Show me Numbers

This post follows on from Part 1 and assumes the reader is familiar with it

So how can the world of accountancy help with measuring the value of PR? 

Accountants measure value all the time – giving an opinion on a set of accounts or valuing a potential acquisition for a purchaser, or disposal for a seller. 

In order to value a company accountants use a variety of techniques. Examples include: 

- Multiples of “profits”, where profits can be defined in an alphabet soup of different ways – PBT (Profit before tax), PAT (Profit after tax), EBIT (Earnings before Interest and Tax), EBITDA (Earnings before interest, tax, depreciation and amortisation- phew!) 

- Discounted cash flow models otherwise known as NPVs (Net Present Value) using WACC (Weighted Average Cost of Capital), CAPM (Capital Asset Pricing Model) – yes even more letters! – and other tools to work out the discount factors used.

Despite the complexity involved in some of these techniques they all basically pose the question: 

“How much money (in today’s terms) will owning this company, or a share of this company, entitle me to in the future?” 

What they are all attempting to do therefore is predict the future. 

Unless you are Mystic Meg this is clearly an impossible task. There is no way that anyone can predict the future with any certainty and hence any valuation is almost certain to be wrong. But that doesn’t stop accountants doing it everyday. 

So when you try and predict the future earnings of a company what are the factors that you take account of? 

Clearly there is the current level of profitability as a starting point. You can then go on to consider factors that demonstrate market potential, competitive advantage and barriers to entry such as: 

- Market expectations in the future for that company’s products
- IP the company has or is developing
- Market share
- Potential to improve efficiency and hence profit margins
- Management team and their likelihood to deliver the company’s plans 

Public/Investor relations plays a role in increasing the “value” placed on a company where these sorts of factors are concerned by communicating these areas effectively. 

But in addition to this the key component of a company’s competitive advantage, and hence its ability to make future profits, is the reputation of its brand. If reputation changes then value can be created or destroyed. This is because the change in reputation will affect perception of the very factors that drive value, such as the likelihood of the company exploiting markets, launching new products and the confidence in the management team.

And PR is the custodian of reputation. 

So accountants give opinions and value companies and yet, with the greatest respect to my former colleagues and fellow professionals, probably don’t understand reputation as well as PR professionals. 

What does this all mean? 

Perhaps we need to look at PR “measurement” in a different way. Perhaps we should be looking at how brand values change, share prices move and the changes in profitability of a company’s products and services. We could then try and demonstrate, through a framework, how reputation management and development through PR has contributed to improvements in these areas. This way PR claims the Value of what it has helped to achieve not the activities or even the actions that have occurred. 

In Parts 3 and 4 I will try and suggest some practical ways we could perhaps seek to do this.

I intend this to be the first of a series of posts about the challenge of PR Measurement. 

The transparency of the Online Media World has brought with it greater opportunities to observe and measure the impact of PR, and often at a much lower cost than the equivalent offline measurement. 

At Measurement Camp last week (which was great by the way, just wish it wasn’t a 600 mile round trip!) I was struck by the fact that though there was some *very* good work presented there were no pound notes in any of the resulting measures. 

In my experience (and for those real experts out there please correct me if I am wrong!) PR measurement often seems to focus on the following four areas: activities, qualification, indicators and actions. 

These are all important and useful measures of performance and they allow us to build models to further refine our evaluation, but the one thing they still don’t “measure” (or perhaps quantify is a better word?) is Value. 

Value needs to be stated in pounds – or dollars, euros etc depending on your country of origin   It is only in doing this that actual return on investment can be calculated and PR’s true worth to an organisation estimated.

Actions should in theory be relatively straightforward to value. Take the simple example of lead generation. If a campaign has resulted in X number of leads the client should (hopefully – tracking depending) be able to supply the PR professional (agency or inhouse) with relevant information about resulting conversion rates and sales values as well as the cost of generating equivalent sales from other means. 

This would allow the PR professional to calculate both the sales return on investment generated as well as the relative cost of generating sales from this type of activity.

More sophisticated measurement can also use data from some of the first three sources to help to correlate the observed activities and indicators with resulting actions when the linkage is not as direct as say a website referral.

But what about the situation where the desired response is less tangible and is more about improving relationships and reputation rather than something as direct as lead generation? The first three measures can be used to assist with this but are harder to give a monetary value to. 

