How to measure and prove the commercial value of an idea?

Why is it important?

Return on Investment (ROI) evaluates the impact of an idea (from communication, new product development through to service transformation initiatives) and directly measures the benefit in relation to the cost of design and implementation. Understanding the ROI of an idea provides powerful insight into business performance and supports evidence-based strategy. This understanding is crucial in focusing effort on areas that will have the desired outcome and commercial impact.

Such is the strength of being able to prove ROI - Chief Marketing Officers (CMO’s) that can demonstrate ROI have budgets that are 1.6 times higher than those who don’t.

How do you evaluate ROI?

At a very basic level the formula for calculating ROI is taking the net profit and subtracting the total investment. ROI = (Net profit) / (invested resources) X 100. However, in practice it is often more nuanced with a need to:

• Determine the most effective way to measure commercial success.

• Have a comprehensive view of all the investment and resource involved in implementing the idea.

Our approach

We adapt our approach to the business challenge around the following steps:

• The cost of implementation

This involves working closely with a business to determine all the costs involved in implementation - from the more tangible direct costs of material through to employee time and effort i.e. training to deliver a refined service.

• Defining commercial impact

At this stage we consider what is important to measure and/or predict – is it customer loyalty, brand awareness, purchase (repeat and higher value), enhanced experience (ROX), a change in behaviour (i.e. driving customers to self-serve rather than calling). Then we assign a value to the key metric from customer value through to operational costs (i.e. reduced call volumes). 

• Measuring the impact of an idea

Next, we use statistical modelling to determine the relative impact of the idea on business performance. We can approach this in two ways;

• By using a technique called regression to determine the relative importance and impact of an idea on experience and business performance.

• To determine the appeal and take-up of an idea (used to design the optimum package / product) using a trade-off technique.