Why Return on Objective & Return on Experience Are Meaningless Terms

Welcome to Event Business Intelligence, your weekly source for deep dive insights on growth, strategy, measurement, innovation and M&A for owners of event businesses and executives responsible for event P&Ls.

In today’s newsletter:

• ROI In Layman’s Terms: Is The Juice Worth The Squeeze

• How to Calculate ROI

• ROI Is Relative

• The 2 Levers For Improving ROI

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Warning: This perspective is going to rub many people the wrong way. If you’re one of those people, then it’s an uncomfortable truth you need to hear: “Return on Objective”, “Return on Experience”, or any other variation of “Return on Investment”, are useless terms that need to be dragged into the bathtub and drowned.

I’ve been speaking, coaching and training on a wide range of topics over the past few decades, perhaps none more than being a trusted advisor, a large part of which entails proving the value of your events (and yourself, your team, your company). And that, in turn, requires the ability to calculate and demonstrate R.O.I, or at the very least to engage in a meaningful discussion about measuring how well an event achieves its goals. [Last year I joined the Experiential Marketing Measurement Coalition, to support their efforts to standardize event ROI metrics. They’ve got some great articles on the topic.]

And to be fair, calculating ROI for events is not easy. While we can usually calculate the Investment amount (how much we spend to produce an event), computing the Return part can be challenging. Rarely can you attribute a sale directly to a customer’s attendance at a single event, for example, as most client acquisition and purchase decisions involve multiple touch points over a long period of time.

So, rather than muscling through the difficult task of assigning some level of Return, however imperfect, to an event, people sometimes settle for using terms like ‘Return on Objective’ or ‘Return on Experience’ instead of Return on Investment. In other words, because they couldn’t calculate ROI, they invented new metrics altogether, ones that didn’t require any calculation at all.

Because there’s no calculation involved, however, you can’t use it to compare anything, so it becomes useless as a measuring tool, which is the purpose of ROI in the first place: to compare returns on different investments.

What Can (& Can’t) Be “Invested”

ROI is about the ratio of inputs (investments) to outputs (returns). Investments can include the following resources:

• Money (event costs, planner salaries)

• Time (planners’ time, attendees time away from work)

• Focus (there are only so many irons you can have in the fire at a given time)

But how can you invest an “objective” or an “experience”? The answer is, you can’t. You can talk about whether or not you achieved an objective, but without factoring in your investment, that discussion only goes so far.

For example, say your objective for an incentive event is to motivate the sales team to achieve a $5 million goal, and make top performers feel recognized. If you chartered a private jet, flew everyone to a 5-star resort for a week, and hired Taylor Swift to perform, for sure you’d achieve that objective. But was it worth it? Could you have gotten 80% of the results while spending 20% of that?

ROI is the vehicle you use to evaluate this. It helps answer the questions:

1. Was it (what we got out) worth it (what we put in)?, and if so . . .

2. Were those results the best use of our investment? In other words, even if we got good results, could we have gotten even better results by investing those same resources elsewhere? Or, could we have gotten the same results while investing less?

Calculating ROI: Is the Juice Worth the Squeeze?

The phrase “is the juice worth the squeeze” is a perfect metaphor, with the juice being the return and the squeeze being the investment, which in this case is the time and effort it took to squeeze the orange, or whatever you’re making juice out of. Determining whether the juice is in fact worth the squeeze is a simple comparison of how much work you had to put in vs. how much juice you got out. And while you can certainly measure how much juice you got, it’s much harder to quantify the energy and effort the squeezing part took. But while you might not be able to measure your orange-squeezing exertion with a single number, you still have a rough idea of whether it was enough (or not enough, or more than enough) to justify the juice output.

This is where we turn to the world of finance, where ROI got its origin, and where calculating ROI on an investment is a lot easier than measuring your grip strength on a piece of fruit. Let’s say you inherited $10,000 from a relative and decided to invest it all in one stock (a bad idea, as any financial advisor would likely tell you, but for the purposes of this exercise it’s very illustrative.) If you put your $10,000 into Microsoft stock, and three years later it’s worth $70,000, you made a profit of $60,000. Divide that $60,000 by the initial $10,000 investment, multiply by 100, and you get a 600% - or a sixfold - return on investment. The formula we used is: 

Profit ÷ Investment x 100 = Return on Investment 

And since profit is what we earned after deducting what we spent, we can take it a step further:

(Income – Investment) ÷ Investment x 100 = Return on Investment

Or in the case of our example above:

($70,000 Income - $10,000 Investment) ÷ $10,000 Investment x 100 = ROI
$60,000 Profit ÷ $10,000 Investment x 100 = ROI
6 x 100 = ROI
600% = ROI 

This part is not up for discussion; everyone uses the same formula, which is why ROI is a such an effective metric, at least when it comes to hard assets like stock, real estate, or machinery. 

