The Return on Investment from Insights Part 1 – Why You Need to Care
Work on the client-side and want to grow your budget?
Work on the agency-side and want to win more business?
The answer to both your dreams might well be a ROI AUDIT.
I know you’re probably pressed for time and it will take you 5 to 10 minutes to read this blog, so please answer these two questions in order to evaluate whether it is worth you investing your time in this post or not:
- Do you believe it is important for market research and customer insight to deliver a strong return on investment (ROI)?
- If yes; answer Q2
- If no; go read something else
- Do you currently measure the return on investment you deliver?
- If yes; congratulations! Go read something else
- If no; invest 5 to 10 minutes of your time. It might just be worth it.
On The Way Up Or On The Way Down?
A cautionary tale* illustrating that how you deal with the ROI question today might well affect your future quite dramatically
One month earlier at the national association’s CEO networking evening…
Bob, CEO at Great Tools Research, a mid-sized research company, was chatting with happily with Susan, his counter-part at Big Impact Research, explaining what a great year his company had had last year growing the margin from 12 to 15%. Little did he know how things were about to change…
Read below to follow Bob’s path
Sharon, V.P. Customer Insights at Tight Ship Inc, was sitting alone in her office head in hands. Four weeks ago she had learnt that her budget proposal had not gone through and that instead her budget was to be cut in half. As a result, she had just had to fire two of her four team members and had just got off the phone with Bob, CEO at her primary research vendor, Great Tools Research, to tell him that he needs to come up with a proposal for delivering as much as they can for a 50% reduced budget and that she has no choice but to put her account out to tender.
Two months ago everything had been so different. She thought back to her appraisal meeting with her boss, the Marketing President, and the nice bonus she had received for meeting her key targets of getting 10% more projects out of her budget and creating a fantastic new customer insights portal. She recalled the meeting with the Account Director at Great Tools Research, where they had talked about setting up a customer panel and introducing a new interactive reporting tool this year. She sighed knowing that both projects would now have to be shelved.
Bob was sitting alone in his office head in hands. He had just had to fire ten of his staff. Two weeks ago he had learnt that their two biggest clients were both cutting their research budget in half, leaving him with a 15% revenue gap versus budget, and his board had agreed that serious cost-cutting was needed to maintain margins.
Four weeks ago everything had been so different. Generous bonuses had been given to the two account directors for increasing the margin on these established “cash cow” clients, and Bob had announced to his staff the plans to invest in new technology, as well as in the hiring of a new Vice President of Business Development.
Bob still was wondering what the heck at happened at Tight Ship Inc, such a long-standing and reliable client, and Sharon was still in disbelief that half of her budget had been given to the Digital Marketing team, kicking herself for not seeing this coming.
Six months ago Tracy had joined Tight Ship Inc as the new CFO. Her first job was to ask all of the Presidents in the company to provide a report on the return on investment from each of their budget lines. Unfortunately, the Marketing President was not able to provide any hard numbers for the customer insight budget line, since they had always viewed this as a cost item and not an investment and therefore had no ROI metrics in place.
Upon analyzing the ROI reports, Tracy could clearly see the positive impact of digital marketing on the top and bottom lines, but could not see the impact of their investment in customer insight in the same way. Therefore, cutting the customer insight budget in half and reallocating the spend to activities with a demonstrable return on investment was a “no brainer”, which would immediately demonstrate to her boss her effectiveness as a CFO who drives profitable growth. Tracy set the wheels in motion, which would lead to such a negative impact on Great Tools Research and the people working there.
Read below to follow Susan’s path
Mark, V.P. Customer Insights at Ahead of the Comp Inc, was having lunch with his team. The team were delighted to hear about their department’s budget increase and Mark’s plans to hire a new Insights Manager to the team. Earlier that day he had spoken with Susan, CEO at his primary research partner, Big Impact Research, to share the good news with her and discuss how to use the extra budget to deliver even greater value to the business.
Mark reflected that only two months earlier he had proudly presented his latest ROI Audit to his boss, the Marketing President, and received a bonus for meeting his key targets of increasing Customer Insight ROI by 20% and creating a new customer insights portal. He recalled the meeting he had had with the Account Director at Big Impact Research, where they gone through the agency’s own ROI audit report had agreed on how to adjust the spend for the year ahead in order to focus even more resources on the high-ROI-delivering activities.
