Return on investment (ROI) is probably the most overused and misused term in business today. Unfortunately:

• Most people who promise or discuss or report on ROI don’t know what it really is. It’s an accounting term. Unless you understand accounting principles you shouldn’t use it.
• It is calculated by using “all-in costs,” that’s the I, or investment. Which means that in order to calculate it correctly you must include all the labor costs, all the material costs, and all other associated costs to produce whatever it is that you are trying to generate a return from. AND you need to know the actual revenue that you produced. Not necessarily an easy task.
• If you must know, the formula for ROI is:

You Don’t Need No Stinkin’ ROI

But that’s OK. There are other ways—simple ways—to calculate the value of your efforts (in fact, what most people mean when they talk about “the ROI”  is that the effort achieved some measurable end). And there are lots of ways to put value on measurable ends. Like cost-benefit comparison or cost-effectiveness.

The most common demonstration of value is to compare the earned media cost per outcome to the costs of achieving similar outcomes via paid media. Let me say that again: “achieving similar outcomes.” And, no, we are not talking about wretched advertising value equivalency (AVE). Generating column inches (which is what AVE uses) is not an outcome. An outcome is something that has proven value to the business, such as:

• Generating a qualified lead
• Increasing preference or renewals
• Getting people to believe in your messages or positioning
• Increasing trust in your brand

For instance, you calculate the cost per message communicated (CPMC) achieved by your earned media, and you compare that to the CPMC achieved by paid media. Your report can then say something like: “Earned media got our messages out for $.10 per message, whereas paid media got them out for $1.00 per message. That means it takes $10 in paid media to get as much message penetration as earned media gets for $1.00.” Then your boss gives you a bigger budget for next year. Maybe a raise, too.

Note: The point here is not to run out and run both an earned and paid program just to measure the value of your earned program. If you’ve got a paid program in place to compare to, that’s great. But if not, then these metrics are still valuable. You can compare over time or between earned programs.

Nine Typical Communications Goals and How to Value them Using Cost Effectiveness Metrics

Below we have matched the most common communications goals with cost effectiveness metrics and indicated how to calculate them. As always, good measurement starts with agreed-upon objectives, so get those decided on first. And even if you haven’t been asked to show “ROI,” these metrics will knock the socks off of anyone who thinks that communications can’t be measured. Note: If you are being asked to show your effectiveness relative to paid promotion, you need to make sure you know how much is being spent on paid promotion before you begin.

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