PR practitioners tend to prefer to not talk about ROI. Their credibility and success would be served well by embracing ROI as a means to prove their value and not considering it a threat to their existence.
During its last quarterly investor call, IBM cast aside the usual report on revenues and profits and focused exclusively on its share of voice in trade media. Special attention was given to a media campaign on a new enterprise blockchain offering that had garnered twelve clippings of 800 words or more, most of them containing CEO quotes. “We are convinced, seeing all of these results, that Ginni Rometty is on the right track with IBM,” said one analyst to Barron’s after the call.
How soon in the previous paragraph did you catch on to the fact that you were reading a scenario that could never possibly become reality? Investors do not care about share of ink, the qualitative measurement of media clippings or any other non-financial measurements of PR success. Despite the current talk about “purpose” and the desirability for businesses to pursue other than profit maximizing goals, the raison d’être of companies, whether they are private or public, was and remains generating wealth for the people who own them. The CEO is on board with this program, and he or she will always make sure that everybody in the leadership team is as well. This is the reason why the lingua franca of the “C-suite” will always be financial.
Despite all of these evident truths, in 2019, PR practitioners still have a hard time dealing with the reality that in order for them to see their contribution to organizational success taken seriously by the C-suite, they need to be able to convince leadership that their programs or campaigns yield financial returns that exceed in sufficient manner the money that was invested in them.
A simple formula
One classic financial performance measure for calculating the financial returns on any investment is ROI (Return on Investment). The most often used ROI formula goes like this:
ROI = (return – investment) / investment * 100 percent
You spent 20 dollars on a project and got 100 dollars in return? Your ROI is 100 – 20 / 20 = 400 percent. Nobody will question you when you say that your approach yielded solid results.
Identifying what something costs is most often not an insurmountable task for PR practitioners. Things go awry however when the R value needs to be determined. If I were a company who would never roll out a single part of my marketing mix in conjunction with any other part, the attribution of results would be a pretty easy task. In January, I would only (!) run a media campaign for example. This would mean that in that month there is no direct marketing, the website goes blank, POS promotions are removed,… in other words: everything else is put on hold. Clearly, such scenario is not realistic. Myriads of promotional activities (be they of an owned, earned or paid nature) run all at once making it difficult to attribute results to any specific program or campaign.
So attribution can be a challenge. What also complicates things is the measurement of the return in itself. If the aim of a content marketing campaign is to generate leads then the financial value of those desired leads can be calculated. The route you will take will depart from the worth of your new client and you will then work your way “up” the sales funnel, applying the known conversion rates, right until you have a number for the value of your lead.
The “worth” of that acquired client is not just the estimated profit from your first sale to that client of course. The concept of CLV (customer lifetime value) comes into play here, and there will always be room for some discussion on how conservative you want to be in calculating that CLV if there is little historical data at hand (note to start-up entrepreneurs: be very conservative at first). So this is not necessarily a quick calculation, but it is still a very straightforward one.
So far so good. Things can get more complicated still of course. Let’s say you wanted to calculate the financial value of… employee morale. A company was underperforming because employees had lost all motivation through a long series of mergers and acquisitions that left them clueless on where the company was heading… and their place in it. How do you calculate morale? You could measure sentiment and give it a score. But what is the financial value of that score? A way out of this conundrum is to revert back to the drivers that made management raise the flag on morale in the first place. Low morale makes for behaviors that are detrimental to the company because of their adverse financial impact. Low productivity, absenteeism and high turnover (to name a few) cost companies a lot of money. So as a communicator you can get to work with those behaviors. Unlike the opaque concepts of morale or motivation, prevalence and impact of the behaviors are measurable.
Fear Of Finding Out
If anything is clear by now it should be that calculating the ROI of communication can and is often, well… a messy affair. Sadly enough, the knee jerk reaction of some PR practitioners is not to take the bull by the horns, make their hands dirty and double down on investigating the linkages between their work and the financials of the company but to throw their hands in the air and revert back to non-financial measures. Being unsure about the financial worth of leads because the calculation of a median CLV value of a new client is too daunting a task at first or there is a lack of knowledge about conversion rates, the PR practitioner decides to jettison the financial metric altogether and starts to count… the amount of new leads.
Paul Holmes talks in an article he wrote on a Proof Analytics survey of 400-plus C-suite executives of PR’s “FOFO Problem.” There does indeed seem to be a Fear Of Finding Out to which degree PR programs yield financially beneficial results. The most important finding of the survey was that while all but one of the executives said they believed in the power of great marketing and communications to create business value, no less than 96 percent of respondents stated that their marketing and PR teams were “unwilling or unable” to prove return on investment. Calling these findings “worrisome” would not yet quite cover the gravity of the situation.
Instead of fleeing from financial performance measures, PR practitioners would do well to embrace them for their potential to prove the worth of the work they performed. Will the R always be an easy calculation and will you often have a chance to rule out any discussion on how it was construed? Of course not. Almost never will an “exact” measurement of the financial impact of a PR campaign or program be within reach.
Where I differ with some practitioners is that I consider financial performance measures that are often by their very nature incomplete and imperfect to be preferable over complete and perfect non-financial measures and I have to date not met a single CEO who thinks differently.
Much too often the PR budget is the first to get a big hit when there needs to be money saved in the marketing mix. Can you blame leadership? If you had on the one hand marketing making a case that its advertising campaign contributed to 8 percent of additional sales, amounting to $200,000 in increased revenue, and on the other hand PR telling you that its budget served an five percent increase in share of voice, 1,200 more subscribers to the newsletter, and two times more favorable media coverage, then let me ask you, where would you cut if you had to take out $50,000? To be perfectly clear, my point is not that marketing will always outperform PR in showing the financial impact of its contribution, the aforementioned survey made clear that the malaise exists with marketing just as well. The fact that marketing will not outperform you really does not take away from the urgency of the need to solve the credibility problem.
On a final note. The C-suite might care for financial performance measures in a manner that is not shared equally by the people who report to (the people who report to) the C-suite. I have seen a great many consultants derive comfort from this (temporary) shelter offered by the middle management communication staff that hired them. The focus on non-financial outcomes of middle communication management should however never discourage consultants from educating this organizational layer about the need to (also) think in financial terms. At one moment in time, there will always come a moment of reckoning where the leadership of the company will ask the most important and very legitimate question: what was the return on our investment?
Did you enjoy this piece on the ROI of PR?
You might also like my piece on benchmarking where I warn against some of the dangers of relying too heavily on the technique in communications.