Two Incentive Experts Weigh in on the Shifting ROI Conversation
With over 30 different objectives to measure and track, the incentive industry has broadened its scope from only focusing on how sales, service and safety are impacted by programs. The ROI focus now encompasses intangible factors such as morale, company culture, and innovation practices instead of solely on numbers.
In a podcast conducted by Alex Palmer, Managing Editor at Incentive Magazine, two industry experts agree that we might not always be focusing on the right ROI. Melissa Van Dyke, President of the Incentive Research Foundation and Paul Hebert, Director of Solution Architecture at Creative Group explained why the behaviors derived from incentive programs are just as important as the hard number calculations.
The ROI That Matters
Sometimes the ROI we think matters most isn’t even the one we’re designing our programs to affect. The example Paul provided was a group travel reward to recognize top performers. Some clients may look at this to increase sales, but the real return is on retention. The channel partners or sales people you rewarded DIDN’T leave — they DIDN’T switch their purchasing to another provider. If you’re only measuring the program for an increase in sales, you’d be missing out on other valuable data.
ROI is simple calculation, but there are so many variables that could impact an incentive program ROI (market, weather, laws/regulations, etc.) that could change the outcome and make it appear like the program missed the mark. As much of that should be built into the program design as possible, but the hard numbers only tell part of the story for that moment in time.
ROI = Incremental Increase in Profit / Cost of Program
There’s a method called change-point analysis (explained in the podcast), which measures behaviors not only during the program, but for spikes before and after as well. The anticipation and gearing up for the program — and residual effects after — can also have an impact on the ROI or ROO (Return on Objective). Not to mention, the probability and intended consequence is that your baseline increases as a result as well.
How to Measure ROI
According to Melissa, there are three things you need to do to start measuring ROI. First, start with the objective — increase sales, build morale, improve safety. Next, figure out what other behaviors can be affected. Paul says you can think of this as “directional” math to find out what is a better investment. And finally, determine the technical touchpoints that need to be tracked. All of these steps can most successfully be achieved by partnering with an incentive planning company.
Have a Little Faith
Paul pointed out that because people don’t believe in the intangibles, they try to force everything into the tangible. That’s the challenge with most ROI conversations. You can’t always put a dollar amount to an action, but you can track behaviors that represent intangible benefits, such as better training and awareness.
Listen to the full podcast here: http://www.incentivemag.com/News/Industry/Incentive-Podcast-How-to-Measure-the-ROI-of-Reward-Programs-Melissa-Van-Dyke-Paul-Hebert/