Measuring the ROI of Free (a Case Study, and a Guest Post)

24 Jan 2011

Measuring time
Image by aussiegall, via Flickr

Today, I want to take all this discussion of Free and Sustainability in a more concrete direction. Josh Kashorek, who's participated in the comments here quite a bit, offered me this guest post on measuring the ROI ("Return on Investment") of Free. I think it's very useful stuff, and I'll be using it as I re-assess my landscape of Free here on this blog. I'd love to hear how this post lands with your thinking about Free.

Thanks, Josh!

This is a continuation of the awesome discussion Diane started, dealing with “The Sustainability of Free”. This is a topic I’ve been wrestling with for a few years now and while I still don’t have all the answers, but I do have a process. Diane has generously agreed to let me share the steps I take to measure the ROI of free. So let’s dig in…

slackline
Image by glowform, via Flickr

Project Background:
One of my new year's resolutions is to learn more about woodworking with hand tools. As with most things, when you’re just learning you make a lot of mistakes. As I’ve learned how to fix these mistakes (and better yet avoid them) I’ve been taking notes. And now I'm planning a new website about woodworking. The plan for this website is simply post my notes to the Internet so others can learn from my mistakes as well.

Now that you know what the project is we can move onto the process.

Measuring North
Image by stevenharris, via Flickr

Step 1 – Measurable Goals
Anyone can tell you their goals, but few are able to articulate them. (i.e, a common goal is to get more sales, but this just leads to more questions: how many more sales? Selling what? How are you getting the sales? And so on) We’re working towards articulation here.

So, my goals for the woodworking website are:

  • Goal 1:  Help others find easy solutions to common problems. (This goal is purely about giving).
  • Goal 2:  Network. (This is a non-monetary goal but it’s about both giving and getting).
  • Goal 3:  Support My Hobby. (This is the monetary goal).

Balanced Nap....
Image by ming1967, via Flickr

Step 2 – Determine Metrics
Ok my goals are laid out, now I need a system for measuring them.

Goal 1: Help others – I’m going to measure this by search volume. I want people to search for a solution, find my site, read my answer. (There are many options here but this is simple and aligns nicely with my goal).

Goal 2: Network – I’m going to measure this by my time spent on the site, vs. the number of people I connect with. (By "connect with," I mean people who get my personal email address or phone number or I meet in person, because we want a relationship beyond following each other on Twitter).

Goal 3: Support Hobby – Goal 3 is easier than the rest because it’s tangible. I can track how much I spend and how much I make and see if they match up.

Where the rubber meets the road...
Image by grantuhard, via Flickr

Step 3 – Assign Value
This step is where the rubber meets the road. You know your goals, you know how to track them, but until you know how much they are worth, you can never know if you’re getting a return.

Goal 1: Help Others – This is where it gets tricky because I’m trading time for the satisfaction of helping others. Since there is no set formula I can use to convert time into satisfaction, I have to guess. (Even Google couldn’t tell me the answer to “1 hour = X satisfactions solve for X” – maybe it’s 42). So for now I’ll say 1 hour of my time is worth 100 visits from search.

Goal 2: Network – This is another challenging goal; however, with this one I’m going to track it relative to other methods of networking. (i.e, if I go to a 5-hour workshop locally and meet 5 people, but spend 40 hours on my website and meet 1 person, I can then determine if I want to continue using the website as a networking tool or drop this goal).

Goal 3: Support Hobby – This goal is simple. Since I just want to cover my costs, I do not need to count the value of my time. It’s a straight comparison of spend vs. earn.

Calendar Card - January
Image by Joe Lanman, via Flickr

Step 4 – Set The Timeline
Very few goals that are worth chasing are achievable overnight, so you need to set an amount of time that you’re going to commit to working on the project – whether or not you’ve hit your goals. This keeps you from quitting too early. You can pick any amount of time you think is reasonable. For this project I’m using 6 months.

Balancing Act (Day 40)
Image by stephcarter, via Flickr

Step 5 – Evaluate and Adjust
Whether you’re working on a personal diary blog or promoting a multi-billion dollar brand it’s always important to reevaluate how you value your goals. Priorities change, projects evolve and experience changes the way you do things. To keep it sustainable, your ROI has to evolve as well.

