Formula for communication ROI
Q: How can we definitively connect the ROI we deliver as communicators to operating income or revenue?
Answer from Jim Shaffer, IABC fellow and presenter of the July 2018 IABC Heritage Region webinar "Improving Results and Value by Increasing Business and FInancial Acumen":
Always assess ROI in advance: When considering a performance improvement project focused on improving communication, we always assess the projected ROI that would likely come from the project before we launch the project. Only a couple of times in more than 35 years have I recommended that we not proceed because the ROI wouldn’t be acceptable. Clients agreed.
Clients like that approach because the costs are absorbed by the gains we make. This is what I mean by helping communication professionals shift from a cost center role to a value-adding role. Typically, communication people churn out news and information without taking a business-like approach that requires initially determining whether the project is likely to add or drain value. Of course, more and more communication professionals are moving in this direction—by necessity.
Here’s the ROI formula.
ROI equals gains minus investments divided by the investment costs.
ROI = $700,000-$500,000 divided by $500,000 = a 40% ROI according to the book I just consulted. (I was a communication and political science major.)
We calculate the projected gains and anticipated costs, which include our client’s direct compensation costs and the employee benefits load (usually in the 35% to 40% range; HR will know.). That’s often referred to as total compensation or fully loaded cost. We then divide that by the percentage of time the client will be involved in the project. As an example, if the client is going to work for one month on the project, the fully loaded cost would be 1/12th of his or her total compensation.
My fees and anticipated travel costs are added to the client’s costs. We then calculate the projected gain, subtract the projected costs and divide that number by the investment costs.
At FedEx our initial pilot project in Los Angeles generated a 23% increase in revenues, which represented a 1,447 ROI. The next five generated more than a 1,600% ROI. The project in Delmar, NY, that I discussed on the webinar was 700%.
Here's a summary of some of the results we’ve created. Clients like the gains and communication practitioners like learning an approach that enables them to be and be perceived as value creators.
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- IABC Heritage Region
- July 24, 2018
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