Many companies are misleading themselves when it comes to measuring the return on investment (ROI) they are getting from their onlinebusiness ventures, by relying too much on internal calculations to gauge their success, according to a studyreleased Thursday by Jupiter Media Metrix.
Jupiter said a survey of information technology executives found that 59 percent of “do-it-yourself” studies to measureROI generated positive results, leading analysts to viewin-house analysis as “a self-fulfilling prophecy” yielding the answers acompany wants to see.
“Many ‘do-it-yourself’ studies use inconsistent definitions of ROI metricsin an effort to show positive results, therefore making it nearly impossibleto correctly choose which projects should be funded and which should bekilled,” the Jupiter report said.
“If you have the Internet project manager measure whether the Internetproject is doing well,” the answer that it is going well is not going to be a shock, Jupiter research director David Taylor commented in an interview with the E-Commerce Times.
According to Jupiter, businesses should separate dollar calculations from morenebulous “relationship metrics” that are designed to “capture the impact ofthe Web on customer relationships.”
“Business managers will save money and embarrassment if they precisely andconsistently define financial metrics such as ROI, rather than attempting to ‘guesstimate’ a dollar value when there is no justificationfor doing so,” Taylor said.
In fact, Taylor believes, it is difficult, if not impossible, to measure whetherInternet relationships result in direct or indirect returns to a company.
Gauging Real Results
Taylor said Jupiter is working on a way to measure whether Web sites areworking the way companies think they are, and how a company’s differentcustomers — consumers, suppliers, vendors and so on — are reacting.Companies can then see whether the money they spend on their Web sites andother Internet projects is translating into customer loyalty, referrals tonew clients and bigger purchases, he said.
About 90 percent of the executives surveyed said the Internet had helpedtheir relationships with customers, Taylor said. However, he told theE-Commerce Times, that statement is not an answer in itself.
“Does that mean customers are spending more money?” he said. “Does it mean more frequentcontact, and is it just contact, or is it converting into dollars?”
The report found that few companies use consulting firms to measure thereturn on their e-business investments. Just 17 percent of the companiessurveyed said they had used outside firms to conduct or oversee their ROIstudies.
Just 5 percent of in-house studies done by the companies surveyed showednegative results, Jupiter found.
The report said that 39 percent of the companies whodid these studies found “somewhat positive” results, and another 20 percentgot “significant positive” results. Half of all the companies surveyed havenot completed assessments of the success of their online ventures.
In fact, many companies are not even measuring the success of their onlinebusiness programs, the study found.
Jupiter said that 92 percent of multichannel retailers do not measure returns on their online sales channels, and 31percent of the companies surveyed are not evaluating their onlineprocurement activities.
The survey results were taken from the responses of 471 information technology executives at companies with annual revenue of US$50 million or more.