If The Metric Isn’t Money, You Cannot Measure ROI
By Jason Falls
The single biggest challenge both communications professionals and the business leaders they answer to have to overcome is understanding business metrics. There are generally two kinds: Those related to revenue and those related to intangibles. When you’re measuring revenue, you can calculate return on investment (ROI). When you’re not measuring revenue, you can’t.
Yet both communications professionals and their managers somehow still think it’s okay to hold us to ROI standards for any and all business objectives.
The manifestation of this conflict reared its confusing head last week in an article by Jonathan Rick that made its way to CMO.com. The piece appeared to be about measuring ROI in communications. Unfortunately, none of the metrics he discussed had anything to do with revenue.
Measuring ROI means your goal must be money. (Photo credit: Wikipedia)
It’s not Rick’s fault. For some reason, the industry has never been good at getting this through its collective thick skull. And that’s partially because the CEOs, boards of directors and other executives we answer to haven’t either.
Let’s enumerate the clear and inarguable facts of this topic:
ROI is a financial equation. It is the amount of money you made (let’s use M), minus the amount of money you spent (C), divided by the amount of money you spent (C).
ROI = (M-C)/C
The resulting number will be a number with some decimals. If you move the decimal point two places to the right, it reads as a percentage. Anything over 100% is positive ROI. Anything less is negative.
These are indisputable facts. They are a part of a magical world called math. Neither you nor I can argue these.
So, in order to calculate ROI, you must know how much money you spent and how much money you made. The problem comes when communications professionals are tasked with goals like increasing awareness, changing consumer behavior, influencing public opinion and enhancing the company’s reputation – which are, by the way, commonplace goals for a communications effort.
The problem is that none of these are measured in terms of dollars earned or made. Thus, based on these business goals, you cannot measure return on investment.
You can measure the levels of awareness before and after. You can measure the effectiveness of your messaging in changing consumer behavior. You can measure the shift in public opinion. You can measure the positive or negative ratio of a company’s reputation among a stakeholder group before and after an effort.
But none of those are returns on investment. Those are results of business activities.
And shockingly, they are perfectly good reasons to hire, fire, fund, expand or support a campaign, department or employee.
For us to stop having debates around measuring ROI, we need to focus on the facts. If the metric in question is not dollars made or earned, then ROI is the incorrect result to report. For under those circumstances, you cannot report it.
If, however, you report the results of the business goal – did you achieve it or not, or how much progress did you make toward it – and know that result is just as important as ROI, we can start to accomplish goals and quit arguing about how to measure them.
Are you or have you been held to only the almighty ROI metric? How can we educate and communicate to our powers that be so they also value the intangible business goals we’re in charge of? The comments are yours.