Repeat after me, part II: ROI bad, VRM good

Following on from my post the other day about the problems of using traditional return on investment (ROI) measurements for web activities, I’ve discovered another useful acronym - VRM, or Value Reference Measurement. Lewis Green, writing in the bizsolutionsplus blog, has produced a concise definition of this measurement, developed by the US Federal Chief Information Officers Council in 2002. He quite properly distinguishes it from ROI and suggests VRM, which is measured over a lifetime of sales and relationships, may be more valuable for measuring the impact of social media and social networking than ROI, which is strictly how much money was returned against an investment.

“Don’t say ROI unless you mean it,” he writes. “Instead, use metrics that measure both ROI and Value, and help decision makers understand how they differ and how each grows a business. ROI hits the bottom line; Value hits the top line.”

“Keep in mind that ROI might be either positive or negative, so to avoid what at first glance appears to have been a bad decision, it is smart to also measure Value through intangible benefits such as customer experiences, customer loyalty, and word of mouth to justify any expense. ROI is an important metric, but it needs to be balanced with a rigorous analysis of all the value factors.”

“….When discussing marketing and communications with C-level executives, do not say ROI unless you mean it in dollars and cents. Instead, offer up both ROI and VRM and then you will be speaking your client’s language. Be patient and know what you are talking about.

“Finally, don’t sell tools, sell goals and  strategies to achieve a company’s objectives. Do it in concert with the Marketing, Communications, Sales, and Customer Service departments. Executives and business owners don’t want to buy a tool; they want to buy a plan for success, and they want both ROI and VRM. Some of the tactics (e.g., SM [social media] and SN [social networking]) likely will drive Value more than ROI. Others (e.g., advertising and direct marketing) likely will drive ROI more than Value. Together they will produce dynamic results.”

Social media blogger Peter Kim agrees with Lewis’ assessment, but argues that you need to present ROI measures as well as VRM measures to C-suite executives, writing that “If ROI doesn’t apply to social media marketing, then social media should not be used for marketing.” His views sparked a flurry of comments both supporting and rejecting his position - check out his posting to see them.

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Posted on Monday, December 8th, 2008 at 8:58 am under Marketing, Technology, e-marketing, social media.

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5 Responses to “Repeat after me, part II: ROI bad, VRM good”

  1. Kwoff.com Says:
    December 8th, 2008 at 9:04 am

    Zazoo - Measuring value instead of ROI…

    Argues the benefits of using the value reference model (VRM) to measure the value of social media and social networking activities by business, rather than traditional return on investment (ROI) measures. This is currentl a hot debate in the blogospher…

  2. Best Virtual Advertising » Blog Archive » Zazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM good Says:
    December 8th, 2008 at 10:45 am

    [...] unknown wrote an interesting post today onZazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM goodHere’s a quick excerptWhen discussing marketing and communications with C-level executives, do not say ROI unless you mean it in dollars and cents. Instead, offer up both ROI and VRM and then you will be speaking your client’s language. … [...]

  3. Online Advertising Live » Blog Archive » Zazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM good Says:
    December 8th, 2008 at 11:24 am

    [...] unknown wrote an interesting post today onZazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM goodHere’s a quick excerptLewis Green, writing in the bizsolutionsplus blog, has produced a concise definition of this measurement, developed by the US Federal Chief Information Officers Council in 2002. He quite properly distinguishes it from ROI and suggests … [...]

  4. Big Marketing For You » Blog Archive » Zazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM good Says:
    December 8th, 2008 at 11:53 am

    [...] unknown wrote an interesting post today onZazoo » Blog Archive » Repeat after me, part II: ROI bad, VRM goodHere’s a quick excerptWhen discussing marketing and communications with C-level executives, do not say ROI unless you mean it in dollars and cents. Instead, offer up both ROI and VRM and then you will be speaking your client’s language. … [...]

  5. johnny Says:
    January 1st, 2009 at 6:08 pm

    1ySXUl Thanks for good post