No, What's Your Real ROI?

Study says companies may be fooling themselves

New York  September 20, 2001  Internet and new technology measurement and analysis company Jupiter Media Metrix reported today that 59 percent of companies may be misleading themselves by measuring their e-business return on investment (ROI) in-house.

New Jupiter Executive Survey data released today show that more than half (59 percent) of do-it-yourself ROI studies generate a positive result  a number that leads Jupiter analysts to believe that in-house ROI analysis is often a self-fulfilling prophecy. Jupiter analysts have found that many "do-it-yourself" studies use inconsistent definitions of ROI metrics in an effort to show positive results, therefore making it nearly impossible to correctly choose which projects should be funded and which should be killed.

"Business managers will save money and embarrassment if they precisely and consistently define financial metrics such as ROI, rather than attempting to 'guesstimate' a dollar value when there is no justification for doing so," said David Taylor, research director, Jupiter Media Metrix. "While companies are aggressively employing the Internet to develop stronger relationships with its customers, ROI measurements don't effectively gauge their success. Companies must separate hard dollar ROI calculations from soft dollar 'relationship metrics' such as return on relationship, which is a metric specifically designed to capture the impact of the Web on customer relationships."

Key findings from the latest Jupiter research include:

  • Few companies are currently hiring external consulting firms to measure their e-business ROI. According to the Jupiter Executive Survey, only 17 percent of companies have hired one or more external firms to conduct or oversee their ROI studies. Thirty-three percent of companies have tabbed the project team to conduct a self-assessment, while an internal consulting group is responsible for ROI analysis in 26 percent of companies. Jupiter analysts have found that ROI analysis is too difficult for companies to conduct by themselves and believe that in-house studies are not completely objective.

  • The Jupiter Executive Survey reveals that only five percent of in-house ROI studies have shown a negative result. Thirty-nine percent of companies who conducted in-house ROI studies report a somewhat positive result and 20 percent found a significant positive result. Fifty percent of companies who used a do-it-yourself ROI approach have either not yet completed their assessment or have not found a conclusion.

  • Many companies have yet to conduct any ROI studies. Ninety-two percent of multi-channel retail companies do not measure ROI of online selling, according to a Jupiter Executive Survey, while 31 percent of companies are not evaluating ROI for e-procurement activities either. Jupiter analysts believe that many of these companies might benefit greater from a return-on-relationship evaluation that examines how the use of the Internet improves relationships with customers.

"The specific ROI from building stronger customer relationships is very difficult to measure and is sometimes impossible," Taylor said. "That's why a separate relationship metric is necessary. A return-on-relationship metric that measures whether or not relationships result in direct or indirect returns to a company will help business managers determine the value the Internet brings to the table sales and marketing initiatives."

Jupiter Research is currently developing a return-on-relationship model and will be releasing findings in a full report in the coming months.