Sales & Marketing

Ask the Experts: ROI vs ROE

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Editor’s note: The social media world and business advisory firms, consultants and other pundits keep alerting businesses that the objective of return on investment (ROI) is diminishing in importance, or even dead, due to the increasing focus on return on user experience (ROE or ROX). We asked three experts to share their advice in this area as it pertains to software companies. 

Q: It has been said that ROI is dead and ROE is the new value objective. Do you agree? What do you believe are the top two metrics software companies should use to measure ROE? 

Eliminate squishy metrics

-       Mike Rozlog, CEO, dBase  

ROI is not dead, just as ROE or ROX is not king. I never like the option of “a” or “b”; why can it not be “a” and “b”? When I look at a project that my company is going to invest in, I use ROI from many different points. I’m putting this much in resources and I need to figure out if it will pay off and when. What is great about ROI is that we have been using it for years and understand it very well. 

I look at ROI as the macro level, giving me the big picture, and I look at ROE / ROX as the micro level. ROE / ROX is maybe the difference between an ROI paying back in six months instead of a year because the usability, or the reduction in customer service calls, is far better than when we just slapped something together. 

However, how do you measure ROE/ ROX? There are a ton of touchy-feely metrics such as potential customers not registering, dropping off … but those are squishy, hard to nail. Using metrics that have provable costs are best – like reduced training, reduced calls to support or quicker conversion rates for the product. Stick with the concrete for best results. 

SaaS vendors delivering ROE

-       Lauren Kelley, CEO and founder, OPEXEngine 

SaaS is a mutual experience for the vendor and the customer. Often, the two share the cost of the service in the first year, because for most SaaS companies, the cost of customer acquisition isn’t paid until after the first year. Because the vendor has invested money in the customer, the customer pays more in the long run than they would if they just paid up front. This makes SaaS an incredibly valuable business model. And because the customer can walk away if their “experience” isn’t valuable enough, SaaS vendors are incented to make the customer’s return on their experience with the service be some large multiple of the cost and effort invested by the customer.  

ROI implies a pure dollar return, whereas “experience” encompasses a broader payback. How fabulous is it to interact with the application? How fast did the vendor answer questions and solve problems? How much does the app contribute to the customer getting what they want in their business (and in life)?  

To measure ROE, look at churn rates. Tracking first-year churn rates tells the vendor how many customers will move into a profitable relationship with them because the ROE was worth it. Measuring how long, on average, the customer continues to subscribe, tells the vendor how long they’ve managed to keep the ROE “valuable enough” for the customer over time. Companies delivering ROE over a longer time are more valuable. 

From good to great

-       Praful Saklani, CEO and founder, Pramata 

It’s not return on investment or return on user experience. Rather, return on investment is diminished absent investment in user experience. Increasingly, customers are more invested in the quality of their experience than the materials, functionality or even utility of the products they buy. Luxury goods brands learned the value of delivering a quality experience a long time ago. You can point to Apple as an example of making the leap from good product to great experience. 

Enterprise technology companies can benefit by prioritizing user experience as well. Yet for many enterprise technology companies, the conversation about the customer experience begins and ends with the UI. UI, software, services, business processes, support teams and more are each important. The synergy is realized in the context of the user – strike that – person, and how he/she answers a handful of key questions:  Has my experience with this product or application or solution made my job easier? Has it helped me do my job better or faster? Did the experience of interacting with it help us accomplish our business goals? 

Two metrics to watch: Do sales cycles compress because customers can easily envision their teams using your solution? And are people adopting it? 

Lauren Kelley is CEO and founder of OPEXEngine. She brings 25 years of tech company management experience to OPEXEngine, as well as six years as an international economist at the U.S. Department of Commerce’s Office of Computers. She managed worldwide sales and strategic development for ecommerce pioneer, Art Technology Group, managed 20 countries for Borland Software, and helped build Compaq Computer’s business in Eastern Europe in the early 1990s. Ms. Kelley is currently based in Boston and has previously lived and worked in London, Paris, Munich, Bonn, Berlin, and Kingston, Jamaica. Contact her at lauren@opexengine.com.  

Mike Rozlog’s 20-year software and technology industry experience brought him to dBase as the CEO to build the next-generation business intelligence products and data management tools. Mike is a dynamic leader known for driving innovation, product development, market analysis and product evangelism efforts. He has hands-on technical experience across architecture, enterprise and commercial software development. He is widely published and quoted in industry publications and is a frequent speaker at industry conferences. Contact him at mrozlog@dbasellc.com. 

Praful Saklani is co-founder and CEO of Pramata. He has deep expertise in the artificial intelligence technologies core to Pramata and experience delivering enterprise process solutions to large corporate customers. Prior to co-founding Pramata, he founded and was CEO of Yatra Corporation, which leveraged artificial intelligence and Internet technologies to optimize travel management processes. Previously, he was co-founder and managing partner of consulting firm, Invotech Systems. Follow him on LinkedIn, Twitter or email him at psaklani@pramata.com. 

 

 

 

 

 

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