Public Relations Return on Investment: Fact or Fiction?
Not a day goes by without solicitations offering the secret to generating a greater return on your public relations investment. Breaking through the media clutter. Generating buzz. Getting more media coverage. Preventing your competitors from generating media coverage…The list goes on. No wonder there’s so much confusion about Public Relations and its ability to quantify its Return on Investment (ROI).
Let us begin by examining the generally accepted definition of “ROI”
ROI is a financial measure, usually expressed as a percentage and typically used for decision-making, to compare a company’s profitability or to compare the efficiency of different investments. The return on investment formula is: ROI = (Net Profit / Cost of Investment)
In other words, public relations generates a return on investment when it directly and quantifiably contributes to an organization’s bottom line. While this may seem daunting, there are three ways by which public relations contributes a positive ROI:
The sexiest contribution to PR-ROI is revenue-generation. The difficulty is that PR (and every other form of marketing communication) operate simultaneously rather than independently. Data scientists apply advanced statistical modeling called Marketing Mix Modeling to isolate PR’s contribution relative to other channels. The good news is that PR is usually the most efficient source of revenue generation and tends to elevate every other form of marketing. The obstacle is that modeling is never led by PR and it can be an expensive proposition to buy in.
The most impactful contribution to PR-ROI is the avoidance of catastrophic cost. When companies find themselves in trouble, public relations professionals do their best to minimize the damage stemming from events usually beyond their control. The good news is that good PR can mitigate losses of billions of dollars in market capitalization. The challenge is that the only way to quantify PR’s contribution requires a potential catastrophe.
- The most reasonable contribution to PR-ROI is efficiency. Every public relations professional has control over how they spend their budget. The goal is to do more with less and for less. Every day, PRs make strategic and tactical decisions which, in effect, are ROI decisions, when they decide to “do this and not do that.” The good news is that efficiency is accessible to every PR person. The downside is that PR’s contribution in this scenario is minimal since it’s only a small percentage of an already small budget.
“Generating a Return on PR Investment” is often – and wrongly – used in place of “Demonstrating PR’s Value.” While ROI is a strict financial measure, “value” is, for better or worse, subjective. Not only does the definition of value change from one company to another, it may change from one person to the next within the same company. Uncovering and specifying the PR value equation in your organization is more a matter of dialogue, negotiation, compromise and alignment among those who control your budgets and evaluate PR performance. The cost may be nil and, in pursuing this approach, one may discover that solving the PR-ROI equation is simpler than you believed: In many cases, executives don’t consider PR-ROI to be reasonable or measureable (even if they’d love to see it happen).
As wordsmiths, it’s important for public relations people to speak the language of business. By misusing the term “ROI,” we diminish the profession as well as ourselves. Yes, many claims are made but be sure they conform to the boardroom’s definition for return-on-investment and aren’t just jargon designed to make us feel good.