RonAmok!

The adventures of an analog engineer and digital storyteller who studies emerging networks and their impact on the great game of business.
Sep 26, 2008

When I speak to business owners, the most common question that I field about New Media is: “But what about Return on Investment (ROI)?” The question is fair enough. If I, as a businessman and your New Media Evangelist, am “spreading the gospel” of New Media, I should be able to make a business case.  Right?

So let’s give it a try:

  • If I spend $10,000 and get $11,000 back, then I have a return on my investment of 10%.
  • Or, if I invest $100,000 into new software that saves me $40,000 per year, that investment will pay for itself in two and a half years.

Profit is a two variable equation. If I can increase revenues and/or reduce costs, then I have a positive Return on Investment.

But what happens if I invest $0 and get some sort of benefit from it? How do I then calculate ROI?  How does one divide by zero?

For example:

  • I can download WordPress and have a blog up and running on my own site — at no cost.
  • I can use my little hand-held digital camera to record a video demo of my product, place it on YouTube, and pay zilch for every person who sees it.
  • I can build a page on Facebook or Linked-in, connect with colleagues, get introduced to prospects, and get answers from trusted resources — for nadda.
  • I can microblog on Twitter, breaking industry news, pointing customers to relevant information, or providing expertise to those who seek it — for scratch.
  • I can take digital photographs at a trade show, load them onto Flickr, and share them with my favorite customers — for nil.
  • And I can use RSS to keep me informed about my industry, my customers, and my finances — for bupkis.

Therefore, if I receive ANY increase in revenue or reduction in costs from my cashless investment in these technologies, whether it be a sale, a prospect to call on, or a piece of branding, the ROI is infinite.

The bean counter will quip, “But, Ron. Time is money.”

Yes it is. And that’s the basis of my argument. Management is about determining the proper use of corporate resources. Because New Media technologies offer such high (divide by zero) leverage, managers should at least consider if a small investment of time makes sense. The upside is too high to ignore.

Let’s take one example. I know a blogger who writes for a large corporation. He writes a blog post every other week. He’s told me that he spends, on average, two hours per post. After 6 months of blogging, he had built an audience of about 300 RSS subscribers.

Let’s say that the fully burdened cost of his position (salary, benefits, office, computer) is $200,000 per year. Rounding that number to $100 per hour (for a 40 hour week), the blogger’s employer is spending $200 every time delivers a message to 300 PRESENT subscribers.

But a blog isn’t a one shot deal like that of a marketing campaign, tradeshow booth, or corporate newsletter. A blog represents a growing repository of relevant content — a searchable database for both PRESENT and FUTURE readers. Today my example blogger has over 500 subscribers. With every additional subscriber, his cost per prospect/customer touch is shrinking, from $0.66 to $0.40.

That’s the investment. Now let’s look at possible returns. While gaining an audience, your corporate blogger is:

  • establishing trust with a growing audience
  • becoming a respected expert in your company’s field
  • becoming sought-after resource as opposed to yet another person to be avoided

Therefore, what is the ROI if your blogger:

  • is asked to speak at a major industry conference?
  • accompanies your business development people on a sales call?
  • spurs a customer to contact your company directly?
  • can instantly respond to the fear, uncertainty and doubt (FUD) that your competitor is spreading about your company?

Are “returns” such as these worth prioritizing and “investment” of one hour per week? Are they worth 1/40th of your employee’s fully burdened cost?

Something to consider as you start your FY2009 planning?

Tags:

Filed under: Audience is an Asset

Comments

Great post Ron. I have found that now a days people use the term ROI to avoid doing something new. I know the bean counters must show a return on their investment to their board members and investors. However, doing nothing or better yet not taking a chance continues to have the same return…zero. Maybe they should measure what their ROI is when doing the samething as everyone else happens to be doing. Once they figure that out than maybe they will be willing to start trying something new.

Ozzie Wallace
September 26, 2008

Great post Ron. I have found that now a days people use the term ROI to avoid doing something new. I know the bean counters must show a return on their investment to their board members and investors. However, doing nothing or better yet not taking a chance continues to have the same return…zero. Maybe they should measure what their ROI is when doing the samething as everyone else happens to be doing. Once they figure that out than maybe they will be willing to start trying something new.

