The ROI talk

“What’s the ROI on that?”

I’m sure you’ve heard this question, or asked it yourself, in any role you might have in a business. As the founder of a professional development organization, I also hear it frequently.

Women talking

It’s actually a fascinating question. I believe that, intuitively, we all understand that if we invest in and develop our people, then our “results” for those people will likely improve. Which ultimately improves the organization.

But in the business world, we are compelled to use traditional metrics and parameters that gauge the health of our business. These institutionalized parameters drive us to inquire about the ROI for many things — including “soft” investments like people development.

I’m all in favor or responsible measurements and mechanisms to ensure the health of a business. Too much is at stake with our companies, teams, and customers to not take this seriously. But the truth is this: Some things are just harder to quantify, or could be quantified differently.

Think marketing, customer support, and people development.  We believe these are areas worth investing in… but how much to invest for the corresponding outcomes remains ambiguous and open to interpretation.

The ambiguity and interpretation around measurement doesn’t mean that it’s ineffective to engage in the ROI talk. It just means we have to think about the benefits of such talk and how we’re going to view the investment and assess what it means for our business and vision.  

Here’s an example that comes up often for me. Companies will inquire with this type of approach:

If the CEO spends $5,000 on his/her personal training and development each year, and makes $250,000 in salary (Training/Salary ratio = 2%), how do we explain spending $2,000 on training and development for a $50,000 employee (Training/Salary ration = 4%)?

At a very basic level this question is understandable. If I spend X percentage of my dollars for this person, then what makes it different from the percentage I would spend on another?

There are two challenges with this approach, however:

  1. It places a uniform measurement on a type of activity that is not easily quantifiable.

  2. It’s a measurement rooted in cost (loss/threat) versus potential (gain/opportunity).

What if we asked the question(s) this way instead:  “How much more effective will our company be if we make this investment?  And how does that align with our vision and measurements of success?

That’s what we need to be thinking about: What is the potential (gain/opportunity) of the investment vs. a cost (loss/threat) metric that is less relevant to the type of investment being measured.

So how do I answer this question when it inevitably comes?

I simply state:  “If you’re asking me to respond in those terms, I would think about the investment in terms of potential instead of cost.  You will invest 1/25th of a team member to improve the experiences, development, and performance of 10 other team members who work with this individual.  And ultimately improve the bottom line.”

This seems to resonate pretty well.  Instead of getting stuck on another business metric that’s not as relevant to the investment, I challenge us all to broaden the question about what we actually want for our organizations and teams…and then how our investments align with helping us achieve what we want.

The answers will be more insightful (and fun!) if we reframe our mindset around the question and look past the spreadsheet.