Like most other business initiatives, incentive programs can’t escape being assessed by ROI. Stakeholders want to see how a program’s performed against certain indicators, which helps forecast future success (or failure).
ROI is often seen as one of the sole metrics that determine the success of a reward or incentive program. To be classed successful, a program has to make a return in sales and profit.
Traditionally, a simple metric used to review ROI is ratio or percentage. For instance, i.e. a volume of sales or revenue divided by expenditure.
In other words, “how many dollars did I make… and how many dollars did it cost me to make them?”
At 212F, we’ve reviewed several ROI methodologies. We have found the one developed by the ROI Institute is the best. This methodology isolates factors and benefits that may have had an influence in a rewards program. Then it takes them out of the final ROI review to avoid unfair claims.
The key steps to real ROI, free of the claims by others are;
Central to the methodology, this stage is reviewing what and where a program’s data will come from. There are two types of data: hard or soft. Examples are sales, cost and time, or satisfaction.
Critical to the process is how to isolate the effects of the program from the data. This stage dilutes the figures by removing values that could be claimed by others as a cause or influence of the result. These set a defendable position for the ROI, as what remains is the core benefits of the program. By identifying techniques that will help determine direct impact, will setup an accuracy of the ROI.
This step is to calculate the actual ROI impact by converting sales or benefit data to monetary values and compare that to program costs. This requires some data to be assigned a value using a business accepted technique, which can be a challenge for soft data, such as behaviour or opinion based outcomes.
To achieve a true ROI, all program associated costs should be added not just the visible costs such as program fees or rewards. Internal staff hours, training can be added to have a total program cost. Once the total program cost are collected it’s a couple of steps away from a ROI
Return on investment of your program can now be represented with a ratio known as Benefit / Cost Ratio (BCR) or Return on Investment (ROI %)
The formula for both is similar. BCR = Program Benefits/Program Cost and ROI(%) = Net Benefits/Program Costs x 100
ROI is a growing requirement, for most engagement programs. But when business is trading and performing well, budgets are easier to approve, and the reviews aren’t generally thorough. Spending on rewards and incentives is an accepted supportive or method of delivery to a channel.
However, as soon as there is a downturn in the market and budgets cost cutting is required, opinions of a rewards and incentives program will vary, typically in lieu of any facts. But with a solid ROI process and a defendable number built into a program, a negative review can be flipped and shown to be a critical part of your way to market. Whichever method is the most beneficial for your business having a ROI concept and plan for your program will avoid the hard questions should they ever come up.