Ozzie Wallace
September 26, 2008

Sweet post Ron.

This is a good reminder of the difficulties of calculating the true ROI of an investment. The real decision making value comes from those who are not only good with fundamental financial calculations (ROI, NPV, IRR, etc), but who also have a good “gut instinct” about factors that are hard to quantify and are so often missing from financial analysis.

Ken Wetherell
September 26, 2008

Sweet post Ron.

This is a good reminder of the difficulties of calculating the true ROI of an investment. The real decision making value comes from those who are not only good with fundamental financial calculations (ROI, NPV, IRR, etc), but who also have a good “gut instinct” about factors that are hard to quantify and are so often missing from financial analysis.

Ken Wetherell
September 26, 2008

You’ve outlined the fundamental question we New Media Professionals are bombarded with every day. I’ve gone through the exercise with a manufacturing company, a digital agency, and now at a publishing company. In each environment the traditionalists all say “yeah, but how can we prove that site/blog/video ‘X’ actually brought us revenue?”

We’ll just have to continue our rallying cry that New Media can’t be judged strictly through traditional financial analysis. Surveys, traffic data, site comments, monitoring sales volume trends around New Media campaign launches, and *gulp* face to face talks with customers — all of these have to be utilized by organizations to get even a glimpse of the ROI that a New Media effort can create.

Thanks for another great article Ron!

Corey James
September 26, 2008

You’ve outlined the fundamental question we New Media Professionals are bombarded with every day. I’ve gone through the exercise with a manufacturing company, a digital agency, and now at a publishing company. In each environment the traditionalists all say “yeah, but how can we prove that site/blog/video ‘X’ actually brought us revenue?”

We’ll just have to continue our rallying cry that New Media can’t be judged strictly through traditional financial analysis. Surveys, traffic data, site comments, monitoring sales volume trends around New Media campaign launches, and *gulp* face to face talks with customers — all of these have to be utilized by organizations to get even a glimpse of the ROI that a New Media effort can create.

Thanks for another great article Ron!

Corey James
September 26, 2008

Great Article Ron. You’ve highlighted again the ongoing struggle and stubbornness of old-school traditionalists to cling onto their ‘tried and true old-school ways’ and resist evolutionary change.

As you know, I have a background in the high-tech software customer service arena. We would struggle to model traditional productivity from both a cost perspective as well as an enabling perspective. I will often pose the question: “What’s the organizational cost/issue to resolve an urgent customer problem?” And you can quantify that in terms of support engineer resource time, customer impact and down time, and of course lost opportunity time, etc. Then, ask the question: “What’s the organizational cost/issue to resolve an urgent customer problem that the customer resolves him/herself via self-help resources, knowledge databases, customer community connections, etc.? The cost, and cost impact to the customer falls dramatically toward zero.

We’ve implemented a new paradigm from traditional stagnant methods across the chasm to an enablement model that scales exponentially. Back on the other side we’ve become accustomed to the scientific process where things tend to correlate in some typically linear fashion, most often 1:1. On the Enablement side, which social media and technologies exist, the math changes dramatically and we are dealing with exponential relationships. It’s this exponential empowerment and leverage that traditionalist thinkers have difficulty becoming comfortable with so there’s some education necessary along the way to help these people across. It takes skill and patience, and yes and sometimes for the really stubborn that seem set in their ways you just need to reflect back to them with the thought provoking question: “Well, How’s that been working for you?”

Keep up the great work.
– Joel

Joel
September 27, 2008

Great Article Ron. You’ve highlighted again the ongoing struggle and stubbornness of old-school traditionalists to cling onto their ‘tried and true old-school ways’ and resist evolutionary change.

As you know, I have a background in the high-tech software customer service arena. We would struggle to model traditional productivity from both a cost perspective as well as an enabling perspective. I will often pose the question: “What’s the organizational cost/issue to resolve an urgent customer problem?” And you can quantify that in terms of support engineer resource time, customer impact and down time, and of course lost opportunity time, etc. Then, ask the question: “What’s the organizational cost/issue to resolve an urgent customer problem that the customer resolves him/herself via self-help resources, knowledge databases, customer community connections, etc.? The cost, and cost impact to the customer falls dramatically toward zero.

