Category Archives: ROI

The unROI of inaction

Beth Harte makes a strong case that ROI often can’t be calculated for any marketing campaigns, because isolating the financial data for ROI = (net profit / sales) * (sales / investment) is usually difficult — and thus it is unfair to hold social media to a “prove the ROI” standard. We responded over at the Brandflakes blog:
Mathematically this is the same formula as ROI = net profit / investment, but I quibble. The real purpose of ROI calculations is to make choices between alternatives. If you can make 8% by investing a million in the bank, and only 6% with a marketing campaign, pure math would tell you to keep the money in the bank.

However, this is why ROI logic often fails. Marketing is a living, breathing function to keep businesses alive, so even if ROI were below the alternative “park it in the bank” rate, if you shut off marketing, you’d damage the future business. Advertising falls under marketing and social media falls under advertising (or PR, quibble), but the logic of those internal functions is the same.

It is healthy to try to determine ROI to make choices among best possible paths, but businesses must also consider:

a – is the function necessary for basic competition?
b – what is the risk if we turn off the function, and failure to perform damages other parts of the business operating system?

So it’s not just what you do, or if what you do beats the other action. It’s what could happen if you don’t do it at all. This may be the best argument for social media.

Image: JobotDaRobot

Ben Kunz is vice president of strategic planning at Mediassociates, an advertising media planning and buying agency, and co-founder of its digital trading desk eEffective.

The ROI on cool offices (or why we need gourmet coffee)

Check out Red Bull’s sweeee-et corporate office, above, which features a slide next to the staircase. Must have cost a mint. The Underground Economist attempts to explain the logic of “cool offices” but we think misses the point.

There’s a reason why Jack Welch made his chief of HR the second-most-important executive at GE. Human beings, not fictional “companies,” are what drive profit — because in reality, people exist and companies don’t. So it’s smart to invest in your people’s work environment.

We had this debate in our own office recently over the price of coffee. Seems some of us (OK, us) were drinking a lot of caffeine. But a quick analysis revealed that coffee increases media planning productivity by 30%, yielding hundreds of thousands of dollars in incremental revenue each year for only 1k in annual coffee beans expense. We did this analysis ourselves, after drinking too much coffee.

The actual payback for employee initiatives can be calculated simply as the lift you get in performance (Vf value of final investment – Vi value of initial investment) divided by the Vi initial investment.

So what is the ROI of a cool office? Say it costs you $20,000 to do something really funky in a small organization, about one-fourth the cost of a full-time employee. Assume you have 10 employees, and this cool thing gets each of them to boost performance by 10%. You’ve just gotten the work results of one entire full-time employee (10 current employees x 10% = 1 employee equivalent) for a quarter of the cost … plus ancillary benefits of better morale, reduced employee churn, lower recruitment costs, and potentially happier internal clients and external customers.

So here’s to bringing back Foosball, spiral staircases, and bean bag chairs. Here’s to upgrading to Starbucks coffee next year. Come on, America. Our GDP depends on it.