Susan was sitting in the conference room with her team enjoying a glass of champagne. She had just hired four new researchers to her key account team. One month ago she had learnt that their two biggest clients were both increasing their research budget by 20%, and the board had agreed to further investments in order to deliver even more value to their key clients. The key account teams had just presented their plans for improving the return on investment delivered to their clients and everyone had agreed on the internal changes needed to deliver on those plans.
Susan reflected on how fortunate her company was to have clients who understood the importance of a partnership based on trust and transparency. Mark reflected on how fortunate he was to have a partner agency, who shared his goal of increasing the Customer Insight ROI and who worked openly together with him to audit the return on investment they delivered.
Six months ago Simon had joined Ahead of the Comp Inc as the new CFO. His first job was to ask all of the Presidents in the company to provide a report on the return on investment from each of their budget lines. The Marketing President presented the data from their recent Customer Insights ROI Audit, which showed that last year Customer Insights had contributed towards both sales growth and cost savings, delivering an overall 27X return on investment.
Upon analyzing the ROI reports, Simon could clearly see the positive impact of Customer Insight on both the top and bottom lines, and therefore had no problem recommending that the customer insight budget be increased by 20%. Increasing spend on an activity with such a demonstrable return on investment was a “no brainer”, which would immediately demonstrate to his boss his effectiveness as a CFO who drives profitable growth. Simon set the wheels in motion, which would lead to such a positive impact on Big Impact Research.
One month later at the national association’s CEO networking evening…
Susan looked across the room at Bob, feeling slightly sorry for him, but at the same time was wondering which of his clients she would be calling in the morning.” THE END.
* This is a work of fiction. Names, characters, businesses, places, events and incidents are either the products of the author’s imagination or used in a fictitious manner. Any resemblance to actual persons, living or dead, or actual events is purely coincidental.
Fact or fiction?
Definitely a bit of both no doubt, but the question is which of these two scenarios best reflects what would happen to YOU if your CFO / your clients’ CFO’s demanded to know, right here, right now, the return on investment from money spent on customer insight and market research last year?
If you work client-side, what return on investment did your customer insights budget deliver to the business?
If you work agency-side, what return on investment were you able to help each of your clients deliver from the money they spent with you?
In either case, assuming that the 80/20 rule also applies to research budgets, do you know which 20% of the budget delivered 80% of the return on that investment? Do you also know why?
Are you a Customer Insights budget holder?
If so, then I recommend you run a ROI audit, if you do not already do so. Even if your CFO isn’t currently asking you for your ROI report, I believe it will only be a question of time before she/he does, and when that time comes, unlike Sharon in the story above, you need to be prepared.
If your company currently considers customer insights as a cost item and not an investment, then preparing and presenting an ROI audit report to senior management will help change that viewpoint and help protect, if not even grow, your budget.
If you happen to work agency-side…
…with client budget responsibility, then my request to you is to not just passively wait and see if your clients do come to you with a ROI audit request, but that should proactively seek to work with your clients to understand and improve the return on investment you are helping them create.
Forming a win-win ROI partnership to co-create a brighter future
Over the next few years, I believe that more and more companies will make customer-centricity an even more central part of their company’ strategy, and more and more companies will see the effective use of market / customer data and insights as a key driver of competitive advantage.
Customer Insight budget-holders therefore can have an even more critical role to play in guiding business decisions, but they will need to prove their worth and demonstrate the return on investment are delivering now and can deliver in the future. The onus is on those working agency-side to help give them the ammunition needed to do this.
I ask you to consider making a ROI audit the foundation of a strong client-agency partnership, which unites everyone behind a common objective that will help ensure that everyone’s budgets grow.
Part 2 of this post shares advice on how to set up a ROI Audit and will be released after IIeX North America. If you are going to be in Atlanta for IIeX and want to get further insight into this topic, please come listen to the panel discussion in track 2 on Tuesday from 10.40 to 11.20, during which Andrew Cannon (GRBN), Simon Chadwick (Cambiar), Kathy Cochran (Boston Consulting Group), Lisa Courtade (Merck) and Alex Hunt (Brainjuicer) will share their thoughts on what insights teams and research companies alike should do to add value and deliver a stronger return on investment. Welcome!