Tag Archives: Rate of return

To MBA or Not To MBA – The ROI Question

This week a new client asked me why I had decided to pursue an MBA.  Specifically, what was the ROI for me? What an interesting question!  I’ve been so wrapped up for the past few years in work / school and just plain being in “busy” mode that I didn’t have a quick response … and that got me thinking …

Three years ago I decided to return to academia via graduate school and pursue an MBA.  I had been kicking around the idea of returning to school for several years and quite simply could not decide on whether or not an advanced degree would be beneficial.  Would the considerable investment of money and time have a return?

And therein was the faulty logic.

Earning an MBA has zero ROI.  There is no immediate return on the investment of time and money from a graduate degree. Sure, there is intangible achievement or return as your knowledge base and day to day application of Finance, Marketing, Operations, and Strategy increases.  But, intangibles are difficult to quantify and thus the difficulty in answering the ROI question and quite frankly, the lack thereof, of a firm Return On Investment to respond to the question at hand.

I learned about a financial return quantification method called EVA in Finance that may provide the best response.  EVA or Economic Value Added is a robust financial measurement approach that companies use to evaluate their economic profit – the value created in excess of the required return of the company’s shareholders.  The concept hinges on the fact that a company’s shareholders gain when the return from the capital (or investment) employed is greater than the cost of that capital.  In essence, EVA is the profit that is earned minus the cost of financing the firm’s capital.  Capital (or YOUR money) doesn’t just sit around doing nothing.  Companies spend or invest just as you and I do … although they may invest in R&D while you or I choose to go on a vacation, buy a pair of sunglasses, etc. An EVA analysis of pursuing an MBA is a better quantification as it accounts for the value of the investment rather than the return.

For me, the decision to invest time and money in an MBA hinged on the fact that the opportunity cost of NOT pursuing an MBA far exceeded the initial time and money outlay.  The economic value add of an advanced degree lays within the opportunities that become available – whether a new career path, skills to start a business, etc.   The EVA will continue to multiply throughout my life as I put the new skill set to work … the impact or intensity of the returns (whether financial or not) on my life is dependent on me taking actions based on the investment of time and money.

So, when asked about ROI … while the path to an MBA has been completed the journey has just begun … and the EVA will continue to exceed the opportunity cost for not investing in myself or my future.

P.S. Thank You to the University of St. Thomas  in Minneapolis, MN for a rewarding and AACSB Accredited learning experience.  Make sure to check out the UST MBA Program here: http://www.stthomas.edu/business/degrees/ustmba/eveningmba/

Social Media ROI – Fact or Fiction?

Image Credit:  http://www.webguild.org/wp-content/uploads/2010/10/roi.jpg

ROI (Return On Investment) is a rather simple mathematical calculation that evaluates the efficiency of an investment or its performance in comparison to other investments.  How simple?  Here it is:  Gains – Costs / Costs = ROI.  Pretty nifty, right?

Here’s an example – if you use $100 of budget that nets $150 in revenue or gains your ROI is 50% (150 – 100 / 100 = .50).

The basic ROI equation becomes rather tricky in the Social Media realm.  How valuable is a Twitter follower?  What quantitative impact does a Facebook wall comment provide?  Is the quantity of LinkedIn connections more important than the quality?

Social Media is a channel of open communication that exists outside of the normal boundaries of push and pull marketing and is difficult to provide firm ROI in the traditional sense.  And this is where things get tricky …

Trying to prove the value of Social Media in a traditional ROI sense is rather difficult.  You cannot easily quantify the value add of a Social Media presence in terms of traditional ROI gains.  In fact, you’re more likely to show a loss when using a traditional ROI model.  Social Media, as a channel, should be analyzed from a branding, engagement, influence, and competitive value add perspective as a component of strategic marketing initiatives.  This allows for qualitative measurements of individual marketing channels that combined lead to revenue gains.  Strategic marketing encompasses the channels and messaging that will deliver on business initiatives (i.e. sales, hires, brand recall, viral marketing, etc.).  Thus, the Social Media aspect of marketing ROI cannot be measured alone.

I guarantee you that a marketing executive will get fired looked at funny if they delivered an ROI analysis that included this statement: “We spent $50,000 on a Facebook page and have not been able to prove that anyone posting comments on the wall or who has followed the page actually buys our products.  But, it looks cool. And, everyone else is doing it.”

Social Media’s ROI should (typically) be tied to branding and influence initiatives within the marketing budget and strategy.  Branding ROI is component of marketing ROI and should never be analyzed independently … rather, the entire marketing budget (thus, your strategy delivery mechanism) should be utilized against total revenues or gains to determine effectiveness of the strategy.  No results = Bad strategy.  Plain and simple.  Simply creating a corporate Facebook page or Twitter account is a tactical response to a strategic problem.  Changing your channels of communications as part of a shift in marketing mix that is quantifiable in gains (ROI) is a strategic move.

That marketing executive I mentioned earlier would look like a rockstar if their statement included:  “We built a fan base to mitigate negative public comments and bolster positive consumer opinions that would impact our brand.  We leveraged sponsored campaigns on this channel (Facebook) that were tied to the page and tracked click-throughs and sales via web analytics …”  and so on.

At the end of the day, it’s all about ROI.  Plain and simple.  Did your Facebook, Twitter, LinkedIn, Tumblr, etc. create gains on its own or was it part of a marketing mix that worked in unison from a strategic perspective to deliver gains?  The person signing checks or giving you a budget doesn’t care about fans, followers, comments, and so on … they are concerned with your strategy and its ultimate impact on revenue.  Positioning social media as a progressive and innovative component of your overall strategy makes you look like a rockstar – if, and only if, that strategy, as a whole, actually delivers something quantifiable like revenues, hires, etc.

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