Why ROI Will Never Die

Twi flip

This post celebrates the release of two books, Katie Delahaye Paine‘s Measure What Matters and Olivier Blanchard‘s Social Media ROI. Zoetica is giving away five free copies of each book today to the first 10 people who answer the question “Why will ROI never die?” on our recently revamped web site (thank you RAD Campaign for the excellent design).

Of all the social media memes, the ROI conversation is built to last. It actually preceded social media through generation after generation of marketing, and is the issue clients care about most. Because many marketers cannot commit to outcomes preceding a marketing or communications campaign, this question will continue into the next century, too.

There are some who have an extremely literal (and somewhat narrow) view of ROI, the text book definition of quantifiable sales numbers mapped to output. While accurate, many executives do not understand the difference between a desired outcome and literal ROI. They just want to know, “Will we get what we need if we engage in this marketing activity?” To them that is ROI. Guess what? They’re the ones hiring, and this question is absolutely valid.

This timeless truth dates back to John Wanamaker’s legendary quote, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.” Department Store Mogul Wanamaker graced the earth from 1838 to 1922, and is considered by some to be the father of modern advertising.

This issue is resolvable today. At least online it can be thanks to customized URLs. Literal ROI may be a little more challenging, particularly for high-end consultative sales, but for other types of outcomes there is no excuse. Whether it’s foot traffic, increased conversations, a better reputation, these things are all measurable online using approaches such as the Three As of measurement. Further, tracking systems like Eloqua are changing the game for consultative sales, tracking initial web visits all the way though to the sales identification process, and then leads.

Regardless, you can build in measurement to gauge the success of a program from the outset. A good strategy has clear goals that it is trying to achieve, which gives a strategist something to measure against. Not having measurable outcomes — sales or other desired results — is the mark of a shoddy strategist.

As to the ROI purists, organizations invest in marketing communications for more than immediate, direct financial outcomes. Smart companies and nonprofits know that branding and marketing creates opportunities, many of which are measured as leads. But even communications vehicles that produce attention, while guilty of creating hype bubbles, can be measured.

Marketers have to deliver real outcomes, end of story. Clients do not hire or stay with firms that can’t produce ROI or outcomes. Clients hire marketing consultants that perform and help them avoid pitfalls. Similarly, marketing staffers need to produce internally. Companies and nonprofits retain employees that deliver results, and the rest find themselves looking for employment before too long. That’s business.

That doesn’t mean you should promise the undeliverable. Instead, offer a different path. More importantly, hone the practice of strategy, including measuring outcomes from the start. It is an essential skill set! There will always be marketers and communicators who cannot deliver on this. In fact, most cannot. That’s why the ROI meme will never die. Poor marketing will always create the need for it.

Win Your Free Copy of Measure What Matters or Social Media ROI

Book Giveaway

Don’t forget, Zoetica is giving away five copies each of Katie Delahaye Paine‘s Measure What Matters and Olivier Blanchard‘s Social Media ROI. If you want to win a copy, simply answer the question, “Why will ROI never die?” Please leave your answer in the comments section on the Zoetica contest page (responses that do not address the question seriously will not win).

  • lebo1980

    Beacause we are moving into “the new normal”.
    Its just as simple as that.
    Cheers,
    Lebo :)

  • Anonymous

    My favorite thing is still hearing that you can’t track ROI on certain things. Will you lose some things? Yes, but all marketing channels see drop off – as long as you track things that tie back to your business, you can win or show failure. If you neglect to look at these things, well you are either A an idiot or B a social media guru looking to make quick money.

    • Anonymous

      You just want to make sure the parts are working well together. If you have a flat tire, a bad wiper blade, a headlight that’s out, don’t you change these things? I see that as the role of measurement, letting us know what’s working… and what’s not, so we can address these things.

      • Anonymous

        Agreed, but there are still folks out there with no plans and doing it just ’cause social is cool. No rhyme or reason

  • I rushed back to the office just now to try and win my own book (and thank you for this kind gesture). Very cool idea.

    ROI will never die because it constitutes the most basic measurement of profit for an organization, and as long as capitalism exist in any way, ROI will be one of its cornerstones.

