The Measurement Standard

July 13, 2012

The State of “ROI” in Public Relations: Dying or Almost Dead?

The demise of the term Return on Investment ROI

Here lies the mighty R.O.I.; By too many used to belie.

The term Return on Investment (ROI) has become so diluted in meaning as to become useless for public relations and social media measurement.

by Bill Paarlberg, editor

There is a new paper on the IPR site by Professor Tom Watson that demonstrates just how diluted-to-death the term Return on Investment (ROI) has become in PR measurement. Dr. Watson surveyed 2000 European PR pros and discovered the consensus was that ROI was too loosely defined a term to be useful in public relations measurement or evaluation.

He also reports on this year's International Public Relations Research Conference, where the brainiest measurement minds in the business

(a) could not decide if they knew what ROI for PR was, and

(b) didn't think they'd use the term even if they did know what it was.

The problem is that the term "Return on Investment" is mostly used in public relations measurement and social media measurement by people who don't know what the term really means. Those who do know what it means mostly don't use it, because ROI is very difficult to calculate in the context of public relations.

What ROI Means

Return on Investment equals the dollar value of the return gained by an investment, minus the cost of the investment, divided by the cost of the investment. It's usually expressed as a percent (which means you multiply by 100 and put a % sign after it). So if you invested $1 to make $1.25, your ROI would be (1.25 - 1)/1 = 25%.

This is the definition of ROI that's been used in the business world for almost a hundred years, and if you took Business 101 in school you learned it.

The C-suite and every Board of Directors -- heck, every business person -- just loves to know the ROI of every component of their business. Knowing ROI makes a lot of decisions easier, because you can use it to compare apples to oranges. Once you know the ROI it's not apples or oranges anymore, it's all expressed as the growth of money.

Why People Who Don't Know What ROI Means Like to Use the Term Anyway

In fact, ROI is such a valuable thing to know, that if you use the term in conversation, people tend assume you know what you are talking about. Well, they used to, anyway. Over recent years, there have been an awful lot of people in the business world who have used the term ROI to make themselves seem smart, even though they couldn't accurately determine their investment, or the return on it. And they did seem smart and important when they talked about ROI this and ROI that, so that other people began using the term, too. Ah, the slippery slope.

And so it is that ROI has suffered a process of dilution, at first just self-aggrandizing douchebaggery, then more and more people wanting to sound like they had business chops. Today, most of the people who use the term "ROI" actually mean "results." (And I'd guess a lot of them don't even know they are using the term incorrectly.)

Of course the ironic thing is that the C-suite and Board know and use the original meaning of the term, so people who use it incorrectly to report to them are just shooting themselves in the foot. Moral of the story: Don't use the term Return on Investment unless you can calculate it. The word you save may come in handy some day.

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  --Bill Paarlberg is editor of  The Measurement Standard blog and newsletter, and of Katie Paine's book “Measure What Matters.” He is also editor of the book “Measuring the Networked Nonprofit,” by Beth Kanter and Katie Paine, which will be published this year by Wiley.
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The Measurement Standard is a publication of KDPaine & Partners, a company that delivers custom research to measure brand image, public relationships, and engagement. Katie Paine, CEO of KDPaine & Partners, will be glad to talk with you about measurement for your organization.

Comments

Bill Paarlberg

Bill Paarlberg

July 17, 2012

Nice to hear from you, Philip. I enjoyed that post of yours. I like that: “By definition, public relations permeates every aspect of organisational life, and we should acknowledge this intertwining in seeking to ascertain the potential of public relations and in assessing the actual benefits, rather than pursue this work in disciplinary isolation.”
And thanks for the link to David Phillips’ post. It made me think about what ROI really is, or isn’t. Perhaps the problem is that ROI is a one dimensional concept, and PR is multi-dimensional. Maybe that’s what you are saying in the quote above.

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