So there’s my process – it’s simple but it has worked for me on many projects. What about you? What’s your process? How would you improve my process?

About Josh:
Josh has been involved in Internet Marketing since 2004, as both a consultant and in-house marketer (as well as working on personal projects). He currently works as the Ecommerce Manager at
Premier Packaging. If you want to get in touch with him, he’s pretty much always reachable via LinkedIn.

Comments

Being an accountant by training your ROI measure makes a lot of logical sense to me. I wonder what you think about measuring reputation growth, portfolio improvement over time, consistency of effort. Here I'm thinking about achieving a future goal like being selected as a manufacturer's designer. . .


What I think is interesting about this idea is that, for the first years of blogging, few of us had any idea that our little online journals could even lead to goals like that. We just stumbled onto various milestones, surprised to find that the outside world had interest in what we were saying. I think new blogs today are starting with business goals far more often than they did back when I started blogging.


This is excellent. I can't believe no one else has commented yet.

This is great! First, it's just easy to understand and makes sense.

But second, and maybe more importantly for our crafting community, it's honest. As you've pointed out in past posts, Diane, most of us say we give freely for the joy of giving, but we also hope it leads to more readers and eventually customers. Doing a system like this helps you be really clear about what you're hoping to achieve with your time. I think this would help a lot of people feel less taken advantage of or more confident in their building process.

And now that I think about it, it would probably help a lot of people feel less conflicted about doing both free and paid. Josh's honesty about wanting to help us with woodworking -and- support his hobby is approachable and endearing, not off-putting. Money, fairly traded, need not shame anyone. But the enthusiasm for free seems to drive this feeling sometimes.

Josh, I really liked your 4th point about most goals requiring some time and giving yourself space to try and not quitting too early. That's huge, too.


Agreed! And the lightbulb moment for me was when Josh pointed to the monetary goal and said, "that's easy, because it's tangible." This helped me to see that, for all the intertwining we all tend to do of business and community, perhaps the smart option is to disentangle them and consider them separately.


And you know, i think considering them sep. under the same umbrella brings them around together again, but in a better way. I'm beginning to think that maybe it's not so much disentanglement but a renewed appreciation for how they work together. In mass-production/big box world, we separated community and business. But the small town nostalgia or tribal community living that people look to for inspiration have always blended them together. Your customers were your community. And vice versa. It seems to be a good shift.


I really like your analogy of small town living, I grew up in a small town and you knew everyone, and you do business with them because they are your friends and you can trust them. The web is no different, Diane has built a great community here on this site and while I'm relatively new to the community I'm already recognizing names and avatars, that gives me a resource for craft advice, and in getting to know you, I'll know what to expect when I visit your shop. Just as in real life, community and business go hand in hand.


I agree with both of your perspectives. I see that I wasn't clear about my meaning. When I talk about separating business and community, what I'm really referring to is the mindset of "be really friendly, and the business will follow." I've learned that, while this works to an extent, at some point you have to step back and consider whether the fun, Free stuff you do for your community is in fact also good business practice. There are quite a few cases where this isn't true, and it's important to give each equal weight.

The small town model works, but it is based somewhat on scarcities. In pre-internet days, you became interdependent in small communities because you often had no other outside sources for the stuff you needed each day. Now, we're all swimming in options, so the small community model can't really be based on scarcity anymore. I think it needs to be based on the choice to support people we value.


Thanks for the clarification Diane. Well said! I believe I am saying the same thing but my message wasn't as clear as yours is. I'm better at explaining with examples so here's a quick one. There's and independent shop owner in the town where I grew up, (it's around 4 hours from where I live now) if I have something I'm working on that can wait until I make a trip up there I will buy what I need from him even though there are probably 10 to 15 places near my house that I could get the same product. I buy from him because he always takes an interest in what I'm doing and more often then not can tell me of a better way to get the job done sometimes it even means telling me not to buy from him. In other words he's given me over a decade of free advice (and many free products). This man should never feel guilty about selling me something (I believe many bloggers on the other hand do feel guilty which is a major cause of imbalance). The reality is I don't support him because he's a small independent business in a rural area trying to make ends meet and I feel bad for him, I support him because I simply can't find anyone else that can give me better value even if they sell for cheaper.


