Return on investment is a commonly used, and misused, expression of the effectiveness of programs. So first, we need to be specific about the definition of ROI. In recent years there have been a number of pseudo-redefinitions of ROI, from “return on influence,” to “return on intimacy,” to “return on ignorance.” All of which are just silly. If you use the term ROI to refer to anything besides its strict business definition, then your CFO, your board, and any experienced senior business management are not going to take you seriously.
So let’s be clear: ROI is the abbreviation for the business term “return on investment.” DuPont created it in the 1920s as a financial measure, and Alfred Sloan used it to make General Motors manageable. ROI is calculated by subtracting the cost of an investment from the gain of an investment and dividing that by the cost of the investment. ROI is commonly expressed as a percentage. The equation looks like this:
ROI = (R – I)/(I)
Where R = return and I = investment.
To calculate ROI you must take into account not only whether the effort generated a profit, but all the costs involved in generating that profit. Chances are pretty good that you won’t know what all the costs are or what all the profits are for any given program, which is why ROI is so frequently misused.
So instead of treading in those dangerous waters, let’s agree that business or organizational value comes in many forms, not just ROI. Non-profits, government agencies, and institutions of higher learning all use very different definitions of success than Fortune 500 companies.
Now let’s look step-by-step at a useful technique for measuring your value, but without using ROI.
Step 1. Get consensus on what your “business value” is supposed to be.
The first step is to get agreement on what “value” and “success” mean to your organization. This conversation is critical to have with your most senior leadership. Until consensus is reached on expected return, you have no framework with which to even begin the process.
Step 2. Define the time frame.
Success may be measured in terms of short-term goals—e.g., how many leads did this campaign bring in?—or in the long-term—e.g., did we succeed in changing perceptions about our brand? Hence, one crucial step is to set expectations correctly.
Not everything your organization does will have a direct causal relationship to immediate revenue. Much of the value of communications lies in its ability to educate, and to change or improve perceptions and relationships or modify behavior. Such long-term benefits are measurable but not instantly measurable like “likes” or “impressions.” They are measured over the long-haul in terms of shortening the sales cycle, lowering customer churn, increasing talent retention, or changes in perceptions or behaviors. By their nature, these metrics take more time and effort than calculating how many leads came in last week. So make sure you and your leadership agree on how fast you are expected to demonstrate value.
For example, if you are expected to deliver a monthly report, chances are you can show your performance vis-à-vis the competition, and presumably show your improvement relative to the competition each month. On the other hand if you have to deliver a quarterly report that shows how much value you are delivering to the business, chances are you’ll have to use a cost efficiency metric that demonstrates that you have reached an audience or communicated messages in a more cost-effective way than you did before (or versus another tactic might have delivered).
If you are only expected to demonstrate business value annually, then it is totally feasible to do pre/post testing to show changes in attitudes and perceptions.
Step 3. There are no such things as “intangible benefits,” just bad definitions.
Before you or anyone else can say “You can’t measure intangibles,” remember that corporations do it every day. They measure intellectual property, the value of their brands, and the value of their reputations. None of those can be counted on a shelf, but they are most certainly valuable business assets.
Changing perceptions and enhancing trust are frequently lumped into that “intangible” bucket; however, they can be very tangible and highly measurable. While it may take a while for the benefits to become quantifiable, their value can definitely be counted. Most business leaders understand the inherent value that increasing trust, reducing churn, or increasing employee retention brings. You may want to make sure that you and your leadership team are on the same page in terms of those business values, but chances are you can demonstrate value simply by showing an increase in any one of those elements.
To put a value on trust, for example, you would need to do a trust survey (see “Guidelines for Measuring Trust in an Organization”) at the start of the campaign/year/program and follow it up quarterly or biannually to see if your trust index has improved.
In terms of reducing churn, no one questions the relative cost of retaining a good customer vs. finding a new one. Just ask anyone in sales. Which is exactly what you need to do if you want to measure the business value of improved customer perceptions. So get the churn data from sales at the beginning of the year. Implement your program. Track message delivery over time and, assuming you’re effectively communicating the right messages, there should be an improvement in customer perception over time. Assuming there are no manufacturing crises or other mismanaged unintentional customer crises, and the retention goes up, it’s safe to assume that your communications has caused the increase in retention.
The scenario is similar for internal communications measurement. If you doubt the value of employee engagement, just read this piece on the cost of replacing an employee — anywhere between 50 and 400% of that employee’s annual salary depending on the position. To measure the business value of employee communications you need to survey employees every quarter to gauge effectiveness of your communications as well as employee retention data from HR. Ideally you’d survey to determine understanding of messages as well as employee engagement.
Social media are vital tools but it has often been a challenge to demonstrate its value, either because the value is more long-term than short, or because the actual size of the audience is so much smaller than other communications channels. That doesn’t mean it has no benefit, it means that its benefits need to be put into the context of your organization’s goals. For example, in one media company we correlated “likes,” comments, shares, and retweets to ratings and market share data. As it turns out, “likes” had NO impact on business results, yet shares, comments and retweets showed a correlation. The trick for social media is to only measure those metrics for which you can demonstrate impact on business goals.
Step 4. Line up your data.
It’s one thing to gin up some data to justify your existence, it’s a very different thing to show your true business value. To show value you need solid numbers and valid data, and chances are it won’t just come from your own department. As I mentioned above, showing value means using business data from sales, HR, marketing, customer service, market research, and probably brand advertising too. Regardless of where it resides, you need to track it down and befriend its owners. The purpose is to enhance your organization as a whole, so you can’t be territorial or let silos get in your way. The most effective value metrics and dashboards are ones that involve collaboration across the enterprise.
You also need to make sure that the data lines up chronologically. Data that is too old or too infrequent can be unhelpful.
Step 5. Secure a budget.
Given the importance of what you’re trying to measure, there should be a budget to do it with. Realistically, the money may not be there, but that’s why you should team up with finance, marketing, or sales—whoever might have a bigger research budget than you do. Because you’re measuring outcomes, you may also be an interesting project for a local university. Create a test case or pilot to demonstrate what you’re doing to leadership. They’ll be far more likely to fund it going forward.
Step 6. Make decisions with your data.
No matter how good you are, not every program, initiative, or campaign will generate equal value. Some will perform better than others, some may not perform at all. Some may perform beautifully but will have cost a fortune or burnt out your staff. Here’s a technique to investigate that: First, rank all campaigns based on their value from best to worst. Then put a resource value next to each one. Now gather your team and discuss those results. Why did some deliver more value than others? What contributed to any failures? What will you do differently next time to increase the value delivered?
Now that you’ve had that conversation within your department, go back to all those other departments that you got data from and that might be impacted by your consultations. Discuss your results with them and get their input.
Only after you’ve done all that should you show your results to senior leadership. ∞
Thanks to New Media and Marketing for the image.
