ROI: Real or Illusory?

Carol Smalley
Managing Editor, CRMGuru
Member

Posted 23-Jun-2003 02:14 PM
Our colleagues at CRMDaily recently ran a story—ROI: Real or Illusory—in which they state that a customer's lack of planning on how they will measure ROI ultimately impacts ROI.

What has been your experience with pre-planning your post-implementation metrics? How has it impacted your goal setting and results?

Share your stories with me. ROI is an area we plan to cover in the near future in our newsletters and on our Web site.

Carol Parenzan Smalley
Managing Editor
www.CRMGuru.com
carol@CRMGuru.com

Jim Novo
Member

Posted 27-Jun-2003 06:19 AM
In my experience, "planning how they will measure ROI" is not the challenge, it's arriving at benchmarks to measure against.

ROI measurements imply you are looking for an increase or decrease versus benchmarks. If you don't have any benchmarks to start with, measuring anything is problematic.

Take the fundamental CRM goal of "increasing customer retention". Ask any marketing manager how their company defines a customer defection - you will get a blank stare 80% of the time. But unless you can define a customer defection, how can you measure retention? You can't - think about it. "Retention rate" is the percent of customers who have not defected. If you don't define a defection, then all customers are always and forever customers, so what is the point of trying to retain them? Further, how would you measure the ROI of retention when all customers are forever always customers?

Before you even start talking about "planning how to measure ROI", you have to have solid definitions for new customer, best customer, lapsed customer, former customer, etc., and some very simple standards for measuring the value of each segment. Only then can you start to plan how to measure ROI, because at that point you have real benchmarks to measure against.

And you don't need CRM to do any of the above - a long as you have customer data. If you have no customer data at all, then you shouldn't even be talking about CRM; what you need are operational systems to collect customer data and analytics to begin to understand your customers. CRM comes later - much later.

Jim

Jim Novo | Author: Turning Customer Data into Profits
http://www.jimnovo.com
Co-Author: Marketer's Common Sense Guide to E-Metrics
http://www.hiqhq.com/marketersguide.asp

copparapu bobby(choudesh)
Member

Posted 21-Feb-2006 11:14 AM
Regarding ROI : company or organization may have calculations probably Illusionary if invoicement amount has not been received ..ha..haa..but most of time, they are real. So don't worry about the ROI calculation part.

I believe as follows:

Net Sales Revenue = sum (Products) x sum (List Price)

The Metric 1 showing the importance of attaining good Net Revenue out of Sales, depending upon the number of products sold in the market. More than this, List Price, which we are offering to the customer, is more important to bring customers. As we discussed earlier the discount strategy to rise the sales in the market along with the List Price for the Product Selling is very important.

Metric 2 : The Total Return on Investment =

Total Sales Value – (Campaign Investment + Organization/Product Manf/ est Charges)
------------------------------------------------------------------------------------
Number of Customers

Thus the investment plan demands upon the product availability by thoroughly understanding the above metrics. Especially the Demand Planning not only depends on the Customer’s Loyalty Index, but also depends upon the Forecasting the Requirement Process is also equally important to hold the Customer.

As the formula above is self-explanatory, the Total ROI will be calculated also in terms of Total Sales Value and Campaign Investment + Organization/Product Manf/ Est Charges) .

choudesh copparapu
SFA/CRM/Data Integration specialist
Sea Shells Data Warehouse

Exchange Synergism
Member

Posted 23-Apr-2006 08:07 AM
Interesting debate ! My background as a Chartered Accountant and marketing professional might be helpful to this thread so here goes:

ROI in marketing is probably as abused a term as Profit was at Enron. There is no cookie cutter way to do this in every business, or even under every circumstance. As is usual in financial modelling the method hsa to be appropriate to the question you are trying to answer.

Marketing ROI is most often used as a basis to rationalize marketing spend. Even if the nubers are horrible, a lot of companies will make that spend anyway. There's a lot of faith and hope (if not charity) in marketing ! The number of exogenous variables that come into play make scientific measurement very difficult indeed.

So why bother ? It is very useful to measure RELATIVE effectiveness, even if the absolutes are nonsense.At least that way you can practice continuous improvement.

As for absolute ROI, it depends on many things, not least of which is time horizon - which is a function of the business model. There are no right answers here, only situation appropriate ones.

My counsel would be to look to your finance professionals to identify appropriate measures for your circumstances. Settle on something that seems reasonable and then, most importantly, invest your time making the results improve rather than making the measurement perfect.

Hope this is helpful or at least invigorating.

David McNab
Exchange Synergism Ltd.
http://www.mscforum.com