Money Matters: Rethinking ROI for Public Relations

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.

20 Responses to “Money Matters: Rethinking ROI for Public Relations”

  1. […] have the financial expertise to make the term mean anything. I was thrilled this morning as I read Tim Marklein’s Money Matters: Rethinking ROI for Public Relations. Basically, – and I’m having fun with paraphrasing here – a PR person goes from […]

  2. Robyn Quinn said on June 22, 2011 at 1:28 pm

    Thanks for this Tim, I heard about the discussion on measurement in Lisbon and see this as a significant shift forward. PR needs to set a standard for measurement based on what we really do – looking forward to seeing more on Total Value. If you ever need a voice from Vancouver Island – let me know.

  3. Tim Penning, PhD, APR said on June 22, 2011 at 2:54 pm

    Good post. I’ve been following the Barcelona and Lisbon discussions. I would also recommend Katie Payne’s ‘Measure What Matters.” Also, I’d point out that the ‘return’ of PR is not always direct, immediate, or numerical/monetary. Financial metrics may or may not capture: cost savings from avoiding a strike, boycott, or other crisis; competitive edge in reputation that affects repeat business; free of government regulation or penalty; employee recruitment and retention; investor loyalty; community goodwill from local zoning boards; volunteer recruitment and retention; donor loyalty; program understanding and acceptance. etc etc etc.

    In short, the return of PR is applicable in all sectors–business, nonprofit, gov’t–and with all publics, for reasons financial and otherwise.

    If people in the C-suite would understand and/or admit that PR is not merely a marketing discipline, they would be more open to the ‘outside the box’ thinking they claim they want when it comes to the total value of PR.

  4. Philip Sheldrake said on June 22, 2011 at 4:20 pm

    Ultimately, historical financial performance is best assessed at the level of strategic business unit, where overall performance in terms of the balance sheet, P&L and cashflow can be audited.

    While 20th Century business was built around tangible assets (land, plant and machinery), the 21st Century business is more reliant on intangibles (intellectual property, brand, reputation, social dialogue), for which traditional accounting analyses are poorly designed.

    So that’s one reason why Kaplan and Norton developed the Balanced Scorecard approach, designed to augment the lagging (financial) indicators of business success, with the non-financial drivers of future financial performance.

    Intangible assets tend to only have strategic value when they’re ‘in the mix’, something Tim Penning alludes to above. To break one out in isolation for an ROI calculation is next to impossible. And that’s why I’ve tried to link the efforts of marketing and PR (indeed all activities that seek to influence stakeholders and ensure reciprocal influence) with these non-financial drivers.

    I posted more on this topic in the most recent Friday Roundup of the CIPR Conversation – http://bitly.com/ioDISf – Love to know what you think.

  5. steve cody said on June 22, 2011 at 4:57 pm

    This is all good stuff. but, there’s still one fundamental fly in the ointment, if you will. Too many client organizations still don’t set aside the funds necessary to conduct a serious measurement of their PR ROI. Until we change that mindset and more CCOs begin including separate fees for measurement in their annual budgeting, we’ll continue going round and round.

  6. Hugh Anderson said on June 22, 2011 at 5:51 pm

    Hear, hear! I concur. The challenge with the ROI bit is making the practical application wide enough to allow flexibility in different scenarios whilst being tight and concise enough to retain the simplicity necessary for it to become universally accepted. I look forward to seeing the next developments.

  7. Tim Marklein said on June 22, 2011 at 10:08 pm

    Thanks for all the thoughtful feedback. This is an important industry discussion, and we look forward to more comments and insights to elevate this issue on the mainstream PR agenda.
    To Jules — thanks for the post and link back. We’re thrilled you were thrilled, and appreciate all you’re doing to advocate better metrics with your clients and colleagues.
    To Robyn — glad you see this as a step forward. We hope we can flesh out Total Value in a way that lives up to your expectations. We’ll definitely follow up to tap your Vancouver voice.
    To Tim — love the name, and the PhD and APR behind it. You’ve laid out very nicely many of the elements that fit within “Total Value” but might not be calculated in ROI terms. It’s all valid for showing our impact — and we believe the C-suite will better understand that impact when we communicate credibly with metrics and terms that resonate. Including the CEO and CFO as much as the CMO.
    To Philip — thanks for continuing to spread the dialogue. Your “tangible” and “intangible” breakdown is central to our thinking, and the Balanced Scorecard is also a valuable concept for PR clients and agencies to embrace. The more we speak the language of business, the more business will recognize PR’s impact. I would argue that many already do — we just need to get more serious about the metrics and the investment behind them.

  8. Tim Marklein said on June 22, 2011 at 10:15 pm

    Thanks, Steve and Hugh, for the additional comments. We fully agree (Steve) on the need to invest in measurement and analytics — not just the budget dollars, but also the time and skills needed to internalize the data and apply the insights. I would argue that the more clients see meaningful analytics, the more they’ll expect it and budget for it. To Hugh’s point about the breadth of PR, that’s where we believe the “Total Value” concept gives us plenty of flexibility to address different PR challenges, objectives, industries. etc. And yet ROI can stay ROI.

  9. Craig Pearce said on June 23, 2011 at 1:41 am

    It’s certainly an interesting topic and one that recently caused some comment and consternation when I recently blogged on it: http://bit.ly/kaVbal A follow up post features the perspective of one of Australia’s leading PR academics, who I don’t think would like the sound on much of what is said above!

  10. This Week in Social Analytics #4 at TweetReach Blog said on June 24, 2011 at 3:44 pm

    […] Money Matters: Rethinking ROI for Public Relations Tim Marklein discusses an effort by the Council of PR Firms to help drive a new standard for measuring the ROI of PR. They are heading toward establishing a “Total Value” measure that would involve looking at the intangible benefits of PR on top of the traditional “money-in-money-out” measure of financial ROI. […]

  11. Germán Caicedo Prado said on August 13, 2011 at 7:58 pm

    There are several considerations to do. First, not all organizations have the financial results as a measure of its success. For that reason we can not establish that the ROI is a requirement for some government entities or even for several NGOs. Second: Why communication is required to show a return on investment? When I ask this question, I think in actions and social responsibility programs of companies. The expected return in this case is social. I have not heard so far no one demanding a financial return on investment in CSR.

  12. www.ASKINGSCOTT.com - Measuring the True Value of PR said on August 17, 2012 at 12:45 pm

    […] Whether you work in a PR agency, or as an in-house communications professional, one of the biggest challenges in our field of work is demonstrating an accurate ROI for PR services. […]

  13. […] The Council of Public Relations Firms in U.S made a statement in a post by Tim Marklein that “Money matters: Rethinking ROI for Public Relations”. […]

  14. Anthony Alfidi said on May 29, 2013 at 11:17 pm

    PR must be trackable through social media so you can analyze whether a timed release drove sales. Intangible asset ROI is not some simple calculation. Break out earnings from business units to see intangible contributions. http://alfidicapitalblog.blogspot.com/2013/05/intangible-asset-roi-needs-clear.html

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