ROI Is Relative

Just calculating the ROI, however, is not enough, because ROI is a relative measure. Was that 600% return you got on your $10k Microsoft investment good or bad? It depends on what you compare it to. A sixfold return over three years seems pretty good, right? Not if you could’ve put that same $10k into Apple stock, which would’ve been worth $110k over the same three-year period. In that case, assuming both stocks presented comparable risks, the Apple stock’s 1,000% ROI dwarfs Microsoft’s 600% ROI.

A number of years ago I moderated a panel at the Event Innovation Forum titled How I Pitched A New Event to the CEO – And Pulled It Off. One of the panelists, Noelle McInerney, was head of events at Groupon at the time. [Sheis  now founder & president of Ladidadi Events & Incentives]. She shared the story of how she dreamed up a weekend-long ticketed event, Camp Groupon, pitched it to Groupon CEO Andrew Mason, and then worked with departments across the company to sell sponsorships, promote the event, and execute it successfully. She showed the audience a very cool timeline of the guest experience that unrolled from a scroll to be 6 feet long, which helped the CEO visualize the concept and approve it.

After describing what a huge success the event was, I asked her “So I assume you’re busy right now working on this year’s version of Camp Groupon?” I’ll never forget her answer, “Unfortunately, no. Even though the event had good ROI, it wasn’t as strong as if we had put that money into other marketing channels, like digital advertising, so it didn’t get renewed.” Here was a textbook example of the importance of understanding ROI’s relativity as a measure of value. An event can have a good return on investment, and still be scuttled because there are other, better ways to invest those resources.

The 2 Levers for Improving ROI

As with any division calculation, there are only two ways to improve the result: increase the numerator (the number above the division line, in this case the Return, or Profit), and/or decrease the denominator (the number below the division line, in this case the Investment). Going back to our juice example, we can either figure out how to get the same juice from less effort, or get more juice from the same effort, or some combination of both. [This is the calculus event leaders are using to improve productivity through AI.]

Imagine you’re an event marketer for Peloton, and you’re sitting down with the CMO to debrief over your presence at the recent Gym Operators Trade Show. Say you spent $300k on a 20x20 booth and came back with 150 leads, of which the sales team thinks 40 are strong prospects. Let’s also assume the LTV (lifetime value) of a typical customer is $100k, and that the sales team closes 30% of prospects. To calculate ROI, we might do the following:

40 prospects x 30% conversion rate = 12 paying customers
12 customers x $100k LTV each = $1.2m
$1.2m - $300k investment = $900k return
$900k return ÷ $300k investment x 100 = 300% ROI

Is a 300% ROI good? It depends. Again, ROI is a relative measure, so we need to know what we’re comparing that $300k Investment to. What if the CMO used that money instead to buy ads on several popular podcasts that target gym owners and managers? Sure, the listeners’ level of engagement is much lower - they aren’t able to try out the latest Peloton bike or talk to a sales rep like they would at a trade show – but you’re also going to reach a lot more people than the 150 who came to your booth, thousands more. And while the conversion rate on those listeners will likely be much lower than at a face-to-face engagement at your booth, you still might end up with a better ROI because of the sheer numbers of listeners.

In reality, investing in podcast advertising and a trade show booth is probably a good, complementary strategy. The podcast serves as an effective top-of-funnel effort, while the booth offers good middle or bottom of funnel opportunities that reach fewer people but are more engaging. It would be more apt to compare your trade show booth investment with another event activation, say a booth at a different show or a sponsorship of a different type of event, but both investments will have their ROI scrutinized regardless.

Conclusion

Understanding this mindset - the calculus done by a CMO or other stakeholder on event spend - is critical for event planners to be treated as trusted advisors. Calculating the exact ROI of an event is tricky, and involves some assumptions. But don’t shy away from the conversation just because it’s difficult. The difficulty, in fact, is what separates trusted advisors from order takers.

So even if you can’t exactly quantify an event’s return, at least be able to talk about it, and help your client compare that return to what was invested to get it. And if you’ve been using phrases like Return on Objective or Return on Experience . . . stop. Instead, repeat the 2 questions listed above:

1. Was it worth it?

2. And if so, was this the best use of our investment?

Here’s to taking your event business to the next level!

Howard Givner

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Catch up on recent articles:

• How Much Is Your Event Agency Actually Worth?

• AI Is Creating Winners & Losers In Events: Which Will You Be?

• How to Help Your Clients Define, & Weight, Their Event Goals

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