Bravo! I wish more consumers considered their suppliers as carefully as you do, Josh.


I'm glad you liked the post Elizabeth. Point #4 took me a long time to learn over the course of several frustrating projects, I'm glad I'm able to share it and hopefully it will save you some of the headaches I experienced.


You're welcome! Here's to hoping! :)


AMEN, Erin! This has been a hard lesson for me to learn, but it's true. At least, the Free needs to be fulfilling some concrete need, somewhere - if not money, then learning value, or networking, or something else.


Josh, thanks for this seemingly simple but very helpful insight. I think breaking down the goals and giving yourself a time frame so you have the right criteria to evaluate are the key here. This whole discussion about free is becoming more and more insightful and I am so grateful for your willingness to open this door Diane.


Thanks for the comment Erin. You bring up a good point about making a distinction between creating a business and supporting a hobby. This question for me at least is one of the most important questions to answer honestly. I know I have at least a handful of projects that failed because I called them a hobby and treated them like a hobby, all the while secretly wanting them to be a business. I think people often call their project a hobby because if it doesn't work out it's less embaressing to say "I lost interest in that hobby" then it is to say "my business idea failed". It's unfortunate but because of that fear a lot of great business ideas go to waste (IMHO).


Dang, Josh. That's well-said.


This is a really interesting process, my boyfriend (also an internet marketing person) has been trying to get me to make my hobbies cost neutral with similar suggestions, but this makes it seem more achievable, thanks for the insight.


Glad to help, I have always believed anything is achievable if you break it down into simple steps, so thats what I was hoping to present here. You should let your BF know you're ready to roll I bet he'd be thrilled to help you get setup.


This is my favorite article in this series so far. I love how straightforward, concrete, and honest your process is. Thank you so much for sharing your insights!


I'm really enjoying this discussion!

My perspective might sound overly simplistic at first, but I think our first and foremost job is to be happy. That’s not just because it feels better than not being happy (although that might be enough of a reason!) But being happy does a lot of things: happier people are healthier, live longer, are more creative and better at problem solving.(I can cite scientific references for this is anyone wants that!) All of these things can easily translate into more dollars.

I find it’s not always possible to “puzzle out” the correct answer to a challenge intellectually, because I don’t always have all the head data. But my heart/intuition usually leads me in the right direction – and then later I discover info that supports it.

A recent example happened this weekend. I am starting to resurrect a former business and product line that I spearheaded a couple of decades ago, and which got left by the wayside in 2001 when I relocated. Now I need to rewrite the pattern & instruction booklet to support sales. In an effort to keep costs reasonable, I researched binding machines online, and called a friend who has had experience with them for advice. We concluded that I needed about a $300 - $500 binder, which felt outside of the budget at the moment.

I could have stressed myself about it, but stress never helps anything. (A friend once said “worry is just praying for what you don’t want.”)

So, instead, inside myself, I just appreciated everything: the info I had gleaned online, my own insights so far, my friend’s great advice, etc. And I just soothed myself about it, in the knowing that something would work out even if I didn’t know what it was right then.

Then “out of the blue” (which is really – “out of the relaxed, unstressed state of mind”) came the thought of possibly finding a binder on Craigslist. Intellectually, in my relatively small geographic area, that would seem to be a long shot, but I didn’t process that insight intellectually and stress over it, I just followed my intuition – which led to a listing for a great binding machine, in excellent condition, not far away, original SRP was over $500, and they wanted $75 for it (which included some supplies to go with it) – and it was fine with them if I wanted to come over on New Year’s Day!

Some might say “what are the chances?” (My friends all say I’m so “lucky.”)

But I find that the “chances” are immeasurably stacked in your favor once the stress level is significantly lowered … stress is a major block to creativity and creative problem solving, and clogs up the works. But once stress is released, then our own natural ability to come up with new and exciting solutions is enhanced – And the good news is, that’s not “luck”, that is something that can be created on purpose.

And that, in a nutshell, is my business strategy, and it works great for me! ;-)


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