Measuring & Maximizing the ROI of Market Research.

All commercial organizations exist to make a return on their investment (ROI). Organizations that are not commercial, such as government departments and charities, still have to justify their investments in most cases. Money is a scarce resource and it is therefore reasonable to question how well it is spent whenever it is in any quantity. Indeed, most substantial sums of money require justification and the most frequently sought justification is the return on the investment – the ratio of money gained or lost on an investment relative to the amount of money invested.

All substantial investments are scrutinized for their return. Different criteria are used in this justification, and typically the percentage annual return and the payback period are considered vitally important. Management may feel more comfortable with a 30% annual return on a ‘soft’ investment such as market research as it could have a short period during which it can payback (compared with a 15-20% return on a fixed investment that has a payback over many years). Payback in itself may be a limited measure because the value of money can vary over time, because the levels of risk alter depending on the type of investment, and because there could be different opportunity costs for the investment, i.e. the money could be spent elsewhere.

In the main, most companies measure ROI on fixed investments, such as new buildings – capital items that are listed on the balance sheet. The day-to-day running costs of businesses, however, have traditionally never had ROI measured. For instance, organizations do not measure the ROI of paper clips or the coffee machine. That said, organizations also spend considerable amounts of money on the likes of insurance – office
and property insurance, health insurance and liability insurance, to name but a few examples – and yet they do not measure ROI on these expenditures. With this in mind, why have organizations become so interested in questioning the potential return on investment of market research projects, when market research is, in effect, insurance for reducing risk in business decision-making?

Indeed, marketers appear to be taking the measurement of marketing ROI increasingly seriously, as a recent study of surveyed marketers has shown:

• 26% of marketers indicated that their companies calculate ROI for at least some of their marketing campaigns or investments, up from 18% in 2007.

• More than half (53%) of marketers indicated that their firms use ROI and profitability metrics to assess their marketing effectiveness.

• Almost two-thirds of companies (61%) assess their ability to measure the financial returns of marketing either as entirely adequate or as a real source of leadership.

In short, ROI has become a mantra for many companies. No investment is allowed unless it can be justified, and market research is no exception. The question is, “does ROI work when judging whether an investment in market research is worthwhile?”

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