Measuring Outcomes Not Outputs
Just imagine that you’re running a business and that instead of tracking sales & revenue you only measured how many units you shipped to your vendors. Samsung was recently ridiculed for announcing that they had shipped one million Galaxy Tabs but sold only twenty thousand. The shipped figure is meaningless unless it results in equivalent sales. However public relations companies do this every day for their clients by measuring only outputs not the outcomes.
Ad Equivalency Value (AVE): three words that should strike terror into every client. Basically it’s calculated by measuring the amount of coverage in mainstream media and assigning a value based on how much the equivalent coverage would cost in advertising rates. So if a 30 second advertisement on the nightly news cost $5000 and you managed to get 30 seconds worth of news coverage then the AVE would be $5000.
Great, you might think, I just saved myself five grand.
However unless you know the conversion rates that result from the coverage the figures are meaningless. If you’re paying $10,000 per month to the PR firm and they’re telling you they’re generating $100,000 in AVE but the result is only generating $2,000 worth of revenue you’re losing money. It’s a bad spend. That’s why AVEs are more than useless: they provide a false hope and hide the real picture.
Now some PR firms are using AVEs to quantify their social media outputs. I’ve seen figures as high as $500 per Twitter follower or Facebook Like. This is just absurd.
Clearly there needs to be a better way to calculate the value added from the PR coverage generated. And there is: it’s called monetary return on investment. Unless the program is adding monetary value to the company it’s a wasted effort. It can be argued that the additional monetary value can be an intangible (like goodwill) but generally it needs to increase in income or the value of an asset, or reduced expenses. It’s calculated not in number of followers or fans or +1s, but only in monetary terms: dollars, euros, bottlecaps, whatever.
So, how do you prove that your program has led to increased value?
- Firstly you need a baseline. A snapshot of how things were before the program began. You want this to cover as far back as possible in order to eliminate external influences like seasonal factors.
- Secondly make a correlation between the program and the profit and loss statement or the balance sheet. A spike in website traffic is not a correlated ROI. A spike in products bought from the website is. More Facebook fans or Twitter followers is not an ROI. Reduced customer service costs because customers are using social networks instead of call centers is an ROI. Increased revenue, decreased expenses or value added to assets over the operational period of the program are all ROIs.
- Thirdly, prove that the program directly caused the change. This can be extremely difficult but there are ways to establish indicators that directly tie the results achieved to the program
PR companies often lack access to the operational accounts of their clients and so calculating the ROI can be difficult if not impossible. In this case the client will need to calculate the ROI themselves. However PR companies need to move away from AVEs toward a strategic outcomes-based plan that is in-line with their client’s organisational goals. After all you don’t measure how successful your advertising campaign was by how much you paid for it.Tags: advertising, ave, balance sheet, measurement, metrics, money, outcomes, outputs, P&L, pr, profit and loss, public relations, results, roi