• by September 20, 2001

Jupiter Media Metrix today reports that 59% of companies may be misleading themselves by measuring their e-business return on investment (ROI) in-house. New Jupiter Executive Survey data released today show that more than half (59 percent) of do-it-yourself ROI studies generate a positive result - a number that leads Jupiter analysts to believe that in-house ROI analysis is often a self fulfilling prophecy. Jupiter analysts have found that many "do-it-yourself" studies use inconsistent definitions of ROI metrics in an effort to show positive results, therefore making it nearly impossible to correctly choose which projects should be funded and which should be killed.

"Business managers will save money and embarrassment if they precisely and consistently define financial metrics such as ROI, rather than attempting to 'guesstimate' a dollar value when there is no justification for doing so," said David Taylor, research director, Jupiter Media Metrix.

"While companies are aggressively employing the Internet to develop stronger relationships with its customers, ROI measurements don't effectively gauge their success.

Jupiter says companies must separate hard dollar ROI calculations from soft dollar "relationship metrics" such as Return on Relationship, which is a metric specifically designed to capture the impact of the Web on customer relationships."

Jupiter found that few companies are currently hiring external consulting firms to measure their e-business ROI. According to the survey, only 17% of companies have hired one or more external firms to conduct or oversee their ROI studies.

Also, 33% of companies have tabbed the project team to conduct a self-assessment, while an internal consulting group is responsible for ROI analysis in 26% of companies.

Jupiter analysts have found that ROI analysis is too difficult for companies to conduct by themselves and believe that in-house studies are not completely objective.

Only 5% of in-house ROI studies have shown a negative result, while 39% of companies who conducted in-house ROI studies report a somewhat positive result and 20% found a significant positive result.

Half of the companies who used a do-it-yourself ROI approach have either not yet completed their assessment or have not found a conclusion. Moreover, many companies are not yet conducting ROI studies at all. According to the survey, 92% of multi-channel retail companies do not measure ROI of online selling, while 31% of companies are not evaluating ROI for e-procurement activities either. Jupiter analysts believe that many of these companies might benefit greater from a Return On Relationship evaluation that examines how the use of the Internet improves relationships with customers.

"The specific ROI from building stronger customer relationships is very difficult to measure and is sometimes impossible," Taylor said. "That's why a separate relationship metric is necessary.

A Return On Relationship metric that measures whether or not relationships result in direct or indirect returns to a company will help business managers determine the value the Internet brings to the table sales and marketing initiatives."

Jupiter Research is currently developing a Return On Relationship model and will be releasing findings in a full report in the coming months.