Jason Pratt, North America Managing Director @ Kenshoo
The human impact of technology investments can often be overlooked during the tech evaluation phase. Not only can marketing platforms help to drive campaign performance, but also increase productivity which leads to performance gains. In today’s guest post, Kenshoo’s Managing Director, North America, Jason Pratt, shares his thoughts on “People ROI” and the value to marketing organizations.
As someone who has written hundreds of business cases and ROI studies over my career, I recently had an idea that I think is worth sharing regarding the value of people’s time.
As a sales tool, Kenshoo frequently generates ROI analysis spreadsheets for marketers who are evaluating our suite of software. They want to know whether or not our value proposition pencils out and if we make a company more money than our technology costs.
If we know the basic metrics on the ad program itself (spend level, ROAS or CPA, AOV, etc.) an experienced Kenshooer can do some quick back-of-the-envelope calculation and come up with what type of percentage improvement to that program—such as improving KPIs by some amount, or enabling spend to grow while keeping the same KPI, etc.—which will lead to an estimate of the financial return in dollars. Usually, that’s part of the eventual ROI of implementing Kenshoo.
In addition, there’s the time-savings benefit for the people who manage the program from our workflow and productivity tools that saves time and reduces costly errors. To calculate this, we figure out how many hours those people currently spend on various tasks, how many people there are, and make some educated guesses about how much time our platform could save them. Then we simply multiply all of that by the fully-loaded cost of the average employee and, voila, we have found the value of the time savings.
But have we really?
All we’ve done is take out the labor and overhead cost of those employees. What we haven’t done is figure out what the value of the time given back is worth to the company. After all, those employees can now work on something else with the time savings garnered via Kenshoo. Maybe they spend more time testing creatives, reviewing analytics, or finding a new strategy to reach a key audience.
The time saved goes back into your company…it isn’t going to be just used playing Fortnite!
Of course, we don’t know what exactly how that time savings will be spent. Maybe the employees will only find marginal uses of that time, or on the other hand, maybe they’ll find some colossal breakthrough that transforms the company. It’s impossible to know. But can we find some kind of people ROI range?
I think we can. Consider a three-person team running a Facebook program at a DTC (direct-to-consumer) brand. Let’s say they spend one million dollars a month on a direct response campaign that generates a $4 ROAS which is four million dollars per month and $48m per year in revenue for the company.
If each person works about 2,000 hours in a year—and there are three people on the team—divide $48m by 6000 hours and you get $8,000 which is the amount of revenue, per hour, that each employee generates.
Now I know that it doesn’t really work that way. If it did, you could just keep adding people, paying them less than $8,000 an hour (probably doable!) and enjoy the infinite profit.
But I still maintain that the value of an hour saved from existing employees is worth more than just what it costs. Maybe not $8,000 an hour, but maybe in this case we could say half which would be $4,000/hr? Even a quarter would be $2000/hr. Of course, you could back out COGS (Cost of Goods Sold) from the $8,000 and get a profit figure, too, for your analysis.
This is a way to start figuring out People ROI. And this is definitely something that marketing technology decision-makers should start considering—even if they don’t use the calculation I’ve presented here.
I’m going to start using this approach and I’ll get back to you on how well it works. Would love to hear your feedback and comments.
Request a Demo of Kenshoo