Start with ROI to Keep Your Eyes on the Prize

November 7, 2014 Perks Admin

 

Steve Murphy – Founder and Managing Partner, Channel Matters LLC

Steve Murphy, Channel MattersWith all the focus on marketing ROI and channel sales enablement investments, perhaps it’s time to step back from all the claims and get a clear view of what are the facts in terms of potential return and just how relevant are such claims to your situation.

Starting with the end in mind, try working from an ROI hypothesis toward a more robust, detailed model.   For me, the first step is to hypothesize a bit.  If we did “x” and it created “y” what would that mean to our overall business – and at what cost.

This creates the first ‘fact’ the ROI calculation:  Total Benefit (Return) – Project Cost (Investment)/Project (Investment)  = ROI%.

ROI Fact or Fiction

The next time, you hear about someone’s phenomenal ROI results, ask them how exactly did they arrive at their calculation.  Sometimes in promotional materials,  “ROI” is used to describe results that aren’t even correlated to economic impacts, like a “43% increase in conversion” without any value attributed to the conversion or the cost to achieve the increase acknowledged.

Often, ROI is reported based on some variation of “Sales/Cost of Software” or “Sales/TCO.”  That’s faulty logic on a couple fronts:

  • Sales ≠ Net Margin much less Net Impact or Incremental Net Margin
  • Nor does it account for any control group to isolate specific effects.

In a business with Margins of 25%, calculating ROI based on Sales rather than Margin = overstating ROI by 4x.   Not factoring for incrementality or isolating program effects can result in even greater distortions.

Almost certainly, the data need for truly robust ROI calculation will not be readily available.  This is where a model such as that from the ROI Institute with its Chain of Impacts and Measurements including:

  • Participant Reaction Objectives
  • Learning Objectives
  • Implementation Objectives
  • Impact Objects
  • ROI
  • Intangible Benefits

But without a working hypothesis, it’s hard to measure actual vs. expected results.   It will help you understand what needs to be prioritized for further analysis and if the opportunity for improvement warrants investing more resources to build a fully baked model.

Besides you won’t get better at anticipating outcomes if you can’t see that gap between the current and desired state and make the commitment to pursue all the facts in a comprehensive ROI assessment.

About Steve Murphy

Prior to founding Channel Matters, LLC, Steve spent most of his career on the agency side creating and implementing new programmatic solutions designed to meet global channel marketing and sales challenges beginning.  Steve has worked with AMD, Apple, Cisco, Citrix, Hewlett Packard, Intel, Microsoft, Oracle and many other technology leaders providing channel marketing and competitive partner marketing intelligence to inform channel strategies.  Steve was responsible was responsible for the first multi-vendor, partner-to-partner collaboration platform and continues to work with global technology leaders on go-to-market solutions spanning partner marketing and sales for both channel and alliance teams.  Click here to read more blogs from Steve.

 
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