Meaningful Metrics

Data is everywhere. You can literally create a data set out of any observation. But data is meaningless unless it’s relevant to your objective; only considered in relation to other strongly correlated data; and measured across a significant period of time, options, and scenarios. The following presentation will walk you through the four critical steps to ensuring that your organizational metrics are always meaningful.

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The Return-on-Investment of Search Engine Optimization

(updated 2021) 

Website owners may hear that search engine optimization is a foundational requirement, if you want to generate positive return on your efforts. Unless you are technically savvy, an expert, or otherwise interested in the internet of things, the advice is typically generalized and without much instruction. This leaves most of us passing it off to an expert. Even so, you should know the value of your investment, and the trade-offs of outsourcing over developing in-house talent. For these decisions, you may need something a little more concrete than a passing understanding of SEO, including the SEO-ROI connection.

Search Engine Optimization (“SEO”)
SEO encompasses all facets of making a website or a brand visible and readily accessible to the consumer through unpaid search engine tactics. A website’s SEO components may include the following:

• Metadata
• Strategic Keywords
• Internal Links
• Reputable Outbound Links
• Inbound Links
• Anchor Text
• Site Map
• Content Structure
• Load Time
• Comment Management
• Paid Advertisement Links
• Web Crawler Management

Branding SEO components may include the following:

• A Facebook status update that connects the consumer to a product promotion page

• A tweet that connects followers to a new blog post
• A LinkedIn post that connects job seekers to a career site

This communication type appears in search results independent of the originating social network.1

Additionally, search results are also impacted by the number of shares and the amount of traffic generated, so it would be remiss not to include these results as a part of the SEO landscape.  

”Acquiring new customers is important; but maintaining current loyal customers is arguably even more important: It costs less to market to and to maintain loyal customers, a 5% increase in retention increases profits by at least 25%, and loyal customers contribute up to ten times more to the bottom line than irregular customers.”

- Lifetime Value of a Customer

Return on Investment (“ROI”)
Whether you hire a professional or assign an internal resource, it’s easier to gain buy-in from stakeholders when the added monetary value can be conveyed.

If you are a non-web based business, with only occasional SEO needs, the choice between outsourcing and developing the talent internally, may be fairly easy decision. In the long-run, it will cost less to outsource and get occasional maintenance, than to pay a salaried specialist. Also, the cost to implement would be so nominal, you probably would not concern yourself with the nuances of deriving an estimate of the expected profit generated by SEO, versus the expected future cost for SEO. But, if you're a web dependent business, the choice to outsource versus develop talent, is not as evident. You'll need SEO updates as industry changes, and you'll want to know what to expect, and how to determine the value of the SEO efforts. In addition, if you are product based business with frequent website updates, you will want more regular monitoring to ensure that SEO settings remain optimal.

Fortunately, ROI is a measure that explicitly captures a project’s value. It's flexible enough to use as an initial indicator of value, as well as for ongoing analysis. ROI will also provide a basis for comparing the value of several projects, such as the expected benefits of implementation compared to the cost to outsource and the cost to develop in-house talent.

SEO-ROI METRICS
There are four key areas to assessing the ROI of SEO, no matter who executes the technical or branding SEO efforts:

• Pagerank is the value that search engine algorithms assign to your webpages. Monitor ranking by site, page, or link and see if you hit your target, e.g. top 10 search results.
• Traffic patterns can be monitored by referring site as well as geographic location. For branding and promotional efforts, the success of a specific link should be monitored concerning the volume of visits generated, which triggers consideration of link/site popularity.
• Keyword searches should be performed regularly for the top five keywords. Monitor the results and note the changes in position, positive or negative, for each keyword. Furthermore, track the search terms used by visitors. Note which are used most and note the trends for favored keywords that diverge from your organization’s current top five.
• Bounce Rate: Always scrub against the bounce rate data. It will help to determine if a chosen keyword association is detracting from SEO-ROI. It will also help to pinpoint the degree of effectiveness of traffic generated by branding and promotional links.

