ROI vs. ROE
This past week I was discussing the idea of running a radio campaign for/with a friend of mine who owns a small business and he said to me “there’s no way I will get an ROI (return on investment) from that,” and while I didn’t (and don’t) disagree with him, I was reminded of a perplexing question; what is ROI? The best answer is, it depends. I asked him what his definition of ROI is and he replied, “I don’t know.” I suspected this is how he would answer, thus I followed up by saying we need to define what ROI means to you before we discuss business any further. The literal definition of ROI is (Gain from Investment – Cost of Investment)/Cost of Investment. This mathematically derived meaning is very black and white, scholastic and financial in nature. Marketing in the “real world” is not black and white, nor is it consistent with what is taught in a majority of business schools. Consequently, I prefer not to use the term ROI. Instead, I utilize ROE, or return on expectation(s).
Not having your expectations met can be one of the toughest aspects of life, be it personally or professionally. In setting expectations, you are inherently taking a risk by defining the parameters of accountability. But, as they say, “no risk, no reward.” Outlining expectations when engaging in advertising and marketing allows for all involved parties to clearly understand the goals and objectives of the specific initiative. By defining expectations marketers can work backwards and implement the activities necessary to make a program successful. In other words, a well-established ROE plan will actually remove a lot of the guesswork when it comes time for a performance review. A nearly infinite number of dynamics can be included in an ROE plan, and ironically the textbook definition of ROI is one of them. Here is a brief look at a few of the ROE elements we like to use on a regular basis.
Customer Service: This is vital in all business relationships, however many companies fail at it miserably. By defining and recording the customer’s customer service expectations, it becomes very apparent what a passing or failing grade in this department looks like.
Open lines of communication: Shadiness has no place in one’s life or in one’s business. Yet, it is everywhere. Far too often when bad news hits, people are afraid to share it and therefore either lie or stay quiet. This strategy will ultimately fail. It is much wiser to disclose negative information quicker than positive and take ownership for any relevant mistakes. A good number of seasoned clients will (at least) slightly view a negative as a positive when bad news is shared ASAP rather than being withheld. Furthermore, a plan to solve the problem should be shared simultaneously or shortly thereafter. Worse case scenario, you identify a timeline (expectation) of when a plan to solve the problem will be in place.
Transparency of weaknesses: The world would be better off if people would just admit their weaknesses. By disclosing weaknesses up front, you set the expectation that a particular failure may happen, which can be another beacon of trust if and when it does.
In closing, ROE needs to be clearly defined and tangibly recorded in some sort of written form, this is known as an ROE plan. More often than not, people greatly appreciate knowing what they are getting into, having a clear understanding of all foreseeable outcomes and labeling how an activity’s success will ultimately be judged.