effect on the company.
6. Track Progress
Continuously track the metrics identified earlier to measure the CMO consultant’s impact on their goals. Compare these metrics against baseline (pre-CMO) data. This helps determine the value that an FCMO brings to the company. Here are techniques to track ROI more effectively:
Measure and record relevant metrics before an FCMO starts their work. Metrics can include website traffic, conversion rates, revenue, customer acquisition cost, or customer lifetime value (CLV). Businesses must also implement necessary tracking tools such as Google Analytics.
These monitor the selected key performance indicators (KPIs) that assess the value of hiring an FCMO. Consider the long-term impact of the fractional CMO's strategies. Conduct regular reviews of the fractional CMO's performance and ROI calculations to ensure that the partnership continues to deliver value.
7. Compare Hiring an FCMO With Alternatives
Comparing the ROI of the fractional CMO to alternative marketing strategies provides a basis for evaluating the effectiveness of the business decision to hire a CMO consultant. This is also a way to decide if hiring an FCMO for an upcoming campaign is a good idea.
If hiring a fractional CMO doesn't align with the business's needs or resources, consider alternatives. You can decide if an FCMO, a marketing agency, or a director fits the campaign. Here are some suggestions.
- An in-house CMO is a full-time, permanent team member and offers a long-term commitment and deeper integration with the company’s culture and goals.
- Outsourced marketing agencies specialize in various aspects of marketing, such as digital marketing, content creation, SEO, and social media management.
- Part-time marketing specialists are social media managers, content writers, or SEO experts who address specific marketing needs without a full-time commitment.
- The remote marketing team is a business that can assemble a team comprising freelancers, contractors, or other remote employees to handle various aspects of the marketing strategy. They offer marketing flexibility and cost-effectiveness.
- The interim CMO is a temporary leader for the marketing department, specializing in short-term roles to bridge gaps in administration.
- DIY marketing helps businesses manage their marketing efforts in-house. This involves using marketing automation tools and online resources and leveraging the existing team's skills.
- An advisory board or mentors means seeking advice from a group of experienced individuals or mentors in marketing to mentor or guide the existing team.
- The hybrid approach allows companies to have an in-house marketing team supported by outsourced specialists or agencies.
ROI calculations can be complex because of the factors contributing to marketing success. It is crucial to have a comprehensive understanding of the company’s financials, goals, and the potential impact a fractional CMO can have.
Find out more about how an FCMO can help improve your marketing campaigns. Contact Digital Authority Partners today and learn the latest in digital marketing.
Want To Meet Our Expert Team?
Book a meeting directly here