April 21, 2010
Filed under: Tip of the Day
It’s important to note that ROI isn’t the only acronym in town; ROO, or return on objective, measures the amount of money that it takes for a company to woo prospective clients, according to Cliff Quicksell Jr., founder of Quicksell Consulting. “ROO is the total cost of goods sold – what it costs you to do the piece – divided by the number of objectives met,” he says.
Quicksell offers an example of ROO in which an industrial company shows off a piece of equipment at an industry trade show. “Say I have a new piece of equipment and I’ve qualified 100 people that need it,” he says. “ROO is based on my objective to bring qualified buyers into the show.
In this case, Quicksell says the marketing piece cost the company an average of $20 per person ($1,000 divided by 50 people). But he takes it a step further. “Of those 50, let’s say that 25 buy that equipment I’m selling,” he says. “So now, it cost me $40 per person, or 25 people divided into $1,000.”
The company can now measure that cost to the price of the industrial equipment that they’re selling. This measurement is the ROO, which offers more insight than does ROI, according to Quicksell. “The reason that metric is so important is because everyone’s marketing dollars are being measured at that level,” he says. “If it costs me $20 to bring a buyer in, does it make sense? It doesn’t if I’m selling $30 items. ROO goes a little deeper than just the ROI.”
From Advantages April 2010 issue.