The accounting concept of Return on Investment (ROI) seems simple enough: It measures how much value a particular capital investment has created. Yet in practice ROI can prove quite tricky. For many public relations clients and firms, the notion of “ROI” gets bandied about without much meaning or clarity. According to an historical review published recently by Bournemouth University Prof. Tom Watson, ROI is “commonly and non-specifically used by public relations practitioners when discussing the value to be created from communication activities.”
It’s time to get clearer and more specific. ROI is fundamental to the rhythm and flow of most business investment decisions, and our industry can’t afford fuzzy math or vague definitions. Given PR’s powerful impact in an increasingly networked communications environment, we risk budgets and credibility if we don’t step up to the plate with clearer business metrics.
Earlier this year, the Council of PR Firms established a new measurement committee to help drive development and adoption of industry standards for public relations measurement. Our work builds on recent progress in the field, most notably the “Barcelona Principles” adopted last year by AMEC, the Institute for PR, PRSA and several other associations. The CPRF measurement committee has prioritized two key measurement areas—ROI and engagement—and established workgroups to flesh out common definitions, standard methods, and educational content in both areas.
Two weeks ago in Lisbon, we shared the ROI workgroup’s preliminary results at the 3rd European Summit on Measurement, hosted by AMEC and the Institute for PR. We argued for a strict definition of ROI for public relations focused purely on financial calculations of return against investment. This strict “money in, money out” definition is critical for public relations leaders to embrace if they are to maintain credibility in the executive suite and boardroom. From a pragmatic communications view, it’s much easier to hew to the common definition rather than try to change how everyone else defines it (or worse, come up with a new formula that only we understand).
What about all those other benefits of public relations that can’t be (or aren’t yet) calculated in financial terms? We wrestled with this issue and concluded that we need a new, additional way to package PR’s impact, one that goes beyond the core ROI definition. After debating several alternatives, we landed on a “Total Value” concept that would allow public relations leaders to showcase the full value of what we do, including quantitative and qualitative, tangible and intangible, and near-term and long-term value.
In simple terms, this means:
ROI = ROI = Money In, Money Out
Total Value of Public Relations > ROI
Total Value of PR = Tangible and Intangible, Near-Term and Long-Term
This joint ROI/Total Value schema could prove potentially quite powerful. Clients and firms whose programs can demonstrate an impact on sales, leads, cost savings or other financial performance could express that impact as ROI in well-accepted financial terms. Clients and firms whose programs have solid results not measured or measurable in ROI could still showcase their “total value” in broader terms that are meaningful to the organization but that don’t dilute the potential ROI calculation that may emerge with more time or effort.
We were thrilled to receive positive feedback from Lisbon delegates on our work to date. The audience overwhelmingly agreed (by an 89% vote) that ROI should be at the top of the “Measurement Agenda 2020.” We will continue to work hard over the next few months to flesh out more details, address open issues, and outline pragmatic steps for mainstream ROI and “Total Value” adoption. As we continue this dialogue across the industry, we welcome your feedback and perspectives.