Analytics Return on Investment
Recently Avinash posted an article called, Excellent Analytics Tip #22: Calculate Return On Analytics Investment!
My shorthand take on his point is that Analytics practitioners need to get better at showing the impact of data analytics. Show them the ROI.
This issue isn’t unique to Data Analysts. It is, quite frankly, the main challenge that anyone providing services faces. What value comes from my work?
When I started my first full time job at a bicycle shop in Colorado, the owner told me “Take whatever I’m paying you and multiply that times 10. That’s how you will know if we’re on good terms.” Good advice. It’s a very sales-centric approach to business but since it was my founding business principle, I gravitate towards it. Return On Investment. If I pay X and you give me 10X, I should be able to make that work.
As I moved into a General Management role and started working with fixed assets, the concept of Total Cost of Ownership crept into my world. Needing to maximize a fixed budget item by reducing it’s impact on the P&L or getting the very most from that dollar spent.
Just so we’re on the same page, when I say “Return on Investment” I am referring to the world view that if I can spend $1 and generate $5 at the right margins/cash flows, that’s a positive return on the investment.
When I say “Total Cost of Ownership” I’m referring to the world view that we have $5 to spend on an asset, and I need to maximize that $5. . .and that might be by spending $4.50.
This is heavy on my brain because there’s a lot discussion about the role of the CIO and the new tech savviness of the CMO. The CIO is managing a budget line item that is set at the start of a budget period. The CMO is managing some lever tied to top line results. TCO vs ROI.
I’m about to keep stereotyping here, hang on.
My friends in the Analytics world tend to work in/come from operations and the technology side of the business. The question for consultants on that side of the business has been and will be on how to fit into the TCO budget items. consequently, they approach the marketing side of the business with this mentality and go looking for “the budget” from the CMO.
That CMO role isn’t managing by TCO. She is looking for some way to move the needle and will pay what she needs to – if there is agreement on what success will look like. She’ll pay $10 for $50 in results, $100 for $500 in results that fit. Budget be damned.
My tech friends may be surprised to know that this minimization of the budget process comes with the blessing of the CFO/CEO. Wait, what?!?
This is only meant to be a brief overview, but the main takeaway is this: when talking to roles that have a Return On Investment focus, center your discussion on the value your services will provide. The “value” is something that they see, not the value that you can magically provide in a spreadsheet. Your job is to help them understand what kind of value you can bring, help them where that value will show up inside their organization, and then help them quantify what that value will be in concrete resource terms. People, timing and dollars.
The challenge in this process is being patient while they work through these equations. A process they need to do on their own because they only believe what they say. I hate throwing out trite statements like that but people don’t believe what you say, they only believe half of what they read but they think everything coming out of their mouth is the truth. So help them understand where you fit in, and let them express the value of your work.
The value is theirs to discover, not yours to declare.
Back to Avinash’s article – yes, the practitioners of Data Analysis need to get better at understanding how to illustrate the ROI of their services. We all do. The first step is understanding that the Return, the Value, comes from the client, not us. . .and it’s not easy to extract.
If they see the full value and believe that you’ll get them there, your fee is easier to justify. If there’s a disconnect anywhere along the way, it shows up in your fee.
As Zig Ziglar once said, “Don’t wish it were easier, wish you were better.”