Monitoring performance is never an easy task, and is subject to the organization’s structure, goals, tactics, budget, etc. However, the exercise is well worth the headache. Establishing value puts the organization on the right track and helps to get the needed stakeholder buy-in.

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1. "Although this has not traditionally been considered a part of the SEO landscape."

This text was removed, because eight years later, this is commonly considered for SEO. A long time ago, I was ahead of the curve on this stuff!

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Capital Budgeting Across Business Units

(updated 2021) 

To gain perspective on the choices of a large corporation, their budgeting process, and how (or if) they manage to avoid various measurement pitfalls, an interview was completed with the Facilities Manager of one Strategic Business Unit (SBU) of a Fortune 500 Corporation.

The Interview
His Capital Budgeting responsibility begins with a presentation of the site's needs assessment and a “wish list.” His responsibility terminates with the actual conclusion of the various projects’ execution. At this level, the Capital Budget is split into two categories, Major Capital Projects and Local Capital Budgeting.

Major Capital projects (over .5 million) are decided as a SBU. Individual sites compete with one another for funding of these projects and the decision criteria for funding are 1) business needs and 2) Return on Investment.

For Local Capital Budgeting, each site receives funding for improvements based on a certain percentage of the site’s value. Individual projects are prioritized by the greatest need. These projects are further broken down into two more categories, Infrastructure and Process Improvement. An infrastructure project includes safety, environmental, capital replacements, and energy saving projects while process improvements are primarily cost reductions. Infrastructure projects may take precedence over Process Improvement if it is a question of compliance.

Net Present Value (NPV) analysis is performed, and the Internal Rate of Return (IRR) is also examined.

Observations
In analyzing Company X’s methodologies, there are four areas we found of particular interest:

• The use of a hierarchy in the decision-making for projects over .5 million.
• The competitive element of the decision-making process.
• The use of a percentage of site value as a determinant for the Local Capital Budget.
• The use of the NPV method in conjunction with IRR for judgment of project attractiveness.

The fact that there is a hierarchal decision-making process for projects that cost more than .5 million is of benefit to the company. In this manner the risk of mis-management is reduced. The problems of conflict of interest, empire building, entrenching investment, and risk avoidance are reduced within the organization. Utilizing a competitive element in the process encourages management to put their best foot forward, and further reducing the potential for agency costs.

By utilizing a percentage of site value as a factor for Local Capital Budgeting it would seem that older sites are at a disadvantage, thereby leading to less funding. For infrastructure purposes in particular, an older site may require the most funding. The following clarification was provided:

“The factor that’s used is ERV (estimated replacement value)”. That levels the playing field in that it allows each site to get about the same percentage based on what it would cost to replace the site in total, in today’s dollars, with today’s technology. It’s not a good practical measuring stick as much as it is a good comparison tool. Being a financial tool and not an engineering or construction value measuring tool, the actual value of a site would be much more than what is provided using ERV. Older sites that have not kept up with year-to-year infrastructure needs are at a disadvantage. That’s why from day one of a facility’s existence it is important to plan for and to initiate modernization and renewal activities.”

From this statement it is interesting to note that although the use of ERV fulfills the need to provide an equitable financial measure, from the perspective of the Facilities Manager the tool does not provide an accurate measure of site value.

Like many organizations, Company X recognizes that NPV analysis provides an unbiased way to evaluate projects by taking into account both the time value of money and the opportunity cost of capital. By discounting anticipated cash flows at an appropriate hurdle rate, the site can objectively consider multiple projects side-by-side. This is especially important for mutually exclusive investments where the site must choose between competing projects.

With NPV as the key driver for project acceptability it is a constructive methodology to utilize IRR after NPV analysis. Although IRR can be misleading in the evaluation of mutually exclusive projects, it provides the percentage return on each dollar invested in a project. Employing IRR in this manner, giving it secondary consideration, avoids the associated problems and adds value to the decision- making process.