    The basic premise is this: Every business activity requiring the assignment of resources and whose goal is to aid in the maximization of profits for the organization will, sooner or later, find itself measured in terms of ROI. It doesn’t matter if it is social media, print media, the purchase of a server or a new hire. It must meet those 2 criteria: The assignment of resources (including time, manpower, electricity, etc.) and some direct link to the maximization of profits.

    Before you go looking for exceptions, let me point out that these requirements speak more to the type of organization than to any function within an organization.

    For profit organizations: ROI is always relevant.
    Not-for-profit organizations: ROI is not always relevant.

    Examples: Bad PR for a for-profit company is bad for business. The PR function’s role is to build strong positive sentiment for the organization. Why? Because if bad PR is bad for business, good PR is good for business. PR’s role is therefore to improve the company’s success, which depends on increasing its profitability. Even though PR often has no direct link to sales, its purpose is to support the company in its quest for growth and profitability.

    Not-for-profit (NGO, charity or association, for example): When there is no profit motive, the same PR department’s role may focus on building awareness, driving political action, and effecting social change. In this instance, financial motives are not ROI-driven. The funding/investment portion of the equation is not matched to a financial return because the outcome it aims to achieve is not financial. If, however, the activity’s objective is to raise funds, obtain grants, etc., ROI becomes relevant again. Example: A fund-raising campaign that cost $30,000 should have a positive ROI. If the outcome was only $20,000 in donations, the ROI for the campaign was negative and it was a failure. (You lost $10,000.) If however the campaign raised $50,000 (you netted $20,000) then the campaign’s ROI was positive and it was a success.

    So while ROI is not always a relevant form of measurement for an investment when profit is not a motive, it is inseparable from any endeavor with a profit motive. As long as money exists and profits motivate human beings in any way, there will be a need for ROI – in the same way that as long as we have engineers, architects and cathedral builders, the golden ratio ((a+b)/a) will be alive and well.

    Did I win? ;D

    Thanks again for doing this. Pretty classy move there, Geoff. :)

    Cheers.

    • Anonymous

      We now know why you wrote the book on the topic! Thanks, Olivier. Good stuff!

  • Karen Brent

    I work in a non-profit, and our time and resources are limited. There is a huge amount of trust from members and leaders to make the best decisions for the organization. We need ROI to ensure that our resources are being used wisely, and to measure when those resources should be used elsewhere. I often think of ROI as part of my non-profit’s strategic planning process, and constantly find ways to measure what it means for my organization and its future.

    • Anonymous

      Karen: ROI is even more important in nonprofits. Less resources and more to do. I think companies could learn a bit from 501c3s on how to make money go further.

  • Why ROI will never die.

    We need ROI to track everything. If we don’t know what’s winning and what’s losing, how can we make adjustments and fix things. ROI is the canary in the coal mine. It warns us of impending doom. When our P&L sheets suddenly become L sheets only, ROI calculation has failed and disaster is imminent. Without calculating ROI, we are essentially playing a guessing game with our business. Throwing sh*t at the wall and hoping some sticks. The problem with that is that no matter how well it sticks, you’re still just flinging sh*t.

    It’s not just business either. You don’t think that a coach who puts a guy hitting .350 into the cleanup spot isn’t looking for ROI. When that slugger bats .160, what do you think happens? He gets replaced with a batter that nets a better ROI.

    Only Microsoft can bleed millions quarter after quarter, not stop the bleeding and get away with it. Everyone else better keep a close eye on all aspects of ROI in their business.

    Why will the ROI debate never die.

    Simply because there will always be those that question the validity of any ROI. There will always be those that interpret ROI differently. There will always be those that seek a different return than straight monetary ROI and campaign accordingly.

    As long as different views on ROI exist, so does the debate. As long as different interpretations exist, so will the question.

    • Anonymous

      Anyone that speaks baseball is speaking my language. And look at all the new percentages and stats that baseball keeps now like OBP, WHIP, etc. that mean as much if not more than the typical average and ERA.

      Measurement and statistics allow for the science of management. Artistic half guesses don’t work well without them. Creativity has its place, but it is always better informed. Thank you for a great comment!

