Where’s the ROI?

There are a lot of free tools online to market your business, and especially in these dire economic times, many marketers are turning to such tools. Why not, right? After all, with little to no cost, you’re bound to have an astronomically high ROI.

Of course, that’s not always the case; there is such a thing as a negative ROI. Take this past week’s example, furnished by Habitat, a trendy UK-based furniture store establishes in the 1970s. Perhaps sensing that being on Twitter made sense for its business, the company started tweeting as @HabitatUK a few days back. In order to garner followers quickly, the company had the bright idea to “hijack” irrelevant hashtags such as #iphone and #IranElection so that most people would see its tweets.

The outpouring from the Twittersphere was tremendous, with many users calling the company out for its behavior. A number of these preserved tweets can be found at Social Media Today.

Is there a lesson to be had here? Absolutely. Everything your business invests in will have a return – but not necessarily a positive one. Habitat jumped into Twitter thinking it would either be a smashing success or a mediocre initiative, in which case they could kill the endeavor – no big deal, if there wasn’t a true investment made in the first place. Many people seem to forget that a negative return is indeed possible – even on free or nearly free initiatives. In the case of Habitat, plenty of consumers that fall within their demographics now have a less favorable view of the company than previously.

Sidebar: Incidentally, when the company finally actually apologized, they blamed it all on a presumably unsupervised intern – and implied they had let the intern go as a result. Definitely not the way to win an uphill PR battle.

Twitter negative ROI, PR, ROI, Twitter

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