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:

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)

The Process Of How KPIs Work from Stuart G Hall (stuartgh)


Help for your business?

Fields marked with an * are required

Social marketing of The Great Gatsby and Gravity in the UK

I completed these two presentations recently as part of bidding for a contract with a major film studio. Throughout I’ve deliberately used the social ROI insights learned at Sony EU to show how to better make social activity contribute to maximising ticket sales. I have therefore chosen to highlight in both slides, the importance of raising ‘intent to view’ and to reduce purchase neutrality post-opening. This is based on insights from US-based Crimson Hexagon, who I got in contact with after I seeing their presentation from Wayne St. Amand, VP of Global Marketing at Internet World 2013. After his presentation I asked him a question, for an example where their product had made a difference. I was happy to apply the Crimson Hexagon insights to analysing the performance of The Great Gatsby.

On a tactical note please note the use of font ‘Futura’ in the Gravity slides, as it’s the font used in the poster for the film, and similar film promotional material. You can download a free version of Futura called ‘Futura Extended’ here if you’re interested. Also note that unknown to me Pinterest has now added functionality to pin from movie sites like Rotten Tomatoes. And Facebook has added timeline functionality recently too, to add your movie preferences. I also like the fact that you can now get 6 second video app Vine for Android, which backs up my favourite creative around encouraging short instant film reviews in the cinema lobby, which ties in with the fact that most social activity (72% by all accounts says Katie Leimkuehler) comes after watching a film.

(If you wish to view my invitation to create a MVP mobile app on peopleperhour please see the details here.)