  • Sharing my comment here, too.

    Crap! I should have gotten up at 7am. Ah, well… I’ll still leave my two cents.

    Let me count thy ways ROI will never die…

    1. From a B2B/B2C perspective, ROI will never die because shareholders and VCs want a return on the money they give to companies to operate. VCs often want up to $10 return (or more) on every $1 they give. VCs are spending other people’s money, so they must justify a return as well. When you work in a public company there is no way around spending marketing budget without showing a return in sales and an increase in profits. It’s as simple as that.

    2. From a client perspective, clients want to know that if they are paying an agency to drive leads (that hopefully lead to sales, donations, etc.) that they are getting their money’s worth and some. Client’s that don’t demand an ROI might just end up with a handful of creative ads that are worthless.

    3. Long-term branding must also be valued. It’s something that isn’t often done (it never picked up as a trend here in the US as compared to Europe), but is absolutely do-able.

    4. Smart marketers will realize that by providing value (i.e. ROI) their chances of being led to the chopping block are minimized.

    What drives me nuts is this notion that ROI is only for capital expenditures or figuring out should I purchase X or Y or do nothing. NO, no, no! Marketing and communications are expenditures that must be justified with a return. CFOs are hip to the fact that marketing, communications and PR dollars are being wasted. That is not going to go away.

    While I argue that the ROI trend won’t last (from a social media perspective anyway), it’s not because it shouldn’t. It’s because marketers are using it as an excuse and I would venture a guess they haven’t sat down to figure out the ROI of their billboards, radio/print ads, etc. If they did, they’d be shocked at how much money was wasted and so would their CFOs, shareholders and VCs (hello Facebook!).

    Cheers,
    Beth
    @bethharte

    • Anonymous

      There is a level of non financial return to marketing and branding. One of the newer, or should I say hotter areas of marketing is cause marketing, and this has a direct impact in that area. But still, good cause marketing campaigns do things like measure return of customer visit, increased purchasing behavior, etc.

      At the same time, the whole budget has to be held to the picture, not small pieces one by one. It’s so important to measure outcomes and see if the pieces are working so you can keep them going or abandon them, but often marketing is an integrated machine working with parts working together to achieve the result.

      As to the SM guys? I think they won’t be around in two years. Seriously. Almost every account I work on now requires measurement for social.

  • Olivier certainly skews the contest by entering himself. Isn’t there some sort of fine print about “employees and AUTHORS not eligible?”

    As for my entry, I am a Druckerian at heart, so I’ll start off with his definition: “The purpose of business is to create a customer.”

    If that’s the case (and if it’s not, you are going up against Peter Drucker-good luck with that one), then ROI never dies because it’s the way we determine how efficiently and effectively (another key Drucker idea) we are able to do that.

    Resources are limited and must be allocated optimally. ROI is the guidance we obtain as to how we should do that to maximize the output: creation (and maintenance) of a customer.

    • Anonymous

      No kidding. When the purpose of business is not to hurt people’s feelings by telling them their marketing project isn’t helping, business loses. The individual does, too, because they aren’t encouraged to become accountable, or strive towards excellent. Good comment, Jer!

      • Indeed. Doubly true.
        So, when do we find out if we won?
        ;-)

        Never Stop Marketing!
        http://www.neverstopmarketing.com
        Twitter.com/jer979
        Facebook.com/neverstopmarketing

        • Anonymous

          Ah, the awards were given on the Zoetica site, per the post yesterday. Julie Pippert left a comment detailing the ten.

  • Nice article, and exactly what’s been on my mind lately!

    Of course ROI is important – it also requires a step back at the big picture. For the harder to measure items, I ask myself:

    * Is the brand gaining in perceived reputation, awareness, charitability, or personableness?
    * Has a non-sales metric shown favorable results after the effort, ie: search rankings
    * Can the action lead to a sale in the future – a backlink, a writeup, a reason for future mention?

    • Anonymous

      Yup, and then you have to look at the overall spend and see if you are profitable, of course. Outcomes lead to ROI, but it is important to do a before and after analysis, too, to show the impact. Thanks for coming by!

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