Tech companies are notorious for analytics – you would think the techies running them would just want to have fun. One reason for the analytics however is to keep an eye on the industry’s ever-lowering cost model, something largely driven by Moore’s Law. But other industries’ cost models are also influenced by their entrenched technologies and capabilities, and their analytics are as closely watched.
Young tech companies perfecting new technologies, have low-hanging process and business model optimizations to harvest, and ROI efficiencies are quickly realized. As companies mature, complexities of process and technology interaction make it more difficult to innovate at the same rate. ROI and cost analytics become more important indicators.
Internal accounting and finance services in more matured companies will publish internal return rates that product managers and business leaders need to guide whatever innovation decisions they make. Making decisions on innovation means having resources mobilized to do something, and not do something else, consequently trade-offs are made and bets are placed. ROI insight makes it possible to more objectively guide decision making efforts to achieve financial targets.
Modern organizations center on some kind of a matrix structure. The reason behind this has to do with maximizing the utilization for professional resources – a highly-paid engineer or marketing professional is more cost-efficient as a resource if their talents are applied as much as possible through the workday. The same operational mindset applies to other resources such as buildings, data centers, software licensing, corporate services, factories, and utilities.
The financial model of projects undertaken in an organization involves combining overlapping matrices of resource costs. In practice, financial analysts assigned to a project team will typically have hundreds of costs to take under consideration. Inside that overlapping heap of costs is where the ROI of a particular project item hides. Working very closely with the finance analyst, a project or product management leader can determine the ROI for difficult to measure items like marketing spend, social marketing, a product’s new innovative features, distribution models, and varying fulfillment strategies.
The financial analyst on a project is held accountable for summarizing the financial picture for the project or product management leader so that performance improvements can be made, strategies can be evaluated and results can be reported. The project or product manager needs to know what drives project costs, and then use that information to lead the team in coming up with ways to minimize those.
During an Operational Review, where project status is assessed and often go/no-go, budgeting, resource allocation and other strategic decisions are made, the last thing you want to say to a P&L holder is a) that you don’t know or it does not matter which resources are driving cost, and b) what your team is doing to target the organization’s internal hurdle rate. The P&L holders need to know this, not in the excruciating detail a Product Manager would need to know to make feature or marketing campaign trade-offs, but at least so that the business unit’s P&L can be rolled under the accounting policy of the company as a whole and the overall unit’s strategic direction can be managed.
Many P&L executives will push for innovation, R&D and wildcard projects, but so long as financial performance is measured in P&L organizations, even those projects will be assessed for the impact they have to the company’s bottom line. Serendipity goes only so far in modern complex environments where hundreds of matrixed projects are under way, but ROI facilitates objectivity when intangibles are inevitably debated.
Social Marketing ROI
Social Marketing has grown in popularity and there are many who wonder how effective social campaigns compare with traditional marketing channels. The attention that social marketing companies have received in the press, with hundreds of millions of people engaged in the neatly organized online medium, major brands vying for that massive audience’s attention, brilliant folks at startups and their VCs evangelizing obvious innovations, it is no wonder project and product managers are interested in getting involved to leverage the medium as an efficient marketing tool.
Many P&L executives, marketing leaders, and other decision stakeholders are providing their support for trying out the new medium within their organizations. However the rubber meets the road for Social Marketing ROI in the project or product manager’s team financial assessment. Published ROI figures in sufficient detail from industry practitioners are difficult to find online, given that for the most part evaluations are still underway, best-practices have yet to be developed, campaign specifics are too variable, and competitive-edge driving results will be protected. Whatever results are found, those would absolutely need to be validated internally anyway, and analysts will apply their own company’s approved methodologies – results will definitely vary. As a project or product leader however, you still need to answer the ROI question.
It is helpful to provide financial analysts with guidance around what social marketing is and how it behaves. To start, it is important for analysts to understand that the process for evaluating Social Marketing ROI is no different than any other product feature, marketing campaign or operational evaluation. At its core, the social medium is a communications channel which facilitates one-to-many communication and anyone participating is able to broadcast to whoever is listening. A message broadcast to a direct group of followers will be relayed through the various online networks so long as the message is interesting enough. Different social media firms are integrated and some are not, but members will participate in multiple networks and will pass messages along nonetheless. The important issue here is that not all half-billion plus social media participants will receive the message sent out. If the message is appealing, more people will receive it, less so if the message pertains just to a specific group. For this reason, identifying a target market and fashioning an appropriate campaign is still necessary just as with any other mass media, and financial analysts should apply their marketing campaign templates to social media ROI.
There are many online sources explaining various approaches to determine mass media effectiveness in terms of ROI, which undoubtedly will be useful to update the financial analyst’s spreadsheets, sufficing to know that all methods try to get to how much net profit is made on the money spent on the media campaign. Consider advertisers buying time during the Super Bowl, they will have an estimate of the total number of people watching, the percentage of that audience that fits a particular target demographic, and then they watch product order volume as a weighted percentage of normal ordering traffic. The net profit per product is multiplied by the volume generated by the campaign, and then that is divided into the cost of the campaign itself. Specific figures are derived statistically if the volume is high and the campaign cannot practically track the origin of each order. Paul Gillin provides a nice summary on the math.
The resulting ROI model, with specific conversion rates, is typically a guarded secret or at best a general percentage explanation, but it is something from which to build enhancements to improve take-rates for the product or service.
For the project and product managers tasked with using Social Marketing and assessing ROI, some useful things to keep in mind are:
- If the project or product delivers value independent of social media, make sure to continually remind P&L holders, stakeholders and team members of this independence.
- Remove the excitement surrounding social media’s ROI analysis by focusing on the way it is used and its expected contribution in the larger context of the marketing campaign. Doing this will in no way reduce the value of the medium, but rather keep unrealistic expectations in check.
- Remind P&L holders the team is focusing on the internal financials, not on the financials of the underlying social marketing firms and networks being used.
- Clearly define your target market, its size, how to reach it, what message to deliver. If social media helps you discover hidden markets, great, but do not expect it to determine your market for you.
- Understand and evaluate each step of the user experience through the conversion funnel. Initial ROI models can be generally established by watching funnel behavior during UE usability.
- Design tracers into the campaign with promotion codes, serial numbers, funnel detours, and reverse-sales.
- Map the campaign: gross recipients, responders, net close rate. Track analytics against the map without losing sight of your demographic participation, while keeping an eye out for hidden demographics revealed by any underlying network dynamic.
- Review the analytics offered by the social media providers, and map those results against the CRM, ordering, delivery or any other independent operational system used in the fulfillment process.
- Monitor after-sale product or service operations, defect levels, call center costs per product, etc. to understand if product lifecycle costs have any dependencies on the social media channel.
The analytical task of coming up with a ROI model is straightforward, but just as with other popular business technologies and capabilities, the soft-skills of the project or product manager are called into play so as to combine social marketing and social media within the larger project or product scope. Online marketing sites have a great deal of help and insight to offer, such as Marketing Sherpa. To help set up campaign pilots, help evaluate campaign results, or get a campaign launched right away, look to a full-service agency offering a comprehensive marketing approach that goes beyond just a specialty in Social Marketing. Bazaarvoice is one such agency, that teamed up with your brand managers, can help drive overall effective marketing ROI.