”Although the statement, “the psychology of financial matters,” will feel like an oxymoron, it’s actually a fairly accurate reflection of reality. At first assumption, finance seems as if it should be an objective and logical science. But, derivatives of mathematics do not necessarily retain all of the same characteristics as the parent. Like most derivatives, the ultimate behavior is inextricably tied to human behaviors.”

- Psychology of Finance

Conclusion
Categorically splitting the Capital Budget and utilizing a hierarchy in the decision-making for Major Capital Projects is a sound method for ensuring reduction in agency costs. The competitive element of the process further enforces diminished agency costs. Utilizing ERV as a determinant for the Local Capital Budget is a useful financial tool that ensures all sites receive equal valuation. However, it is not necessarily an adequate method for deciding actual project implementation. The use of NPV in conjunction with IRR is an appropriate method. NPV allows the site to determine in absolute terms the value in today’s dollars of a given project. By utilizing IRR on a project-by-project basis and not as a comparison tool across projects, common pitfalls are avoided and the greatest benefit is attained.

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The Undeniable Inextricability of the Entrepreneurial Spirit

(updated 2021) 

According to the SBA, there are 31 million small businesses in the United States, which represents approximately 99.9 percent of all businesses. Almost half of all employees in the U.S. work for a small firm, and small businesses accounted for more than 60 percent of all new jobs created. Small businesses are also the first line of employment or the initial “training ground” for the workforce.

Although the Small Business Act was passed in 1953 as a means of leveling the playing field for returning veterans, and the shift from war production to familial focus, the wing span of the SBA continues to change with our economic requirements. This is evidenced by our continued reliance on the small business for ingenuity, growth, and development, beyond the baseline competition.

Too Important to Ignore
The need to nurture the entrepreneurial spirit does not qualify as “too big to fail,” but it's obviously “too important to ignore.” During the COVID-19 pandemic, the government certainly recognized this, and sent the SBA to the front lines of Main Street with the Paycheck Protection Program to keep the economy afloat.

The SBA found that across the 16 years from 1998 to 2014, the small business share of GDP fell from 48.0 percent to 43.5 percent. Over the same period, the amount of small business GDP has grown by about 1.4 annually, while GDP for large businesses has grown faster, at 2.5 percent annually.1

”Integrity is one of those things that make our country desirable. In a free world, you worship as you please and move about at will; however, there are ground rules: we have morals and they are upheld. Without the promise to uphold our agreed upon morals society disintegrates into barbarism.”

- They Underestimate Integrity

There's no solid conclusions yet concerning the driver of the decline; but I'm sure the driver is multi-faceted, with the availability of capital to startup and to grow playing a small role.  

Traditionally, workers at large corporations were expected to fit a mold. But we are indeed human - complex one-of-a-kind originals. Trying to fit us all into a few specific molds simply makes for an oppressed and unfulfilled workforce. In recent years, large corporations made changes to recognize individuality and to make room for creativity, so that they could retain their highly specialized talent. This may also be a factor in the decline in small business GDP share.

However, I doubt that it's a primary driver, as seasoned workers are choosing entrepreneurship over Corporate America.  Generation X has opted for fulltime entrepreneurship, and Baby Boomers are choosing early retirement from Corporate America in pursuit of their entrepreneurial happiness.2

Recognizing the Happiness Quotient
Economic development refers to the enhancement of our productive capacity. It can be defined as the concerted actions of policymakers and communities to promote the standard of living and economic health. Economic development can also be considered as the quantitative and qualitative changes in the economy. As our old economic models become obsolete, or undergo revision due to their proven irrelevance, I think it’s time for us to develop new lines of thought, to observe new insightful correlations and interactions, and to incorporate what we may not have ever considered previously. We can't have an accurate measure of economic development without consideration of societal developments, including changes in attitudes, values, and expectations. It may be “fuzzy logic,” but our pursuit of happiness may in fact be a stronger driver than previously recognized.

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1 Small Business Administration: Small Business GDP 1998-2014

2 Kauffman Foundation: The Kauffman Index Startup Activity National Trends

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