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ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
ROI and Uncertainty
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ROI and Uncertainty

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How to estimate a return on investment when you don't have hard numbers. Presented by Charles Funk, Director of Product Management, MediaVantage, CNW at the Third Tuesday Toronto Measurement Matters …

How to estimate a return on investment when you don't have hard numbers. Presented by Charles Funk, Director of Product Management, MediaVantage, CNW at the Third Tuesday Toronto Measurement Matters Conference on September 28, 2010. #ttmm

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  • I’m not advocating that ROI is the end all and be all – but it is one input into decision-making and justification - sometimes you need to follow your heart or intuition - sometimes you need to just do what is right - but often it is good to have a critical look at cost and benefit
  • “priceless” is not likely enoughNeed to identify at least reasonable estimates of benefits
  • Leverage studies: - Chris Berry was involved in a study regarding the incremental value of a “fan” for the top 20 consumer brands on Facebook - http://www.syncapse.com/media/syncapse-value-of-a-facebook-fan.pdf - they found “The average fan value is $136.38, but it can swing to $270.77 in the best case or go down to $0 in the worst. “
  • ROI is the simplist measure of investment efficiency but it is often enough. And it is a lot better than nothing.Clearly Benefits must exceed Costs or the investment is not effective (by this measure).But need to make sure you think of all the benefits and all the costs. And where they are not quantifiable, make reasonable estimates to get to something quantifiable, especially benefits (costs are often more quantifiable). And where you make estimates, do some basic sensitivity analysis (worst case, best case, expected case) to establish boundaries.
  • - In the Syncapse study I mentioned earlier, they found “The average fan value is $136.38, but it can swing to $270.77 in the best case or go down to $0 in the worst. “
  • Transcript

    • 1.
    • 2. ROI and UncertaintyHow to estimate a return on investment when you don’t have hard numbers
      Charles Funk. Director of Product Management. MediaVantage. CNW
      Third Tuesday Toronto – Measurement Matters (#ttmm)
      28-Sep-2010
    • 3. Be clear on your objectives
    • 4. Two main points
      Estimating ROI is better than ignoring it!
      ROI is not everything – but it’s how your CFO thinks
      Thinking through costs and benefits is a valuable exercise
      ROI estimates can be refined and validated
      Try worst case, best case
      Understand expected bounds
    • 5. Investment Scenario
      Hire a Social Media Community Manager
      Expected Costs: $100,000 / yr
      Salary and Benefits, Workstation, etc: $75,000
      Monitoring Software: $15,000
      Training and Consulting: $10,000
      Expected Benefits: $ ???
    • 6. Investment Scenario
    • 7. Investment Scenario
    • 8. Investment Scenario
      Hire a Social Media Community Manager
      Expected Costs: $100,000 / yr
      Salary and Benefits, Workstation, etc: $75,000
      Monitoring Software: $15,000
      Training and Consulting: $10,000
      Expected Benefits: $ ???
      Greater customer loyalty
      Greater insight into customer issues
      Greater on-line presence, awareness, cool factor
    • 9. Estimating Quantifiable Benefits
      Loyalty & Insight – 20% improvement in retention
      8 retained customers at average $25k per year
      $200,000 in additional revenue
      $100,000 in incremental profit
      On-line Presence – 5% more leads (100 leads)
      10 leads per qualified prospect
      4 prospects per deal – average deal $25k
      $100,000 in additional revenue
      $50,000 in incremental profit
    • 10. Return on Investment
      ROI = (Benefits – Costs) / Costs
      Benefits = Gain from Investment
      Costs = Cost of Investment
      Social Media Community Manager
      ROI = ($150,000 - $100,000) / $100,000 = 50%
    • 11. Sensitivity Analysis
      Investment Scenario Continued:
      Costs with estimated probability
      Expected: $100,000 – 50%
      Worst Case: $110,000 – 20%
      Best Case: $85,000 – 30%
      Costs
      $100,000
      $85,000
      $110,000
    • 12. Sensitivity Analysis
      Investment Scenario Continued:
      Benefits with estimated probability
      Expected: $150,000 – 50%
      Worst Case: $50,000 – 30%
      Best Case: $250,000 – 20%
      Benefits
      $150,000
      $50,000
      $250,000
    • 13. Return under expected/worst/best Scenarios
      Expected Return: 50%
      Worst Return: -55% Best Return: 194%
    • 14. ROI based on expected/worst/best Probabilities
      Expected Costs
      50% of $100,000 + 20% of $110,000 + 30% of 85,000
      = $97,500
      Expected Benefits
      50% of $150,000 + 30% of $50,000 + 20% of $250,000
      = $140,000
      Expected ROI (based on probabilities)
      ROI = ($140,000 - $97,500) / $97,500 = 43.6%
    • 15. In Summary
      Think through costs and benefits
      Try to tie benefits to financial outcomes
      Estimate ROI even when you don’t have hard numbers
      Try best and worst case scenarios to determine bounds

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