Made Simpler: The Endless Debate on Return on Investment for Digital

Return on Investment is a topic I often revisit. First of all because I think it is always important to be able to provide insights in the value (Return) of Digital. Second of all since I prefer to find the simplest way for myself to discuss Return on Investment (ROI).

The Basics of ROI are Simple

Just to take you back to what I wrote earlier about ROI and which is still valid. ROI is something simple and exists for a long time. Long before Digital was entering the enterprise, people were calculating ROI for desk phones, office lease or anything else in which they could or had to invest money and wanted to know the return. ROI in itself is just a basic calculation:

ROI = (Gains – Investment) / Investment

Input is everything

Every calculation is as successful as the input that is provided. So leverage the right data and don’t fall into the trap of vanity metrics. For me Vanity Metrics are identifiable by either one of these two characteristics:

  1. You are reporting Aggregated Numbers (example: total number of users since day 1)
  2. Non Actionable Metrics (example: followers on Twitter)

Making ROI simpler to discuss

While ROI is just a calculation, you could avoid the whole debate or have an easier time presenting by making things less abstract. These are three questions you should ask and answer:

1. Does it Make Money?

Simple question, simple answer. If the answer is yes, your next question is: can you make sure it makes enough money so it is worth the investment. Based on my personal experiences: most often you can. As soon as something is making money you can start optimising and tweaking it to grow this stream of revenue. I am fully aware revenue is not profit, however if you do something new (or in a new way) and it is making more money than the old way for a similar investment you basically already did your ROI calculation.

2. Does it Save Costs?

Are the things you are doing more effective or efficient with the use Digital? Are you saving the company money on execution while not jeopardising any revenues and margins? If so, you’ve got a clear winner, since you have just lowered the overall investment while kept the gains at least similar.

3. Does it Make Customers Happy?

Paying customers are the bread and butter for most companies. Therefore if you support your customers by making them happy  via digital you are reducing the risk of them going elsewhere. Retention is a lot cheaper than acquiring new customers. Making your customers happy in order to retain them is a very smart investment with very concrete returns.

The answers on these questions are the answers to the ROI question

Remove the abstraction where possible: ROI is just a number, it is up to you to make it into something tangible. The sweet spot of course is when all three questions are answered with a ‘yes’. With two out of three you are still pretty good and even with one “yes” it still can be a no brainer to move forward. Just remove the abstraction and speak a common language with your stakeholders.

 

Always focus on behaviour instead of events when setting goals

Getting people to embrace digital, whether these are your customers or your employees is a very difficult thing to do. At least when you focus on continuous movements. It is easy to get someone to move once, just nudge them. However do you want to nudge people over and over again to ensure they don’t stop moving? I guess not, that is a lot of work and won’t scale, plus getting nudged over and over again is something that will annoy people over time.Doing things that don’t scale

Doing things that don’t scale

Of course it is important to do things that don’t scale to test your hypothesis. Therefore it is good to test if a nudge will move people and what else you could do to get people moving. This is very event driven, how to get people to do X. However at a moment in time you need to think on how to move beyond this non scalable approach and scale up rapidly. Non scalable efforts often cannot be sustained on the long term.

Remove heavy lifting from the equation

Non scalable activities are heavy lifting, or can be heavy lifting when there are a lot of these activities. The challenge is how to have the same or better results without that heavy lifting. One thing I do is by switching the goal focus. Non scalable activities are often very event driven, do X to achieve Y, where X and Y have a one on one match, or a two on one match (twice the X to achieve one Y). However what you would like to achieve is to minimise you interactions to still achieve the same outcome. To do so often you have to focus on a behavioural goal and less on a event driven goal.

Since if you can start changing behaviour from people to do Y, it will require less activities from your end to make them do Y over time. Which means that the heavy lifting will disappear for a certain group of people and the attention can be on a smaller group of people who have a harder time to make this change.

A practical example

Imagine you want your employees to create content whether these are tweets, LinkedIn updates or blog posts doesn’t really matter. If your goal is to make sure every employee creates X amount of messages in Y period of time, you are very event focused. Which means you will work to achieve X in period Y. If you want to repeat this a second time, you still have to invest the same amount of time to get your employees moving the needle in the same direction. Basically you are just hopping from time period to time period and probably have a feeling it is a Groundhog Day.

But if you change your goal to enable your employees to create X amount of messages every week, you are very behaviour focused. There is no end to this period and you want your employees to make the number of messages they produce into a habit. Something they do over and again. So instead of pushing for a number in a limited period, you are approaching this as a longer term project to change the behaviour. Which most likely implies that you have to invest more time upfront (since you have to learn people how to do X time and time again) while you will have to invest less over time since the employees will be available to repeat their learned behaviour time over time without your involvement.

