One of the coolest things (in our opinion) about ROI is that you can calculate it on almost anything.
In the B2B world we obviously use ROI calculations to show our prospects and customers what they’ll gain by investing in our solution or offering. Recently – and just in time for the Oscars – we came across an interesting post from Forbes showcasing a list of actors that deliver the best return on investment for movie studios. Although it’s common to see lists made of actors that command the highest salaries, it’s slightly more unusual to see someone thinking from the perspective of ROI. Here’s the methodology they used:
Taking a star’s pay on a film, and the movie’s estimated budget, box-office receipts and DVD sales, we calculated a return on investment number, and then averaged the numbers for their last three films to get an overall return.
By this reckoning, Forbes placed Jennifer Lawrence third on the list, noting that she yields a return of $68.60 for every $1 she was paid. They also note that actors that accept smaller paychecks actually increase their ROI. (This is why Emma Stone ranked #1 on the list.)
You might assume that an Oscar winner would command a higher salary, but this separate Forbes post indicates that the equation isn’t so straightforward. In fact, winning an Oscar is not a good indication of higher salary earnings.
This is another good example of how there’s more to value than just price tags and budgets. Value is always in the eye of the beholder. To some, going home with a gold statue holds infinitely more value than a multimillion-dollar paycheck. As Forbes notes, actors who put a premium on winning an Oscar sometimes agree to lower paychecks for the chance to work on films that offer lower budgets but higher artistic credibility. To them, the trade-off in salary is more than worth it.
The same principles apply in the business world. Just because a solution is more expensive than anything else on the market does not guarantee that the customer will see a higher ROI. In fact, a higher price makes it more difficult to show a higher ROI. Conversely, the cheapest solution is not necessarily the best value. As we pointed out in a recent post about differentiating from your competition, value is relative not to what you paid for the solution but to what the next-best alternative is. Value encompasses price, plus the cost to deploy and maintain your offering, costs in other areas, and the impact on the customer’s revenue. All of those elements need to be taken into consideration when calculating ROI.
We’ve not yet been asked to assemble a value calculator for a Hollywood studio, but I’m sure it would be fun to try.
What do your customers value? What are some of the trade-offs they make in the name of value? Share your thoughts in the comments section.