How Do You Calculate ROI?

 

Return on Investment (ROI), or the measurement of how effectively something will pay for itself, is a classic business metric.  The calculation defines gain in financial terms.

In today’s world, financial measures alone are too narrow . Revenue, profit, productivity, etc. are only part of the picture. We need to consider intangible returns - gains in learning, brand authenticity, and cultural improvement, for instance, which make a bigger difference in the long run. 

Never being one for convention, I’ve been experimenting with variations on the ROI theme, namely, the idea of ROI_mpact  (ROI_m).  ROI_m is how I decide which projects to take on and which to decline. It is a qualitative and quantitative metric of intangibles and tangibles.

If the cost (I_m^Cost) is the amount of time a project will require, the impact (I_m^Gain) is the assessment of organizational gains in terms of:

• Culture: an innovative, interdisciplinary, authentic and diverse mindset that encourages solving customers’ pains through experimenting-learning-applying and iterating which, by the way, helps the company attract, develop and retain great talent that views giving back as joyful privilege; resulting in...
• Customer Value: delighting customers with meaningful solutions that meet real needs within the customers’ contexts and constraints; perhaps even creating new markets and industries.

The result? An increase in revenue and profits without sacrificing culture and values . I have seen this time and time again with my own clients.

Unfortunately, many organizations still believe ROI and ROI_m  are either incompatible or unrelated. This is false. Focusing on ROI_m means focusing on outcomes, which results in improved ROI, the outputs. An organization that has maximized its ROI_m has a more open and innovative mindset, understands customers’ real needs, gives employees opportunities to experiment, learn, apply, and iterate and is in the best possible position to provide value to customers, create jobs and give back to its community.

The result of combining ROI_m with ROI is a virtuous cycle that returns gains in both investment and impact .  What do you think? Am I crazy? Well, of course! But the results sure aren’t.