Key Performance Indicators and the Notion of Risk

Return on invest­ment (ROI) is indeed a notion that comes up every time we talk with our cus­tomers. What will be my ROI? What will be the per­for­mance of the solu­tion offered? What will this allow us to achieve?

It is essen­tial to ques­tion the con­cept of ROI because, in many of these exchanges, the client believes that the expect­ed ROI is not high enough. Gen­er­al­ly, clients expect a solu­tion to have an extreme­ly strong impact—a strong increase in traf­fic, a reduc­tion in sub­scrip­tions, and so on. Unfor­tu­nate­ly, mea­sur­ing ROI is far from simple.

ROI, a com­plex concept

ROI is a catch-all con­cept. How­ev­er, rely­ing sole­ly on ROI to judge the val­ue of a tool or a solu­tion presents two major concerns:

1. The dif­fi­cul­ty of cal­cu­lat­ing ROI

First, cal­cu­lat­ing ROI is very com­pli­cat­ed. It requires mea­sur­ing all costs relat­ed to a project, solu­tion, or strat­e­gy, whether they are exter­nal or inter­nal. In prac­tice, this is rarely pos­si­ble, if only because the over­whelm­ing major­i­ty of com­pa­nies find it dif­fi­cult to assess their total costs exact­ly (wages, tech­ni­cal infra­struc­ture, soft­ware, fixed costs, etc.).

2. The need to avoid being lim­it­ed to the technology

Often, clients work more on the tech­nol­o­gy side than on the busi­ness side: what are my chal­lenges, how should I deal with them, and so on. How­ev­er, per­for­mance improve­ment does not come only through the instal­la­tion of a tool. It also involves the cre­ation of a matu­ri­ty curve, and for that, you need guid­ance from a busi­ness part­ner who will under­stand the issues and work on the entire cus­tomer path, iden­ti­fy good use cas­es, pri­or­i­tize them, val­i­date the pri­or­i­ty steps, and so on.

What if we used the con­cept of risk?

If one does not know how to mea­sure ROI, one takes a risk—that of hav­ing spent mon­ey for noth­ing. I often reply to clients that it is nec­es­sary to think in terms of the risk of non-invest­ment (RONI). What is the risk for my com­pa­ny to be attacked or my busi­ness to decrease if I don’t invest? If I don’t put mon­ey into the devel­op­ment of my com­pa­ny, what is the risk that oth­ers will do it and gain some of my mar­ket share?

Let’s take the exam­ple of a prospect in the trav­el sec­tor. We were able to cal­cu­late that not invest­ing was the equiv­a­lent to the company’s poten­tial loss of prof­it of one mil­lion dol­lars per month … some­thing to make you think about what risk you’re will­ing to take!

For adver­tis­ers, it is more rel­e­vant to think in terms of RONI than ROI. What impact would inac­tion have on my future, my devel­op­ment, my strat­e­gy? How can I be as close as pos­si­ble to my final cus­tomer and trans­form my busi­ness to be in align­ment with its evo­lu­tion? Is it bet­ter to take a risk by invest­ing, or by not try­ing to grow?

What about you, what is your view on these notions of ROI and RONI? Do not hes­i­tate to give your opin­ion with­in the comments!