Why Tracking “Engagement” is Critical to Accurately Measuring Return on Investment

Over the past couple of years, the digital world has transformed the way companies need to measure the return on their marketing and technology investments. Companies, especially marketers, have had to reevaluate their traditional methods for calculating return on investment (ROI) due to several factors:

• The economy has forced many companies to strictly track the “return” on every dollar they spen.
• Traditional ROI models do not reflect the value generated from new types of digital interactions consumers are using (e.g., social, mobile) to engage companies and their brands.
• Consumer behaviors are changing so rapidly that current ROI models are becoming more and more irrelevant as time goes on.

Unfortunately, many companies are hesitant to invest in these new digital interactions despite their exponential growth with target consumers because they are unsure of how to measure their value to the organization. These companies run the risk of:

• Being bypassed by competitors willing to make these types of investments in their consumers, even if a standard measurement method is not available.
• Misappropriating their investments in consumer interactions and technologies that no longer meet the needs of their consumers.

So how should companies go about updating their traditional ROI models?

When reevaluating their current ROI models, companies need to remember four key points:

1. Incorporating engagement into the ROI calculation
Increasing consumer engagement is part of every company’s future success. So why haven’t companies already incorporated these metrics in their ROI calculations?

Some companies still track “return” simply in dollars and cents. Many companies in the retail banking industry have fallen into this trap. As functionality of Internet banking and 3rd party aggregation services (e.g., Mint.com) have vastly improved, retail banking consumers have lost nearly all personal engagement with their banks. By failing to incorporate engagement into their ROI or customer value models, a bank may not realize their ability to retain or increase the value of that customer relationship is extremely low. In some cases, a bank may think they have improved the value of the relationship because their cost of service has decreased as the consumer uses more online services.

Companies need to understand that “return” is no longer just about dollar and cents. The non-monetary value generated from consumer engagement is just as valuable (if not more in the digital world) than dollar value generated from these interactions. Engagement is also a great predictor of changes in financial contribution, customer acquisition and retention. Although, companies must remember to be patient as the correlation between engagement level and monetary value created or lost does not happen simultaneously. Companies must build positive engagement with consumers before they can expect to see increases in financial value or customer acquisition.

2. There is no standard method for measuring consumer engagement
There are many vendors in the market today that claim they have found the secret formula to measuring consumer engagement. Although the methods developed by these vendors have merit, there is no one method that is “one size fits all.” Companies needs to align the way they measure engagement and the interactions they track with their specific business objectives and the needs of it consumers.

3. New ROI models must be flexible
Consumer behaviors and the way they interact with a company are evolving more and more each day. Today, consumers use Twitter, Facebook and YouTube to interact with a brand. Tomorrow, there may be a wave of new methods for interacting with consumers. Therefore, building flexibility into the ROI model is critical to its long-term value to the organization.

4. Follow your existing business processes
Whether you want to measure the level of engagement from an online initiative or an offline one, the process for creating that measurement model remains the same. Companies need to focus on the following tasks:

• Aligning its engagement objectives with its overall business objectives. These do not have to simply be monetary objectives.
• Understanding the needs and behaviors of its consumers to identify the appropriate engagement channels or interactions.
• Creating an engagement measurement and ROI model that aligns with the engagement objectives.
• Testing, validating and revising the model based on results.

It is important to remember that measuring engagement and incorporating it into your ROI models is not merely a one-time task. It is a continuous process of reevaluating the inputs, outputs and formulas to ensure companies are accurately accessing the value generated from its marketing and technology investments.