Soft ROI and Hard ROI: Why You Should Assess Both
Typically, when nonprofits think of a return on an investment (ROI), they think of a quantifiable impact on their fundraising, such as dollars raised for their cause or number of supporters acquired. But you can also generate positive ROI through “softer” indicators that may not have an immediate impact on financial targets, such as increased brand awareness, brand affinity, and engagement. While they’re not measured in dollars, these metrics are often indirectly connected to a positive financial return down the line, and thus considered important for holistic, long-term success.
To help you track the right indicators and improve your organization’s overall health and growth, we break down the difference between hard ROI and soft ROI, the importance of balancing both, and a few examples of soft ROI metrics that are worth your attention.
As a reminder, ROI is a profitability ratio that can be calculated for your overall organization by looking at your gains and expenses cumulatively, or on a per investment/initiative/project basis.
ROI = ((gain – cost)/cost) * 100
Hard ROI refers to measurements that tend to be easy to quantify and can contribute to your organization’s success. Examples include:
- Increased number of supporters
- Increased number of email subscribers
- Higher conversion rate
- More leads generated
- Higher website traffic
- Increased number of social mentions
- Increased use of hashtags
- Increased number of blog mentions
- More social media followers
- Increased time spent on page
- Lower bounce rate on page
While it’s imperative to understand these types of hard ROI results, there are also key soft ROI measures to consider.
With so many new tools and technologies available today, marketers are able to measure the success of their efforts like never before. But there are certain limitations to hard ROI calculations that are worth acknowledging in order to get a holistic understanding of your performance.
A hard ROI calculation does not consider other factors that could contribute to your success over time. These factors, often labeled as indirect or “soft ROI” measures, are not as easy to quantify or measure against your immediate financial goals, but they are as equally important to consider in today’s complex world of marketing for long-term success and sustainability. Examples of more long-term soft success metrics include:
- Increased employee productivity
- Improved company morale
- Positive company culture and employee wellbeing
- Improved brand reputation and perception
- Increased word-of-mouth advertising
Connecting Soft ROI Measures with Financial Results
In order to truly understand the ROI of any decision or purchase, you need to consider both hard and soft ROI measures. Though soft measures may take more time to see a return, they develop your relationships with employees, followers, and supporters, and they help you create a powerful network that ultimately benefits your organization, its business goals, and its cause.
For example, let’s say you take your employees on a company retreat. While emotional responses and shifts in organizational culture might be hard to measure, events like this can increase morale, make teams more productive, and even decrease turnover rates. In this way, the general wellbeing and productivity of your employees contributes to your financial success.
Another example of important soft ROI can result from a positive PR announcement. You’re probably able to get a sense of the volume of exposure on certain channels, but what are the long-term financial results of the good news? A PR announcement may help your organization gain brand new relationships, or deepen existing ones. The PR announcement could serve as the catalyst for someone financially contributing to your organization, or sharing your work with a friend.
Investments in areas like fundraising and donor retention also have soft ROI benefits. Tools and systems like constituent relationship management and fundraising software can have long-term benefits that fuel your financial success by empowering your staff to save time and effort, streamline operational processes, track and nurture individual relationships effectively, and improve donor engagement—all of which can lead to an improved perception of your brand and deeper levels of support.
When you take the time to consider the financial implication of things like positive word of mouth and community engagement, you can see that investments targeting these results are vital to your brand exposure and donor relationships.
To capture soft ROI measures into your analysis, commit to conducting research that provides insights on the wellbeing of your team and community. These insights should then be examined and considered alongside hard ROI results.
The Transition from Soft ROI to Hard ROI
Luckily, much of what was once considered soft ROI has now become hard ROI thanks to technology. For example, many marketers are now able to calculate social media ROI, by assigning a dollar value to social conversions. This can be estimated by multiplying your donors’ average lifetime value by your average rate of conversion. This method allows you to assign a value to social media visits by saying, for every X person who visits/views Y, we gain Z dollars.
Today, marketing departments can also measure things like return on engagement and return on impression. As technology continues to advance, it’s likely that we’ll see metrics that were previously considered as soft ROI become known as hard and standard ROI measures.
When you analyze both soft and hard ROI calculations, you can communicate the importance of your time and dollar investments to your team. This in turn will ensure that you continue to invest in the methods that prove the most fruitful for your organization. As technology continues to advance, we’ll likely be able to shift even more previously considered soft ROI items to the hard ROI category, and better articulate the success of our investments.