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Posts Tagged ‘ROI’

Repeat after me, part II: ROI bad, VRM good Monday, December 8th, 2008

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.


Repeat after me: ROI bad, IOR good Friday, November 28th, 2008

One of my passions has been to ’prove’ the effectiveness of digital media by understanding the ways businesses can measure the impact of their online presence and relate it to the rest of their business (see here, here and here for examples of my academic efforts and blog posts in this area). Lots of pundits have been saying that business needs to move away from trying to relate web activity to traditional performance measures such as return on investment (ROI) and instead look at measures associated with customer engagement.

Well, Kyle Flaherty wrote a post for ZDNet (and re-posted on Social Media Today) last week which I think nails it. He argues against using ROI to measure digital activities such as social media and talks about a new measure called Impact of Relationships (IOR). He writes: “ROI was created by someone who wanted to defend their activities in the scope of the bottom line of their company; they found direct linkage between what they were doing and revenue being brought in and if that number was larger than their salary plus additional costs they were in for a bonus (or at least steady employment). Determining your social media ROI is a means to an end. It allows us to prove a programs worth to our business, which enables you to continue your work with the community, which coincidentally lets you dismantle the importance of ROI internally and start to focus on IOR…Impact of Relationships.

“IOR allows me to detail how a relationship develops with our company, whether they are a customer or not, and how that relationship has impacted the totality of our business. Using many of the same techniques above I also measure the amount of interaction we have with our community. Not to measure against revenue, but to determine what product feature requests this person suggested that made our product better, how many comments they leave on our blog, the number of times they reference us on their Twitter feed and more. We’ve been able to formulate IOR for members of our community, many of them non-customers, based on what they have given back to our company.

“Are each of these elements a pure statistical entity or a dollar value? No. But it is a great additional barometer we have to show the gains made through our social media activities. This IOR data becomes just as valuable to the senior staff of your company, but only because they have already seen some level of ROI data. It is only when we prove the ROI that we can reach towards IOR.”

I’ll be interested to see how this concept works out in practice and how it is monetized.