Where’s the ROI?

There are so many clinical definitions of ROI out there, it’s easy to get the impression that there’s some biblical law that tells us that the Investment in Return on Investment is only allowed to refer to direct expenditures of money.  While this narrow view might be useful for some, chances are you can get a lot closer to the truth than this.

One of the best examples I can give has to do with a startup (let’s call this fictional company DunceCo) putting together a limited-edition gift set. Margins were slightly lower than anticipated, so the project manager was told that rather than having all the pieces of this promotional set be put together in the company’s warehouse, she was to assemble a team within the company’s headquarters who would assemble all of the components into one finished promotional set. This would save about $.20 per set, or $100 (500 units were being assembled).

The only problem is, this took about 20 people away from their usual revenue generating jobs for about 30 minutes apiece! On top of that, these employees were not particularly skilled at putting together components to make sets — leaving a not insignificant portion of the sets to become unusable.

As far as I can tell, the project was marked something of a success in that a creative way was found for costs to stay down. But did costs really stay down?

• Since we don’t know enough about DunceCo, let’s just assume that these 20 workers are making, on average, $55,000 a year.
• Factoring in benefits, each of these people likely cost $73,000 a year.
• This would mean each one of these people is costing the organization $35 an hour.
• If a total of 10 manpower hours were used to get all of these sets complete that would be $350 that is not factored into the ROI calculation!
• Remember, in this example, assembling at the warehouse would have just cost the company $100.

This is a perfect example of what should NOT happen when determining ROI on a project. Know your costs! It’s so simple that it’s embarrassing to say, but as we speak, there is an organization out there just like DunceCo, spending $350 to save $100. I am not up for that kind of investment; are you?

General DunceCo, employee cost, project management, ROI

In case you haven’t heard, there’s this site called Twitter that has been a pretty dominant part of the online marketing conversation over the last year-plus, becoming a sensation over the last few months. But what exactly is the ROI for getting your company involved and active on Twitter? It’s certainly an interesting question, with a pretty complex answer: as of this writing, if you Google “ROI” and “Twitter”, you will receive about 4.29 million results, many of those pages dwelling on this very question.

At the same time, as with any new emerging technology, it seems like many people and organizations jump in headfirst without having a clearly-defined goal in place. Without this, it’s impossible to tell if you are achieving a Return on Twitter Investment (ROTI) that is acceptable. Perhaps that’s why Mashable is reporting that over 60% of Twitters users quit within the first month; not only are companies and entrepreneurs not sure what they want to get out of the service, but everyday people who sign up aren’t sure what type of return they should expect, either!

While there are many different ways to calculate your ROTI, if we wanted to start with the most salient example, we could look at how much incremental revenue our business is generating that we can directly attribute to our Twitter page. Last week, Dell shared that it had made $3 million in revenue directly from Twitter since 2007, posting exclusive coupons and promotions as @delloutlet for their Dell Outlet site. It took 18 months for Dell outlet to make $1 million off of Twitter; they have doubled that with another $1 million in the last six months alone. Still another $1 million has come from people going from Twitter to Dell outlet to the regular Dell.com site.

Is this the most genius usage of Twitter (or any referral site) possible? Absolutely not. Is it easily quantifiable? Certainly — though one should be careful about declaring Twitter a free business tool, and thus a zero-dollar investment. Dell likely calculates how much time it takes for its employees to manage and develop its Twitter presence, as should anyone getting involved with any “free” online marketing tool. On the return side of the coin, the actual Return on Twitter Investment is more substantial than the incremental revenue alone. There are a number of “intangibles” (which is in quotes as nothing is truly intangible) that are harder to capture, that we should be capturing nonetheless (and which we will definitely be going into in the future!).

And on that note, I’m done with ROTI for tonight. Because of that acronym, though, I do have a late-night hankering for Indian food.

General, Twitter dell, mashable, ROI, ROTI, Twitter

ROI. It is one of my favorite acronyms. A lot of people don’t seem to to realize how important ROI is, not just in business, but in everyday life. Simply put, return on investment or is about measuring what you are putting in to any specific endeavor, and measuring that against what you are getting out of it.

Case in point: I am looking at moving to a larger apartment right now, so that my wife can have a study, where she can work on her Ph.D. (she’s studying Art History with a focus on Tiepolo’s Punchinello works). The new apartment costs approximately 25% more than the old. It has about 17% more space. Obviously, that doesn’t quite get to the utility of having that extra room for her — square footage is not what she’s looking for; she’s just trying to get a door she can close to get away from our younger dog — but it’s a decent start.

When it comes to marketing efforts, often no one seems to want to even get to that “decent start” point. There are many “fluffier” aspects of where ROI calculations are quite tricky, and because of that, some seem to not even try in the first place. This is simply unacceptable. You wouldn’t even think about upgrading apartments and spending more money without trying to see if it was worthwhile, would you? Yet, at the same time, many marketing executives will do far less due diligence when it comes to spending other people’s money — often, hundreds or thousands times more capital.

It’s true: there are many different marketing initiatives and organization can undertake where the ROI is very difficult to ascertain. That’s not an excuse for not trying to calculate ROI. This is a blog about not making excuses. This is a blog that will (hopefully) make you think about ROI a bit differently. This is a blog that asks “where’s the ROI?” – knowing full well that the answer won’t always be an easy one.

General