How the practical example will look in theory

To illustrate the practical example a little bit more abstract, you could think of these three lines:

  1. Units of Y (messages, blog posts, bright ideas, shares, cookies) produced by a person
  2. Total investment of your time (and / or money) to make people to do Y
  3. Average investment per person to help them to do Y

If you would focus on event driven goals, than the graph would look like this:

Event driven goals

Clearly average time spend per item / action stays the same over time. Which means if you want to get twice the results, you have to invest twice the time.

If you would focus on behaviour driven goals, than the graph would look like this:

Behaviour driven goals
The average time you have to spend per item will decline over time. Since people change their behaviour you don’t have to invest the same amount of time over and over again, which means a more scalable solution.

Focus on event driven goals if you want to be busy

The graphs show that if you want to be busy: just focus on event driven goals. You have to invest the same amount of time over and over again to get people moving. So if your goal is to build up head count or to create the perception you are indispensable for doing this, just focus on events. You will get the results you want, and you still have to do the heavy lifting, it is like being a worker at the conveyor belt, doing the same trick every few minutes. Until of course a robot arrives taking your job….

Focus on behaviour driven goals if you want to get things done

If you want to move forward you cannot expect yourself to do the same thing over and over again and have to hire more people if you want to do more. You want to get things moving without your direct involvement, you want things to scale and preferably only focus on the more difficult situations in which you can really add value by getting people moving. Of course it might be clear that there is moment that everybody (or enough people) is moving, which means that you can move on to the next challenge to solve.

Thanks to Rena Patel for proof reading this piece first :).

Four Types of Conversion to Focus on

Focusing on conversions is always easier said than done. There are so many to focus on, so how do you pick the ones that are really important for you. One approach I use is to bucket conversion in four types (and of course as the good consultant I am, I made a quadrant for you to show how). One is not better than the other, you need them all four in the end. Though at least this gives me an indication on what is working and where gaps might be.

Quadrant for conversion

Long term gains and personal connections

For me conversions on digital channels are about two things:
1. Create the start of a long-term personal connection that can lead to a business benefit
2. Or create the start of a (mutual) long-term gain that on itself can also lead to a business benefit

In the end it is always about business benefits to ensure the purpose for which the organisation was created is being served and business benefits are required both on short-term and long-term.

The four types of conversions

For me there are four buckets in which a conversion fits. Each of these buckets accomplish one or more steps leading to a business benefit. You don’t have to do them all to get to your goals, though you most likely want to use a mix to get there.

Exchanging

Exchanging is a really basic conversion. It is for example somebody leaving his information in a form on your website. Often this is very short-term gain (as in: a quick return) that could start leading to longer term gains. Also this aspect is not personal at all, it is somebody just handing over his data, no real connection is being created with your organisation yet.

This is the conversion you read most about it. However since it is a very short-term gain, it means that you have to repeat it over and over again to make it on the long-term and the returns are modest. So in the end you want to either move up or right in the quadrant which can lead to bigger gains.

Consuming

Consuming is a nearly day-to-day behaviour, however this conversion is beyond just reading or watching content. It is about putting something on your device for consumption purposes. This can be downloading a PDF or installing an app. It is consumption in the here and now, but it especially about consumption that continues after the user has left the touch point and decides to revisit the content on his device.

This is a conversion that helps you staying top of mind of the user for a longer period than just the user’s session on your touchpoint. Being top of mind could ensure a longer term gain, since if a new issue arises at the user and you are top of mind for this issue the user might reach out to you.

Sharing

Sharing is what happens on social media and of course content from your touchpoints could also be shared by your users. Leveraging other people’s audience is something that is relatively personal (the individual shares it on his social media accounts) and could provides some short-term gains such as exposure to your content or touch point to a new audience that they carry with them via their social media accounts.

This conversion creates a personal connection, even though it is initiated from the user and not necessarily answered by the organisation. The good thing is that this conversion can help you in growing your audience which in itself could help you in getting more conversions in all four buckets.

Connecting

Connecting is the most personal of the four types of conversions. It is when there is a real connection between the visitor and you (or somebody else of the company). It opens the door for more than just a transaction, it opens the door for a longer term relationship.

It would be unfair to say this is the mother of all conversions. Since it isn’t. Too many people have a lot of good conversations with other people without actual business outcomes. A connection doesn’t mean a relationship and even a relationship doesn’t mean the creation of a business benefit. Though having a real connection with your stakeholders, even though it is just a digital one, could be a very valuable longtime gain. Since it would you enable to have somebody who you could share ideas and experiences with and who could do the same with you.

How you could leverage this quadrant

I would suggest to use this quadrant to map your existing conversions on these quadrants to see what works for you now. Also this mapping can help you to identify any gaps you might have in your conversions. Maybe your focus is only long-term, which means you want to add more short-term conversion or vice versa.  It could be an easy way or you to get additional insights on your performance.