What’s your (research) return on investment?

“What’s your return on investment? “Words that make those with a level of creativity or intuitive faith cringe. And yet, return on investment (ROI) is critical for businesses to survive and hopefully grow.

Business growth generally comes from innovation and minimising waste. Costs need to be conservatively managed, particularly when the cost of living is pushing consumer confidence and spending down, and costs to businesses up. The perfect storm for many businesses of reducing demand and increasing costs, is why business insolvencies are on the rise over the past year.

The relenting push to prove ROI can be exhausting, as some spends may be intangible in the short-term, with the hope that the brand, product / service or customer base will grow in the future. Yet, blind faith isn’t something that c-suites and boards are happy to allow for too long, particularly in an economic dip. Recently I was asked to explain the ROI of the research we do.

Typically the role of research is to measure ROI, so putting up the ROI mirror was a worthy refection.

The two basic ROI’s of research are 1) reducing waste and 2) strategic precision, please allow me to unpack this.

Minimise wastage

A misguided advertising campaign, product idea, customer strategy or new market entry destined to fail is a financial waste. Research can be used to optimise the supply chain, seeking opportunities for efficiencies, or liaise with distributors, retailers and other paths to purchase to improve the cost base. Research can be used to identify priorities to improve customer satisfaction, to optimising the chance of success of the new product or market entry, or optimising the brand strategy. Knowing when to move forward, when and how to refine and when the cost benefit just not add up.

Strategic precision  

This will also depend on the research objective, but may include the introduction of a new pricing strategy, product or service, distribution and/or market – an opportunity validated, modelled and measured by robust research. A return that would not have been realised if the research hadn’t been conducted and investment case supported.

This may be through overcoming previously held incorrect business / category norms and assumptions, that research proves incorrect or inaccurate. Research also illustrates that optimal path forward – i.e. market A or B (or C, D, E ..), as well as alternative products or other growth strategies.

Research can accurately measure the potential size of market, and growth. For example, if the current market revenue is $10 million dollars and the research illustrates strong potential for a market of $100 million dollars plus, based on strategic pathways (e.g. pricing, product extensions, wider target market etc) this can allow for leaders and the board to more confidently invest in the short to medium term for longer term substantial growth, potentially beyond competitors.

  1. Increased Customer Satisfaction: Understanding customer needs and expectations can lead to repeat business and long-term profitability.
  2. Market Expansion: Research helps identify new market opportunities and understand existing markets better, allowing for strategic expansion and diversification, which can lead to increased sales and market share.
  3. Product Innovation: Research can spark innovative product ideas that meet unmet needs in the market, potentially leading to new product launches that can boost revenue.
  4. Brand Strengthening: Research can enhance a brand’s positioning by aligning its values and messages with the expectations of the target audience, improving brand recognition and trust, and potentially increasing market share.

How to calculate the ROI of research

To calculate the actual ROI, measure total benefits (like increased sales, cost savings, and market share growth) attributable to the research, subtract the total costs of the research, and then divide by the total costs. For example, if your research led to a new product line that generated additional annual revenue of $1 million, and the research cost was $100,000, the ROI would be 900%.

ROI = ((Total Benefit – Total Costs) / Total Costs) x 100

ROI = (($1M – $100,000) / $100,000) x 100 = 900%

This is a simplified example, and in practice, the calculation would account for more complex factors like the time, value of money and opportunity costs of other spends.

No action, no ROI

As in any business investment, ROI is only recogised when there is a corresponding change. Customer satisfaction, net promoter score or retention will not improve if the service gaps indicated by the research are not rectified before the next survey. The brand will not measurably grow without refinements to the marketing strategy aligned with the evidence.

With the assumption that the research is conducted professionally and offers robust guidance as to the paths to growth and innovation, a return will only be measured for the business if changes are implemented. Research can be ignored due to lack of budget, fear or a belief that the data is not to be trusted. The business may simply not be in a position to implement the changes, or what the research is recommending misaligns with the overall strategic direction of the business.

Ultimately the ROI research is about empowering creativity and intuition, through giving confidence to bold decisions, and minimising waste. For example, identifying a $100 million market full of opportunity is more so a platform for creativity and innovation, than a limited highly competitive $10 million market?

Robust market research, has a ROI well beyond blind faith, particularly if done right and not ignored. Research can yield substantial returns through strategic insights and competitive advantages, and avoid wastage on ideas that are destined to fail.

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