Return on Investment is a term you probably expect to hear in a finance course, but perhaps not in a course like ours. Yet it's incredibly important to understand this in terms of how it's going to help you achieve product market fit. We want to recognize that when you're deciding what features to develop, there are resources required for each and every one of them. You're going to have costs associated with labor, with equipment, with materials. The return is going to be the customer buying it, and you hope that the features you're building are going to be desirous and they're going to pay for it, but you've got to be thoughtful about, how much do those features matter? How do they compare to the competitors? Is the relative expense of what you're going to have to exert on building that feature, going to yield a return? Is a customer going to pay for that? The math on it is simply final value, what profit might you generate in year one, that you could attribute to that feature, minus the investment of what is going to be your total cost of building that feature. If you're expecting a $150,000 return that you can attribute and profit to the inclusion of that feature in year one, and it costs you a $100,000 to build it, you're at a 50 percent ROI. How does this look if you map it of return to investment? Well, let's take a look. Here, we've mapped investment on the x-axis on the bottom, our definition there by way of units is weeks of development time. Let's assume we have a team of three software developers. They're going to work on building the thing, for feature A, it took them a week to build feature A. For feature B took them three weeks, for features C and D took them four weeks, and for feature E took them six weeks. Now, it might have taken them longer to build, because it's in some way better. We don't know that, we don't notice more time building make it better, we just know that it may have been more complicated. To get a sense of whether it's valuable, we need to understand from the customer on what features matter to them and why and how do you prioritize those features? If we get some of that information from them, we can begin to map what features are worth building versus ones not worth building. Feature A, that took us one week to build it, the customer associated one as far as the value of that. If we wanted to prescribe a dollar value to that, the scenario here would be that it's probably going to be a money loser. One-to-one is a ratio of one, maybe it's break it even at best. For feature B, the value that the customers prescribed here was four. If our investment was three, 4 divided by 3 is a positive greater than one number, that's worth building. Let's go next to the four week investment ROI. Well, one of those features, feature C, customer told us the value was three, 3 divided by 4, less than 1, negative return, not worth building. For the other feature D, highly valued, and among the five elements that you see here, that was the most valued item that the customer told us about, the most valued feature, 6 divided by 4, positive number above one, build. For the last element, the return based on the customer's opinion of the value was five, took us six weeks to build it, 5 divided by 6, less than one, not worth doing. Again, simple example here, five features that we're considering, of the five, we're only going to build two. We're only building the two where the return divided by the investment was greater than one. ROI can also be measured beyond our values. So among the various programs that I manage is a Master's program. A masters program in technology entrepreneurship. How do we associate and measure the value of what we're doing and ROI of our business and our product lines. Well, it's a service, but it's also a service that we can measure incrementally how our investments are performing. We're interested in website visitors. We'll build some products and features for that. For example, in a scenarios such as this, we might develop some short online courses, we might develop some online seminars, we might do e-books and things like that, and we want to know, do those pay off for us? Is it worth? For example, with an e-book, putting together a short e-book, releasing it for free, and spending a little bit of money doing some marketing of that. Well, let's see how the impact might be, we could track number website visitors to download the book, that would give us a number. We can see how many requests for more information there is about our master's program, from the e-book downloaders that would give us a number, number of requesters. We could see how many people are coming to our masters information session. We can see how many people started an application for our masters program. We could see how many of the submitted were accepted? How many of the accepted enrolled and began paying tuition? We don't necessarily want to go down the path and say, I've got a product in mind, a suite of educational products I could do, like e-book, could be one of them, and I'm thinking about the e-book as a feature within our portfolio. Did the e-book equate to people that paid for tuition? Well, I could do that, but I could also go back and say, there are seven steps before paying tuition that the e-book could play a role in, and maybe I'm getting some added benefit in those areas as well. Again, simple example, just to give you a sense of how ROI might work for you and how you can use ROI as you're thinking about which features to build and which ones not to build.
