Customer Service

PR ROI, PR cost-effectiveness analysis PR ROI is seen by many as the Holy Grail of PR measurement. Public relations people strive to determine PR’s ROI and quantify how PR contributes to the organization’s ROI. After all, it’s the key metric for C-suite executives.

PR agencies and in-house corporate PR personnel frequently toss around phrases like “maximizing ROI” or “ROI-driven campaigns.” Yet ironically, many don’t know how to accurately calculate ROI. Some may not know how to define ROI.

ROI is an accounting term. The traditional definition of ROI (return on investment) is income minus costs/costs x 100. To calculate ROI correctly, you must include all costs, including labor costs, material costs, and other associated costs. The main problem: Calculating ROI requires knowing the amount of revenue produced, and PR rarely directly generates revenue.

PR and marketing pros love to write blog posts about PR ROI, even the blog, probably because the term “PR ROI” is a popular keyword phrase.

In reality, the numbers required to calculate PR ROI simply don’t exist (except in very unusual circumstances where PR is running a specific campaign designed to produce sales.) An appropriate calculation of PR’s contribution to income is next to impossible. The costs of PR are less difficult to calculate, but probably exceed the PR department budget because unknown overhead costs should be included.

Allergic to Math?

“These posts are meant to be read by PR and social media people who are allergic to math, because anyone who can do math or understands rudimentary accounting would realize that the advice is pure BS,” writes Katie Paine, CEO of Paine Publishing, in her Measurement Advisor blog.

Such articles talk about cost-effectiveness analysis, not ROI, Paine says.

Cost-effectiveness analysis (CEA), which should not be confused with a cost-benefit analysis, compares the relative costs and outcomes (effects) of two or more courses of action.

Most calculations that claim to produce ROI don’t compare outcomes. They compare outputs or activities, Paine explains.  A click on a link is not an outcome unless you’re an online retailer that can actually calculate an outcome, such as a sale or donation from that click. An article or media mention isn’t an outcome either, unless you can tie it to some tangible business value.

Large corporations, like Procter & Gamble and Disney and a few non-profits, know the value of a post because they have decades of data that can accurately correlate clicks or clips to actual sales or donations. AT&T found that PR was 5 to 7 times more cost-effective than paid media.

No Financial Values Assigned to Results

Cost-effectiveness is cost divided by effectiveness (however defined), and then applied comparatively, says Fraser Likely of Likely Communication Strategies in a paper for the Institute for Public Relations. The calculation might define effectiveness as channel reach, accuracy of media reporting, length of time on a site, or number of re-tweets. CEA quantifies costs or investments but, unlike ROI, it does not assign a monetary value to the effect (outcome).

“The returns or benefits derived from PR/Communications investments are not financial,” Fraser says. PR and communications can improve the metric by lowering costs but, unless PR generates revenue from sales it exclusively controls, PR investments do not directly impact the organization’s financial picture.

Determining benefits of PR is complicated, since PR campaigns typically help other functions directly and only indirectly help the overall organization, Fraser says. The investment and return attributed to PR is a portion of the other function’s investment and return.

More PR teams now rely on social media analytics and media measurement services to measure the organization’s reputation and changes in customer attitudes, and their receptiveness to PR’s messages. Though the values are intangible, they have significant impact on traditional business measures including sales growth.

Bottom Line: PR pros who try determine their ROI are likely engaging in a quixotic pursuit. Trying to calculate results without the required numbers likely leads to spurious results. PR measurement experts recommend they conduct a cost-effectiveness analysis instead.