People try/have tried to value these Activity based measures e.g. Advertising Value Equivalent (AVE), but such valuations aren’t measuring the value that the PR has created for the organisation, rather they are trying to measure the value of the activities that have occured. These two things are not the same. Also the way that online advertising and publishing works makes any online AVE calculation even more spurious IMHO.

I think some of the answers to valuing these “softer” areas may lie in the world of accountancy and this will be the subject of my next post.

I had a great time last week speaking at the Net Imperative Digital Roadshow in Dublin. Apart from enjoying a great pint of Guinness :-) I found out that Twitter is alive and well in Ireland with over 20 active users in the audience. 

As part of my presentation I covered using your website statistics to help you plan and measure the success of your online PR activities. For those of you who aren’t yet active in the online world the following is a (slightly) edited version of an article from my latest Fresh Business Thinking online PR newsletter which covered this topic. 

How your website analytics can help your online PR 

One of the great things about the Online Media World is that nearly everything you want to monitor or measure is there to be found. In the “real” world it is almost impossible to know what people are saying about you to their friends or colleagues in the pub or round the water cooler. Online there is a vast array of tools which allow you to track what people are saying about you including RSS, social bookmarking and Twitter. 

But one of the less obvious PR tools in your armoury is your website statistics package. If you aren’t using a website statistics package yet to track activity on your site then if you only do one thing after reading this article make it signing up for such a service. Google Analytics for example is free, links to their AdWords system and can track multiple websites from one simple to use dashboard. 

Why is this relevant to Online PR? Because amongst other things it tells you a number of significant pieces of information about your public relations activity. 

1. Referring sites No.1 – You can use your analytics package to tell you if articles that have been written about you in response to, for instance, a news release, subsequently send traffic to your website. Assuming they included a link to your site in the article of course. 

2. Referring sites No.2 – What about other news sites that are sending visitors to your website? These sites must be talking about you and by tracking these referrals you can then visit these sites and see what they said and potentially start a dialogue with them if you think you have more information they might find of interest. 

3. Referring sites No.3 – Are you getting visits from social bookmarking sites such as Delicious, social networking sites such as Facebook or microblogging sites such as Twitter? If you are then it could be worth your while investing time in finding out what the relevant members of these communities think is interesting enough to spend time sharing, commenting or talking about you. 

4. Keywords – The keywords that are driving traffic to your website also gives you an indication of what people find interesting about you. This could be useful when thinking about what stories might be of relevant as part of your online PR activities. 

5. Visitor information – Are you getting visits from particular geographic locations? If so are they markets you currently operate in and try and target from a promotional perspective? If not then perhaps it is worth considering engaging these visitors to understand why they find your organisation relevant. 

These are just a few examples of how your website statistics can give you an insight into what people find interesting about you and help you to craft a much more effective online PR strategy that is based around starting conversations with people who are relevant to you and about topics they want to talk about.

Well after much umming and aarhing I am finally writing my first blog post. I could list a batch of excuses as to why it has taken me until now to start a blog, but that seems like a glass is half empty approach to a first post. So instead I thought I’d start with what this blog is all about.

With a love of maths at school (I know what a geek!), a degree in economics and a chartered accountancy qualification it will come as no surprise that I love numbers. I have done for as long as I can remember. I love them not in a static one dimensional way, but because, like words, numbers can tell stories and paint pictures.

When I was trying to come up with a title for this blog I wanted something that had some personal element, related to numbers in some way and set the scene for the things I want to talk about. Oh and the domain had to be available too! I thought and thought without too much luck until my beautiful wife, Rebecca, came up with an inspired suggestion – “Show me numbers”. The words come from one of my favourite TV shows, The West Wing. In the episode “Two Cathedrals” at the end of Season Two the President uses the phrase in a flashback when he is at school:

“If you want to convince me of something, show me numbers!”

The phrase highlights the (fictional – aah if only…) President’s desire for fact and measurement when making decisions rather than anecdote and opinion. This will be my aim with this blog. To try and provide analysis, quantification and evidence to base opinions on and I invite you to join the debate and provide your own evidence and show me, and the other one or two readers who may frequent this place, why apparent “fact” should be questioned.

For example, one topical area that I will be looking at is the economy, where I am frequently frustrated by the scarcity and/or superficiality of figures and analysis that we are presented with in such an area of complexity.

As someone whose company provides services to the PR industry I also intend to deal with perennial issues of measurement and analysis that relate to this industry and to online communications in particular.

Finally I want to try and present some data at times that will come as a surprise to any that visit so if you have any suggestions I am listening.