August 17, 2011

Assumptions Matter!

We take assumptions in two different directions.
  1. We assume, without facts, that various activities are important.  We believe that Social Media has a solid return on investment.  We believe that 93% of customers will buy everything on a 2" screen in 2012.
  2. When asked to quantify the return on investment of said activity, we refuse to do so without solid facts.  We demand that organizations be "data driven", but we refuse to make decisions without perfect data.
In other words, we have faith that certain activities work, but we lack the accountability to put a stake in the ground.

Let me show you how assumptions can be used.  Take this blog as an example.

There are approximately 2,500 subscribers to this blog.  I make the assumption that 20% of the audience is VP/CEO/President/Owner.  Yes, this is an assumption.  I have various ways of assuming who reads this blog.

Therefore, there are 500 Executives and 2,000 Non-Executives that follow the blog.

Each year, assume that 10 Executives who follow this blog hire me for a project.  Let's pretend that the average value of a project is $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).

Each year, assume that 200 of the Non-Executive audience purchases a book/booklet.  Let's pretend that the average value of a book, to me, is $2.00.  Also, about 1 Non-Executive hires me for a project, valued at $5,000 (that is not the actual figure for project value, by the way, it's used for illustrative purposes).

What is the value of a subscriber?
  • Value of an Executive = (10/500) * $5,000 = $100.00.
  • Value of a Non-Executive = (200/2,000) * $2.00 + (1/2,000) * $5,000 = $2.70.
  • Value of a Subscriber = 0.20*$100 + 0.80*$2.70 = $22.16.
Now, are my assumptions wrong?  Absolutely!!

Do the assumptions clearly articulate the value of each audience?  Absolutely!!

Do the assumptions help me understand what type of content I should write to have a successful business?  Absolutely!!  If I write page-view generating content that the social media or analytics community adores, I'll get subscribers that pay $2.70 per year, on average.  If I write CEO-based articles that attract an Executive audience (but do not attract re-tweets), I'll be able to pay my bills.

Did I just demonstrate the value of Social Media?  Absolutely!!

Assumptions Matter!  It's time to not be frightened.  We are able to make strategic inferences by making educated assumptions.