ROI and UncertaintyHow to estimate a return on investment when you don’t have hard numbers<br />Charles Funk. Director of ...
Be clear on your objectives<br />
Two main points<br />Estimating ROI is better than ignoring it!<br />ROI is not everything – but it’s how your CFO thinks<...
Investment Scenario<br />Hire a Social Media Community Manager<br />Expected Costs:   $100,000 / yr<br />Salary and Benefi...
Investment Scenario<br />
Investment Scenario<br />
Investment Scenario<br />Hire a Social Media Community Manager<br />Expected Costs:   $100,000 / yr<br />Salary and Benefi...
Estimating Quantifiable Benefits<br />Loyalty & Insight – 20% improvement in retention<br />8 retained customers at averag...
Return on Investment<br />ROI = (Benefits – Costs) / Costs<br />Benefits = Gain from Investment<br />Costs = Cost of Inves...
Sensitivity Analysis<br />Investment Scenario Continued:<br />Costs with estimated probability<br />Expected:      $100,00...
Sensitivity Analysis<br />Investment Scenario Continued:<br />Benefits with estimated probability<br />Expected:    $150,0...
Return under expected/worst/best Scenarios<br />Expected Return: 50%<br />Worst Return:  -55%	   Best Return:  194%<br />
ROI based on expected/worst/best Probabilities<br />Expected Costs<br />50% of $100,000 + 20% of $110,000 + 30% of 85,000<...
In Summary<br />Think through costs and benefits<br />Try to tie benefits to financial outcomes<br />Estimate ROI even whe...
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 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. “
  • ROI and Uncertainty

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

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