How do we measure the Return on Investment for digital assets? It’s a question that is starting to challenge digital marketers and IT managers alike, but there don’t appear to be too many guidelines. Whether your social media campaign is being expensed as direct marketing costs, or your hardware upgrade is being capitalised, how do you work out the #RoDA?
In most businesses, measuring the expected RoI of plant or equipment is usually quite easy: it’s normally a financial calculation that takes the initial acquisition price, amortized over the useful life of the asset, and then forecasts the “yield” in definable terms such as manufacturing output or capacity utilisation.
However, when we look at digital assets, many of those traditional calculations won’t apply, either because the usage value is harder to define, or the benchmarks have not been established. Also, while hardware costs may be easy to capture, how are digital assets such as websites, social media accounts, software (proprietary and 3rd party) and domain names being reported in the P&L, cash-flow analysis and balance sheet?
Sure, most hardware (servers, PCs and physical networks) can be treated as capex (e.g., if the purchase price is more than $1,000 and the useful life is 2-5 years). But how do you make sure you are getting value for money – is it based on some sort of productivity analysis, or is it simply treated as fixed overhead – regardless of your turnover or operating costs?
As we move to cloud hosting and #BYOD, many of these assets utilised in the course of doing business won’t actually appear on the company balance sheet. Yet they will have some sort of impact on the operating costs. Most software is sold under a licensing model, where the customer does not actually own the asset. (But, if the international accounting standards change the treatment of operating leases longer than 12 months, that 2-year cloud hosting fee might just became a balance sheet item.)
I was once involved in the acquisition of a publishing business that was converting legacy print products to digital content. Not only did they capitalise (and amortize) the servers and the conversion software, they also capitalised the data entry costs (using freelance editors) to avoid the expense hitting the P&L. Nowadays, that’s a bit like putting the HTML coding team on the balance sheet and not the payroll…
In some cases, the costs associated with maintaining an e-commerce website or registering a URL, will remain as overhead or operating expenses. But over time, businesses will want to have a better understanding of their RoI for different online sales and digital marketing channels, especially if they have been investing considerably in their design, build and maintenance. Measuring online visitor data, customer conversion rates and average yield per sale, etc. are becoming established metrics for many B2C sites. Having a good grasp of your #RoDA may just give you a competitive edge, or at least provide a benchmark on effective marketing costs.