By Christopher Penn, Guest Blogger
Last week, I posted a bit about my thoughts around measuring the ROI of PR by estimating the value of the audience PR creates. In case you missed it, the short summary of how to estimate the ROI of PR works like this:
At the bottom of every funnel is revenue and sales. It is the responsibility of sales professionals to generate revenue from leads.
In the middle of the funnel is the domain of marketing: Lead generation.
Leads are drawn from the audience a brand has, and through the use of marketing tools and tactics, those parts of the audience who are interested in potentially doing business self-identify (or at the most aggressive shops, get cold-called) by raising their hands.
At the top of the funnel are the audiences and loyal fans that brands have, the people who are becoming aware of the brand via all of its communications.
These audiences come from the addressable markets that a brand can potentially serve, and it’s the job of public relations and advertising to build those audiences and to identify and cultivate those loyal fans of your brand. How do you compute ROI on that?
Let’s recall that ROI is a simple math formula: Take (earned – spent)/spent = ROI. You know what you spend on PR, presumably, so the question is, what did you earn?
One way to determine this is to infer the value of an audience member.
For example, let’s say you sell very expensive coffee for $100 a cup at your coffee shop. You know from experience and measurement that it takes 10 people inside your coffee shop for even one of them to consider buying a cup of coffee, so your conversion rate from lead to sale is 10 percent.
Thus, if you average out the sale revenue over the number of leads, a lead is effectively worth $10. So far, so good.
Next, you know from measurement and experience that it takes 10 people to walk by your coffee shop for even one of them to come in the door. Thus, in order for one sale to occur, 10 people must be inside, and therefore 100 people must walk by.
If you take the value of a sale and average it across your audience, across those 100 people, then the effective value of an audience member is $1. You now have a dollar value per audience member that you can use in an ROI computation.
If every audience member is worth $1 and your coffee shop has a revenue target of $100,000 this month, then you know you need 100,000 new audience members. If you spend $50,000 this month on PR to earn $100,000 of revenue, then your ROI is 100 percent.
That’s how you begin to compute the ROI of PR. For a follow-on look at how to compute the ROI of non-marketing PR ROI, please see this post.
Jodi Echakowitz pointed out that while this is an interesting way of doing ROI, it is technically in violation of what’s considered the gold standard of PR measurement, the Barcelona Principles. Established in 2010 by PRSA, the Barcelona Principles outlined seven core “rules” for measuring PR:
1. Goals should be as quantitative as possible.
2. Media measurement must be qualitative and quantitative.
3. Ad value equivalence is not a valid measurement of PR.
4. Social media can and should be measured.
5. Measuring outcomes is preferable to measuring media results.
6. Business and organizational results should be measured where possible, including metrics such as sales and revenue.
7. Transparency and replicability are paramount to sound measurement.
Where the method of measuring PR ROI by audience value – and by this I mean audience value at the top of the sales and marketing funnel, not media value in terms of impressions – falls afoul of the Barcelona Principles is primarily around Principle 6. By stopping measurement at the top of the sales and marketing funnel – the equivalent being new unique users in Google Analytics – instead of going down funnel, the method would seem to fail Principle 6.
However, I debate this in these two examples. First, imagine you have a coffee shop. It’s got salespeople at the registers, the environment is optimized for marketing with the right music and decor, and you run a PR campaign to make people aware of it and come walk in. One day, you forget to open the coffee shop. The PR campaign is still running, bringing people to the front door, but the door is locked. In this simplistic example, if you measured all the way down the funnel, the ROI of your PR is zero because you made zero revenue. You weren’t open. PR did not fail to do its job.
Here’s a more realistic example. Say you’re a B2B company with a complex selling process. You sell expensive products like software to finicky buyers. You have a stellar PR program that gets people to your virtual or real door. Your trade show booth is always mobbed. People love you. Your marketing is doing a great job. Lots of people are raising their hands, downloading white papers and attending your webinars. You’re a rockstar by every marketing measure there is.
But… in the back room is Lazy Larry the Inept Salesman. Lazy Larry doesn’t return calls or emails. Lazy Larry forgets appointments constantly. Lazy Larry’s closing rate for sales is roughly about the same as the chances of you being hit by lightning. The only reason your company stays in business is because the most dedicated prospective customers find their way around Lazy Larry.
This is why Barcelona Principle 6 is intentionally broken in our PR ROI model: if you were to assign revenue as a goal of PR, you would essentially be tying the performance of PR and marketing to Lazy Larry’s performance as a salesperson. One of the cardinal rules of good management is to never make someone accountable for something they cannot control. PR and marketing have no way of controlling or changing Lazy Larry’s performance.
While this is an extreme example, it’s not uncommon in any environment that involves a complex sale. To hold PR people accountable for what the salesperson does is as illogical as holding customer service representatives accountable for what the PR people do. Measure what you can control! It’s the best way to ensure that you’re getting optimal results.
Christopher S. Penn is Vice President, Marketing Technology at SHIFT Communications.
This post originally appeared on the SHIFT Communications blog.