April 12, 2011


Rabbit dining on ROI
Analysis is wonderful. Lots of numbers to evaluate. Trends. Magnitude. Pretty graphs.

What we measure may not matter.

Analysis might be a substitute for thinking and acting. When you're doing something brand new, there are no standards.


Here's a simple example. Let's say your cost of capital is 6% and your target Return On Investment (ROI) is 15%.

If you're offered an opportunity with a 9% return, your standards say turn it down. Yet you'd earn more than your cost of capital. Isn't 9% better than 6%?

What if your capital is still tied up when the 15% opportunity arrives? Well, can't you borrow money? Even if the cost is 8%, the returns are much higher. Your loan interest is probably deductible too.


Sometimes the ROI is impossible to measure. What's the ROI on
  • your marriage?
  • your business attire?
  • a nice office?
  • client appreciation events?
  • your mobile phone?
  • GPS navigation
  • snow tires during a blizzard?
  • reading a book?
  • your smile?
  • your pet rabbit?
Suppose you sell insurance. What's your client's ROI on the peace of mind you provide?

No Standards

When you're trying something new (say using social media), conventional measures flop. You can measure the time and money you invest but you're unlikely to get a result you directly attributable to what you've done.

Say you write a blog post. Don't count on a sale next week. Maybe you get a client after three years but how would you determine the cause?

What You Can Measure

There are things you can — and should — measure. That's where social media and the Internet rock. There's so much data available to you. Here are simple examples.
  1. Blog: page views, length visits, sources of traffic and trends
  2. Twitter: the quality of your followers (who not how many)
  3. LinkedIn: who are your connections (quality not quantity), how many Recommendations you have, how often your profile gets viewed daily
Your clients, prospects and competitors can also peek at some things …

Your Reputation

There are reputation monitoring tools like Klout and PeerIndex. They're not perfect but are used and will improve. If you're not visible, your score is zero.


My Klout score for @mActuary is currently 26 out of 100. That's low but since anyone can see, I might as well show you. At least the trend is upward and I'm "influential to a tightly formed network that is growing larger".
Klout for @mActuary 2011-04-12
You are your competition too. If you feel your scores are too low, experiment with ways to improve them. There's no fixed formula. You'll find ideas but what works for you will likely differ. Your measure of success may be personalized too.


on the small biz page for over 2 weeks (see bottom righthand corner)With social media, you get credit for what you've done in the past. That legacy helped get me interviewed by the Toronto Star newspaper. For over two weeks, I've been on the first screen of their small business section (now in the bottom righthand corner). What's that worth?

What about you? Starting to use Twitter three years ago, is of more value than starting last month. Having 73 blog posts is better than having four. Even if all those posts and tweets aren't read. You get credit for starting and sticking. That's because so many quit. If there's quality in what you do, you're probably a winner. You're in a marathon, not a sprint.

A Core Question

When pondering ROI, here's a core question: what you're doing that's a better use of your time?
If you're house hunting and find one without central air conditioning, you know you can add it. Yet, why didn't the current owners upgrade? What other shortcuts have they taken? What damage did the heat and humidity cause to the structure?

Even if you don't think social media is essential, you benefit by proving that you've maintained and modernized your business. That helps you recruit and keep staff too. Even if that doesn't translate directly into ROI.


PS What's the ROI on reading this blog post?

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