Don't Say ROI Unless You Mean It

Last week, Mack Collier and I had a rousing one-hour Twitter conversation about ROI. And that has led me to today's post. The problem: ROI as it applies in the business world and as understood by C-level executives means but one thing--how much money was returned on our investment.

Simply put ROI = gains – investment costs ÷ investment costs. Just because that definition and formula might not meet our needs does not mean we can redefine it in our own way to justify the use of Social Media (SM) and Social Networking (SN) or any set of communications and marketing tools. If we use ROI in any other way than dollars returned, C-level executives will quickly come to lose respect for us and our efforts and see SM and SN as fluff.

Furthermore, I do not believe that any communications/marketing tool should be pushed on executives unless it is integrated within an overall plan to achieve a specific objective. The plan should include measurable goals that when hit will achieve the objective; strategies to achieve the goals; and tactics (tools such as SM and SN) to achieve the strategies. It is unlikely that SM or direct marketing or advertising or internal communications launched separately from a total plan will be nearly as effective as tools integrated to achieve an objective.

All that said, Mack asks and rightly so, "How do we convince executives to use SM and SN?" My response: We shouldn't try to convince C-level executives to do anything. Instead, we should patiently describe the benefits of all communications and marketing tools and choose the ones best for their business based on ROI and Value. But don't say ROI unless you mean it. Instead, use metrics that measure both ROI and Value, and help decision makers understand how they differ and how each grows a business. ROI hits the bottom line; Value hits the top line.

C-level executives focus on ROI because that is their primary responsibility as defined by stakeholders, shareholders and boards of directors. However, they must travel on two tracks: the first leading to showing short-term growth through ROI (quarterly and annually); the second leading to long-term growth through revenues, which contributes to a company's valuation.

Having Defined ROI, Let's Define Value

Keep in mind that ROI might be either positive or negative, so to avoid what at first glance appears to have been a bad decision, it is smart to also measure Value through intangible benefits such as customer experiences, customer loyalty, and word of mouth to justify any expense. ROI is an important metric, but it needs to be balanced with a rigorous analysis of all the value factors.

IT has led the way in this area. In 2002, the Federal Chief Information Officers Council, Best Practices Committee released a report, Value Measuring Methodology (VMM), How-To-Guide1. In the Guide, we are told to "Develop a decision framework in order to plan, evaluate, select and implement the most effective and efficient initiative. Structures are developed for value, cost and risk." Value Factors are identified as:

• Customers (users) – providing services electronically
• Social – benefits to society as a whole
• Government Operational/Foundational – improvements in Government operations and enabling future initiatives
• Strategic/Political – contributions that will help achieve strategic goals, priorities and mandates
• Government Financial – financial benefits to both sponsoring and other agencies (Standardized measures include the amount of money the Federal Government will save/avoid spending by implementing an initiative.)

More recently, a Value Reference Model (VRM) was developed by the global not-for-profit Value Chain Group. The areas to be measured based on Value are:

• Research and Development
• Design of Products, Services, or Processes
• Production
• Marketing & Sales
• Distribution
• Customer Service

How Do We Measure Value?

Value is not measured quarterly nor necessarily annually. It is instead measured over the lifetime of a product, service, process, and individual customer sales. It cannot be measured on a single tool but instead measured on ongoing benefits and results as determined by the lifetime of the product, service, process and customer. To get a handle on what measuring Value looks like, let's follow the trail of a product, say a new coffee beverage.

Normally, beverages are created in R&D, from concept, to recipe to finished drink. It is then sent out to be processed and packaged. Marketing and Sales launch the product and begin creating awareness and developing sales. The product needs to be distributed, usually through a partnership with an established distributor. And then, most important, customers taste and decide whether or not the product is worthy of their interest. To this point, a business has invested hundreds of thousands if not millions of dollars on a product yet to return a penny. But let's look at this another way. Let's turn the process on its head with an integrated product and communications/marketing plan. The plan features a variety of tactics. Here's what it might look like:

• Beverage idea doesn't begin in R&D but instead in a retail outlet or from customer suggestions and conversations initiated on a company blog. Before R&D (the kitchen) gets started, they already know the basic ingredients and what the resulting taste should be. Metric: Instead of ROI, how much money was saved by eliminating time and energy that would otherwise have been spent?
• Tastings are conducted by using internal communications channels to invite employees and the blog to invite area customers to headquarters to taste. Therefore, instead of using focus groups and blind taste tests, we are using those who know our products best--employees and customers--to taste and essentially create the final recipe. Metric: How much time and money was saved running taste tests locally, and how much more likely is the product to succeed because we used our employees and customers to taste it?
• Instead of Marketing and Creative producing the packaging from idea to final look, we enlist customers and employees through the blog, the web site, and direct mail to our customers to enter a contest to create the packaging. One of the prizes can be a free lifetime supply of the beverage. Metric: How much time and money was saved by outsourcing the packaging design?
• Recognizing we have already created buzz around the yet-to-be-launched product, we engage our employees and those customers who already played a role in the product during R&D and packaging. We feature them in advertising and get them to tell their personal stories around their experiences in developing the product using video, podcasts, direct marketing and in-store signage. Metric: How much money was saved and made by creating early buzz and by developing a story-telling campaign with real customers? What are the long-term effects on marketing and sales?
• With employees and customers actively involved in creating the new beverage, the customer experience has already begun to get touchpoints excited about this employee/customer creation. Stories are being told by real people not by marketers (we aren't always so real in the eyes of the marketplace), and customer experiences are growing out of the stories. Store employees are motivated to sell a product they helped develop and to ensure that customers will love the product that have an investment in. Metric: How many new customers are shopping with us and what is their average spend? How does initial sales of this beverage compare with earlier product releases? What is the difference in buzz around this product going forward compared with other product launches?

The Bottom Line: When discussing marketing and communications with C-level executives, do not say ROI unless you mean it in dollars and cents. Instead, offer up both ROI and VRM and then you will be speaking your client's language. Be patient and know what you are talking about.

Finally, don't sell tools, sell goals and  strategies to achieve a company's objectives. Do it in concert with the Marketing, Communications, Sales, and Customer Service departments. Executives and business owners don't want to buy a tool; they want to buy a plan for success, and they want both ROI and VRM. Some of the tactics (e.g., SM and SN) likely will drive Value more than ROI. Others (e.g., advertising and direct marketing) likely will drive ROI more than Value. Together they will produce dynamic results.

Read More on the Subject: Greg Verdino's Survey says: b2b marketers see ROI in social media; Peter Kim's Social Media Marketing's New Clothes,

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