How can businesses measure ROI, using both soft and hard data? And how do they come together?
Organisations can now measure the success of their efforts like never before, thanks to the availability of new tools and technologies. However, some limitations to hard ROI calculations should be acknowledged to gain a comprehensive understanding of organisational performance. Hard ROI refers to measurements that tend to be easy to quantify and can contribute to an organisation’s success. Examples include increased supporters or email subscribers and higher website traffic.
A hard ROI analysis disregards other components that may be significant for long-term performance. These factors, known as soft data, are more difficult to define or assess than short-term financial goals, but they are equally vital to consider in today’s complicated corporate climate. Longer-term soft success measures include increased employee output, improved corporate morale, superior brand reputation and perception, and enhanced word-of-mouth advertising.
Future Processing recently hosted a roundtable event that provided an opportunity for industry experts to exchange ideas and offer valuable perspectives on this topic. Rowan Jackson, Co-Founder and Chairman at Promising Outcomes, Eric Moe, Chief Operating Officer of Whitefoord LLP, and Daria Polonczyk, Head of Analysis & Design at Future Processing participated in the discussion.
The Difficulties of ROI
ROI is a financial metric of monetary worth by definition. It is challenging to evaluate an investment when the predicted advantages include both monetary and non-monetary returns. These are hard to measure, non-financial, and difficult to quantify and measure important benefits related to ROI, such as increased loyalty or boosted user experience. Unfortunately, it’s frequently completely ignored.
The ROI for a project with the same total numbers can be calculated in a variety of ways, resulting in a broad range of takeaways. As a result, it’s critical to understand which calculation to employ in order to best support measuring a project’s goal. In terms of data, it is critical to decide which combination of soft and hard data to use and how many years to include in the calculations. This is where the difficulty arises: while simple to calculate, the results of your ROI performance are heavily dependent on the assumptions and compromises that organisations must make during their calculations.
Metrics that Aid ROI Calculations
According to David Kolb a Senior Technology Advisor, “Calculating ROI is hard if you don’t have established metrics. Start-ups and new product teams turn to innovation accounting – a way to take measured steps with leading indicators”. To track the process, show progress, and validate milestones, Key Performance Indicators (KPIs) can be established. These KPIs serve as checkpoints on the path to the ultimate goal: accurate and reliable ROI. KPIs are more effective for measuring individual stages of complex projects, whereas ROI is more effective for evaluating the entire project in general. KPIs are useful metrics for predicting project outcomes, whereas ROI is useful for reviewing the validity of decisions retrospectively.
According to a recent survey, 31% of respondents named user experience (UX) as the most significant element impacting ROI. This result was also consistently present in expert interviews, and for many people and organisations, a good UX means a better Customer Experience (CX), and in turn a good ROI. Conversion rates, bounce rates, and revenue per customer are examples of metrics to consider when measuring the success of CX-related initiatives. Involvement and expenditures on CX have been shown to translate very well into increased revenue, both by increasing income and lowering maintenance and support costs, boosting ROI. After all, rule 1 of Google’s ‘Ten Things’ Philosophy says, “focus on the user and all else will follow”.
Bringing Everything Together
Measuring ROI is critical because it informs organisations about the effectiveness of their ventures. It uses hard numbers to quantify the effectiveness of each campaign and provides businesses with information to help them measure the efficacy of ongoing projects, and the success of a venture on completion, as well as to justify future undertakings. It encourages team accountability because everyone is responsible for delivering results. Furthermore, organisations can calculate project accuracy by comparing the predicted ROI at the start of an endeavour to the actual ROI at the end. The primary function of ROI is to aid in decision-making, especially since changes to a project early on are much simpler and less expensive. The simplest of all ROI measures are those based on the customers’ desired outcomes and how well the organisation performs against them. These outcomes are the customers’ expectations of an ideal experience, and they are easily measured. Once measurement completed is it is easy to assess the ROI.
To accurately determine the expected ROI of a project, organisations must measure not only the hard ROI but also the soft, less quantifiable returns. Softer measures have a strong correlation with the development of positive customer relationships. This leads to benefits such as repeat purchases and word-of-mouth referrals. Positive exposure is critical to the success of organisations and their brands. Financial metrics and calculations can easily capture hard ROI. Soft ROI, on the other hand, will take longer to establish and will necessitate a commitment to in-depth discovery and research. Nonetheless, it can be critical in determining the true potential of investments in a wide range of business areas.
