Ask the Experts (Spring 2009)
The tough economic climate is prompting more companies to ask their incentive industry partners for help in measuring the ROI of their incentive programs. Our experts suggest how they might respond.
With economic conditions being what they are, “All organizations are rethinking where they put their money,” says Dana Slockbower, Director of Marketing at Rymax Marketing Services Inc. “Measuring ROI for our clients’ incentive programs gives us the resources to help them see that an investment in recognition isn’t a waste and not a place they need to make budget cuts.” In fact, she says, being able to justify spending and show return on investment can only help a program. “It ensures that money invested in an incentive program is getting the biggest bang for its buck,” Slockbower explains.
How and What to Measure
Precisely what should companies be measuring and how should they measure it? “Before the program is launched, it’s important to benchmark the current situation,” notes Slockbower. “What’s the current turnover rate? How motivated are employees to go above and beyond? How likely are customers to choose you over the competition? Then determine what reports you’re going to run to track these benchmarks.”
At the very least, Slockbower says, clients who understand how to identify and measure ROI are able to make educated decisions on where to increase their investment and where adjustments can be made.
For instance, “If lack of return is a result of lack of participation in the program, we suggest increasing management training efforts,” says Slockbower. “Depending on the individual organization’s needs, we may suggest forming a program committee comprised of managers from different departments to get a variety of perspectives on what works and what doesn’t. Maybe management is onboard and distributing points, but participants aren’t redeeming. In cases like that, we can call in the merchandising team to refresh the rewards selection to reflect the latest consumer trends.”
A Backward Look at ROI
Rodger Stotz, Chief Research Officer for the Incentive Research Foundation and former Vice President and Managing Consultant for Maritz Inc., says companies aren’t only seeking ways to measure ROI on upcoming projects, they’re also looking to incentive companies for help in justifying past programs.
“Clients who’ve operated the same programs for a number of years are now looking for internal and external support to justify those programs as budgetary issues are raised,” Stotz says. “Top management is reviewing all expenditures, and incentive programs – like every other part of the budget – are coming under review.”
The problem this creates for incentive companies, says Stotz, is that if the client and the incentive company haven’t specifically established a good metric process to track, monitor and evaluate the program on an ongoing basis, then it’s a lot more difficult to look backwards and see where things may have gone awry.
There’s also the old bond between the incentive company and the client manager that says, “We both know the value of these programs, so why take the extra time and cost to evaluate them?” Stotz says this “intuitive perception” has come back to haunt many a manager – especially when that view isn’t necessarily held by higher-ups looking to justify costs.
A Repetitive Cycle
Stotz notes that the industry has gone through similar cycles in the past – after 9/11, for instance, “there was a similar drive to justify programs when corporate budgets were under stress. The problem is, once the period of stress is over, we tend to fall back into that intuitive perception of ‘We know they work.’”
Incentive programs that have made setting objectives, measuring progress and tracking results a part of the process all along should have no problem satisfying any budget justification requests. For those that haven’t, says Stotz, calculating ROI “starts with identifying the purpose and objective of your program, then asking: ‘How will we know if we achieve that objective?’ Put the necessary metrics in place and get a commitment from your executives or budget people that, if we hit these objectives and we’re measuring results in this way, it will be counted as a success.”
It’s that upfront work that will provide the validation, says Stotz, adding that “it’s then necessary to keep doing it, even when the economic climate gets better, because the next cycle is likely just around the corner.”
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