# CBA vs ROI (cost benefit analysis vs return on investment)

** Updated to include a new comparison example between CBA and ROI in the second table below **

A great table and explanation of the difference uses and value of the two forms of measurement for social marketeers, from Angie Schottmuller in Search Engine Watch:

 Cost-Based Analysis (CBA) Return on Investment (ROI) Formula Benefits – Costs ( Benefits – Costs ) / Costs Example \$12,000 B – \$1,000 C = \$11,000 CBA (\$12,000 B – \$1,000 C) / \$1,000 C = 11 or 1100% ROI Format Dollar Value Percentage or Ratio Purpose Analyze estimated cost impact. e.g. make a profit, break-even, take a loss. Analyze investment effectiveness for generating a profit. Focus Profit Investment Return Common Use Compare options using a common currency and justify bottom-line feasibility of spending. Assess profitability as a basis for continuing and prioritizing future investments. Answers… Will we come out ahead? How effective were we at coming out ahead? What kind of payback did we get for the investment?

Note: An ROI of 1 or 100% implies you’d get back what you put into it, while CBA, also sometimes known as Cost-Benefit Analysis, has a \$0 “break even” point.

Notice how in the examples above, the CBA for two different tactics with very different costs could be the same, while respective ROI sheds further light on the investment effectiveness.

I have added comparison below, to better illustrate how the same CBA for two different sets of figures, but which delivers a different ROI figure, all the better to help guide investment:

 COST-BASED ANALYSIS (CBA) RETURN ON INVESTMENT (ROI) Formula Benefits – Costs ( Benefits – Costs ) / Costs Example 1 \$55,000 B – \$44,000 C = \$11,000 CBA (\$55,000 B – \$44,000 C) / \$11,000 C = 0.25 or 25% ROI Example 2 \$155,000 B – \$144,000 C = \$11,000 CBA (\$155,000 B – \$144,000 C) / \$144,000 C = 0.076 or 7.6% ROI

Anyhow that’s not all from Angie (and me with example #2), in the post there’s also a very helpful section on different calculation formulas which comes with the following presentation including said formulas for social SEO among others:

Finally, KPIs?
And if you found that useful, but for some reason thought, “yes but how does that relate to KPIs?” then I have a one slide example of how to create a KPI (which is pretty popular on Slideshare with 150+ downloads to date)

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Update: see below the lovely black Tesla I captured just a few weeks ago on my visit to the offices of Expedia in Victoria, to talk about social media strategy and credit reports.

I had the great privilege of test driving a Tesla Roadster today with the help of Gian. Of course it does 60 mph in 3.7 seconds – check out the full official Tesla Roadster spec here. We chatted through some of the benefits, and afterwards I made a quick note of the top ten benefits from the test drive in typical ‘user-generated content’ fashion.

My quick and dirty top ten

1. The car is 88% efficient compared to 16% for a conventional petrol driven car. It charges itself as it drives when you take your foot off the accelerator.
2. The cell structured battery means you never have probs with recharging reducing the life of the battery.
3. You don’t have the problem with a conventional sports car of having to change gears to find the power torque – its a smooth flow of power to the driver.
4. There is no exhaust pipe to catch on speed bumps.
5. It’s made of highly resilient carbon fibre so it doesn’t dent or rust in the way a conventional car shell does.
6. The drive transmission, exhaust, etc does wear out like a conventional petrol engine motor can do.

7. It is expected that as the Tesla battery design is further improved, you will have the choice of 40% more power, or more boot space…
8. You can use the car for business. For promotion. For demonstrating corporate responsibility. For keeping a more charming profile on the street! And that means it’s tax deductible.
9. The success of Tesla is helping bring electric powered transport to the mass market by demonstrating its power and practicality. Electric motor powered fire engines came to mind for some strange reason?
10. It would take a heck of a long time (9 months) to run down the battery with no charge;-)

What I think I forgot to mention is that using the brakes actually charges the battery. Luckily Jeremy Clark didn’t forget, in this Top Gear test drive from a couple of years ago.

Cost/Benefits

So while a Roadster cost a little over £87K it’s good vfm when you calculate i all its benefits vs a conventional car’s. What’s more there is a corporate leasing option too – while Tesla don’t advertise this as available for the UK as yet I’m sure that’s worth discussing with Gian.

Bond, James Bond

While I am not a motor journalist (though there is a pic of me driving an ex-Russian tank from my pre-internet days as a newspaper reporter) I have written professional product reviews for eBay’s Shopping.com as their UK head of community; but this has got to be the product that tops them all. I hope the makers of the 23rd 007 movie ‘Skyfall’ agree, and seriously consider using the car in the next 007 film.

PS: I see my most famous college alumni Sam Mendes is directing, which is super neat. Maybe he would enjoy test driving a Tesla too?