The hidden mysteries of ROI

The price of working in an industry is that it can lose the sense of magic that drew you to the gig in the first place. You used to talk about the enchantment of cinema; then you become an actor and rattle off jobs that you've booked. Your friends gush over fashion while you're pushing inventory. In short, what they say about law and sausages applies to pretty much everything in life.

Take, for instance, social enterprise. Within the movement we paint this idealistic picture of the for-profit world as a sector that's created an elegant system of measuring efficiency. It's our panacea--all we need to do is adopt it and all of our problems will we solved.

Except if you've spent a substantial amount of time in the for-profit world you know that the so-called experts' image of capital markets is deceptively simplistic. Seventy-five years of government-enforced transparency haven't eliminated questionable practices. Earned income doesn't guarantee financial sustainability. And metrics . . .

Well, not even for-profiteers agree on what they mean.

Case in point: "Don't Over-emphasize ROI as Single Measure of Success," an article now appearing on Advertising Age:

[T]here is a fundamental problem with overemphasizing ROI as the single measure of marketing success: It is often impossible to accurately quantify the impact. Although the world of marketing has come a long way in terms of analytic capabilities, applying financial numbers to the marketing equation is not always possible or preferable. That's why using ROI to evaluate the overall effectiveness can be a problem. . . .

So what should managers do when asked to produce the ROI for a marketing initiative? Take a more open-minded approach to measurement, first focusing on a company's objectives and strategies and then identifying measures that can best work for them. Focusing solely on ROI is dangerous and naïve.

Much more in the original article, which is well worth checking out.

Again, the usual caveat: by noting this I'm not saying that we should jettison the ROI metaphor. Rather, we need to understand it far better than we currently do, particularly in reference to the creation of charitable identity. Using concepts in a glib and superficial manner can be far worse than not using them at all.