We’ve implemented a new paradigm from traditional stagnant methods across the chasm to an enablement model that scales exponentially. Back on the other side we’ve become accustomed to the scientific process where things tend to correlate in some typically linear fashion, most often 1:1. On the Enablement side, which social media and technologies exist, the math changes dramatically and we are dealing with exponential relationships. It’s this exponential empowerment and leverage that traditionalist thinkers have difficulty becoming comfortable with so there’s some education necessary along the way to help these people across. It takes skill and patience, and yes and sometimes for the really stubborn that seem set in their ways you just need to reflect back to them with the thought provoking question: “Well, How’s that been working for you?”

Keep up the great work.
– Joel

Joel
September 27, 2008

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harry ... the ASIC guy
September 29, 2008

Great dollars and cents post on new media, which is what the C-suite of companies everywhere are hungry to calculate.

You might want to investigate the idea of new media outreach as an inexpensive addition to or, in some cases, replacement of traditional marketing practices in tougher economic times.

No matter what happens with the economy, companies still have to promote their products and services to customers. Where should that precious promotional dollar be spent?

Mike Kilroy
October 3, 2008

Great dollars and cents post on new media, which is what the C-suite of companies everywhere are hungry to calculate.

You might want to investigate the idea of new media outreach as an inexpensive addition to or, in some cases, replacement of traditional marketing practices in tougher economic times.

No matter what happens with the economy, companies still have to promote their products and services to customers. Where should that precious promotional dollar be spent?

Mike Kilroy
October 3, 2008

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November 13, 2008

Great post Ron!

We just discussed ROI in social media (SM) yesterday at the Social Media Breakfast in Boston. The consensus was to measure what you can measure (i.e. leads generated through SM efforts), but it’s not wise to try to calculate hard ROI from SM.

Andrew McAfee from Harvard Business School argued that the impact of enterprise software (including SM) is too complex to calculate ROI with models. Instead he suggested you present management with options and potential outcomes and they can decide what makes the most sense from a business perspective (without getting into an ROI analysis).

The challenge I see in this logic is that it assumes a familiarity with downstream effects of SM efforts. I’d argue we’re still learning how pervasive SM is in impacting and organization’s top- and bottom-line.

Jim | @jstorerj

p.s. you can find the Tweetstream from yesterday’s event by doing a Twitter search for #smb10

Jim Storer
November 13, 2008

Great post Ron!

We just discussed ROI in social media (SM) yesterday at the Social Media Breakfast in Boston. The consensus was to measure what you can measure (i.e. leads generated through SM efforts), but it’s not wise to try to calculate hard ROI from SM.

Andrew McAfee from Harvard Business School argued that the impact of enterprise software (including SM) is too complex to calculate ROI with models. Instead he suggested you present management with options and potential outcomes and they can decide what makes the most sense from a business perspective (without getting into an ROI analysis).

The challenge I see in this logic is that it assumes a familiarity with downstream effects of SM efforts. I’d argue we’re still learning how pervasive SM is in impacting and organization’s top- and bottom-line.

Jim | @jstorerj

p.s. you can find the Tweetstream from yesterday’s event by doing a Twitter search for #smb10

Jim Storer
November 13, 2008

AMEN. I will be forwarding this link around.

David Schultz
November 13, 2008

AMEN. I will be forwarding this link around.

David Schultz
November 13, 2008

Good stuff Ron – I’d add to your last set of bullets that you still need to be able to demonstrate the actual revenue and/or retention impact of those activities, but this is definitely one of the better pieces I’ve read on ROI.

Chris Selland
November 13, 2008

Good stuff Ron – I’d add to your last set of bullets that you still need to be able to demonstrate the actual revenue and/or retention impact of those activities, but this is definitely one of the better pieces I’ve read on ROI.

Chris Selland
November 13, 2008

Great post! God, how many times do we get asked this question? I will from now on respond, “How do you divide by zero” and point them here. Thank you.

Angela Moore
November 13, 2008

Great post! God, how many times do we get asked this question? I will from now on respond, “How do you divide by zero” and point them here. Thank you.

Angela Moore
November 13, 2008

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