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:
- 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!