If The Metric Isn’t Money, You Cannot Measure ROI - Social Media Explorer
If The Metric Isn’t Money, You Cannot Measure ROI
If The Metric Isn’t Money, You Cannot Measure ROI
by

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.

A typical tape measure with both metric and US...
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.

About the Author

Jason Falls
Jason Falls is the founder of Social Media Explorer and one of the most notable and outspoken voices in the social media marketing industry. He is a noted marketing keynote speaker, author of two books and unapologetic bourbon aficionado. He can also be found at JasonFalls.com.
  • andymturner

    Good post: the devil is in the detail Jason. For example, PR-generated editorial (or blog posts) have a long life online. If you goal is to generate sales leads, then you might not see any leads in the immediate time-frame. So it would be easy to dismiss the activity after, say 6 months, as generating zero ROI. You might then conclude your PR adviser is doing a poor job – maybe even fire them. But what if that content delivers leads that convert after 6 months, or 2 years? I’ve seen editorial perform like this. We should always remember that we we do can often be a long game; one that doesn’t always bring instant gratification.

  • SuzanneDelzio

    Love your forthright tone. Think I’ll check out your books, because there IS just too much bullshit in social media marketing.

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  • Thank you for this article, Jason. Hugely important info here. We will be sharing around.

  • Every time I see a post about how difficult it is to measure ROI, I like to point out how simple the equation is.

    Determining ROI isn’t difficult, proving impact is.

  • The other HUGE part that everyone misses about ROI is that it isn’t a stand-alone metric. If I spend $100K on a marketing initiative, did it have a positive ROI or not? It will depend on the TIME FRAME that you’re using for the measurement. Does it have an ROI over one year? 3 years?

    Now, while the metric does need to relate to financial measures, it doesn’t mean it has to be actual dollars into the cash register. You can, for instance, talk about expenses avoided, brand equity, risk mitigated, etc – all of which translate to dollars. It really depends on whether the c-suite will join you in those assumptions or not.

  • Great post Jason. As a rule I do not touch ROI – mainly for all the reasons you mention above, but also as you state, the more important metric is the impact on the business – what I call the SO WHAT? ROI as a measure may be relevant to some one in the CFO department but I know from experience that when it comes to determining if L&D has played a role, sometimes KPIs / ROIs don’t or can’t tell you this story – only the people impacted can tell you that story – that’s we call ourselves Learning and Development – it is all about the long term business impact not necessarily the short term financial outcome.

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