Calculating Return-on-Investment (ROI) for Research

Many thanks to the Insight Association for putting this together – we’ve been using this same logic to explain the value of research to our clients for years, but this is so clean and well-written I had to share it with you . . .April 15, 2015

In a competitive market, for-profit ventures are only successful when they are efficient and make the wisest use of their assets. Due to this simple economic truth, every activity and decision an organization makes hinges on return-on-investment (ROI). For corporate researchers, marketing research (MR) is a means to an end and does not generate revenue unto itself. Therefore, research professionals in these organizations face an important dilemma in measuring their ROI.

Why Calculate ROI?
On top of justifying marketing research as a critical investment, measuring return-on-investment can help organizations in other ways. ROI allows managers to:

Understand the optimal scope and size of MR activities
Develop and defend budget proposals
Measure, track and improve performance
Explain the tangible value in MR to stakeholders

It is difficult to judge whether time, money and resources should be devoted to an activity if there is no objective evidence to support the contributions of that activity to the organization. Further, it is difficult to budget if there is no understanding of how changes to the funding of MR activities will ultimately affect the company as a whole[1].

Difficulties in Measuring ROI
Despite the importance of measuring ROI, the marketing research profession has no gold standard approach to the dilemma. This is in large part due to the difficulty in quantifying the value of what MR provides. Dr. Chuck Chakrapani, President of Leger Marketing and Visiting Professor at Ryerson College, offers the 4 reasons, cited below:

1. “Marketing Research Can Produce a Return Only If Someone Acts On It”
It’s necessary to know (1) whether the MR resulted in an action and (2) the costs and revenue of that action in order to calculate ROI. Further, MR may result in a decision to take no action.

2. “The Same Marketing Research May Lead to Different Actions”
MR is subject to the action of decision-makers. Given the same research findings, different decision-makers may take different actions with different revenue results.

3. “In Some Instances, the ROI Is Not Worth Calculating”
It is difficult to assign ROI to MR in certain cases. For example, how should ROI be assigned in cases where decision-makers are simply using MR to confirm something that is fairly obvious?

4. “Marketing Research May Be Used As an Input to Many Decisions”
MR findings may be used by many departments, to different degrees, over a long period of time. It is difficult to unpack the ROI MR provided in each of these cases over time. [2]

Marketing research is often a critical part of business actions. However, there are many factors that contribute to success or failure, including context (e.g., confirmation of an obvious fact or business-saving insight), alternative courses of action, management deliberations and cost of inputs (e.g., advertising, sales). Despite this difficulty, numerous researchers and professionals have developed metrics in order to provide at least a reflection of the value that MR brings to an organization. Popular ROI metrics are summarized below.

ROI Chart 1