Tuesday, August 14, 2012

Recipe for ROI

We've all been there.  Your boss comes up to you and wants a simple answer to a complex question.  In this case, she wants to know how the corporate engagement strategy is going.  You can't come back to her with a platitude like "it's fine".  You need something solid and quantifiable.  But how do you measure the perks, prizes and recognition against the business benefits and put it into a solid number?  

It can sound overwhelming but it is really a very simple concept.  It involves understanding how to get the basic information that will give you the ability to measure the success of your engagement efforts.  In its simplest form, Return on Investment refers to a basic formula:

Net Benefit / Total Cost X 100 = ROI

So, how do you get the numbers to plug into this equation?  Any engagement consultant worth their salt should be able to help you determine them.  However, there is a way to figure them out for yourself.  It might take a little effort but the rewards are worth the time.

Here's the step-by-step recipe:
1. The very first thing you need is an understanding of what you want to prove or validate and what impact that ultimately has on your business.  So if the goal of your engagement strategy is to measure how “engaged” people are, you need to determine what determines engagement first.  Things like employee turnover and productivity are a numerical measurement of employee engagement.  Sales and repeat buying habits are measures of customer engagement.  Increases in dealer sales are measures of channel engagement.  Of course there are many other measures that could be analyzed, but this may help you get started.

2. Survey the audience.  Perhaps sprinkle in a few focus groups and dig up any data that might help you understand where you are starting.

3. Analyze this historical and current data to draw a baseline.

4. Develop your strategy, preferably with two groups, one where you will focus the engagement strategy, and one control group where you can measure the effect.  If your strategy is corporate-wide to start with, then your control group has to be the past group performance before there was an engagement strategy.

5. Determine what you will measure; i.e. sales, productivity, turnover, etc.

6. Determine what the true cost of the strategy is, including all items that go into the strategy, marketing, staff time, meetings, opportunity costs, etc.

7. Go back to your measurements and see how much they have improved based on the implementation of the strategy – divide it by your total cost, multiply by 100 – and voila you have your ROI Soup!

Now really, that does not sound so hard does it?  Remember that ROI will never be a completely exact science, but like a recipe, it should turn out basically the same every time you make it.  The ingredients are what change it!

Sandra Daniel
President & CEO
FIRE Light Group

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