If you are still having trouble explaining or understanding the intricacies of social media R.O.I., chances are…
1. You are asking the wrong question.
Do you want to know what one of the worst questions dealing with the digital world is right now? This:
What is the ROI of Social Media?
I know. Coming from me, the guy who literally wrote the book on “Social Media R.O.I.” this might seem like a strange thing to say. But hear me out. It will all make sense in a few minutes.
It isn’t that the idea behind the question is wrong. It comes from the right place. It aims to answer 2 basic business questions: Why should I invest in this, (or rather, why should I invest in this rather than the other thing?), and what kind of financial benefit can I expect from it?
The problem, however, is that the question cannot be answered as asked. Social media in and of itself has no cookie-cutter ROI. It is an amalgam of channels, platforms and activities that can produce a broad range of returns (and often none at all). When you ask “what is the social media or ROI,” do you mean to have Facebook’s profit margins figure in the answer? Twitter’s? Youtube’s? Every affiliate marketing blog’s ROI thrown in as well?
The question is too broad. Too general. It is like asking what the ROI of email is. Or the ROI of digital marketing. What is the ROI of social media? I don’t know… what is the ROI of television?
2. To get the right answer, ask the right question.
The question, then, is not what is the ROI of social media, but rather what is the ROI of [insert activity here] in social media?
In fact, to ask the question properly, you have to also define the timeframe. For example: What was the ROI of [insert activity here] in social media for Q3 2011? That’s a legitimate ROI question that relates to social media.
What was the ROI of shifting 20% of our customer service resources from a traditional call center to twitter this past year?
What was the ROI of shifting 40% of our digital budget from traditional web to social media in 2011?
What was the ROI of our social media-driven raspberry gum awareness campaign in Q1?
These are proper ROI questions.
3. The unfortunate effect of asking the question incorrectly.
What is the ROI of social media? asks nothing and everything at once. It begs a response in the interrogative: Just how do you mean? In instances where either educational gaps or a lack of discipline prevail, the vagueness of the question leads to an interpretation of the term R.O.I., which has already led many a social media “expert” down a shady path of improvisation.
This is how ROI went from being a simple financial calculation of investment vs. gain from investment to becoming any number of made-up “formulae” mixing unrelated metrics into a mess of nonsense like this:
Social media ROI = [(tweets – followers) ÷ (comments x average monthly posts)] ÷ (Facebook shares x facebook likes) ÷ (mentions x channels used)
Huh?!
Equations like this are everywhere. Companies large and small have paid good money for the privilege of glimpsing them. Unfortunately, they are complete and utter bullshit. They measure nothing.
4. Pay attention and all the social media R.O.I. BS you have heard until now will evaporate in the next 90 seconds.
Don’t think of ROI as being medium-specific. Think of it as activity-specific.
Are you using social media to increase sales of your latest product? Then measure the ROI of that. How much are you spending on that activity? What KPIs apply to the outcomes being driven by that activity? What is the ratio of cost to gain for that activity? This, you can measure.
If you want to measure this across all media, do that. If you would rather focus only on your social media activity, go for it. It doesn’t really matter where you measure your cost to gain equation. Email, TV, print, mobile, social… it’s all the same. ROI is media-agnostic. Once you realize that your measurement should focus on the activity and the outcome(s), the medium becomes incidental.
That’s the basic principle. To scale that model to determine the ROI of the sum of an organization’s social media activities, put together an amalgam of ROI calculations for each desired outcome, each campaign driving it, and each particular type of activity within its scope. Can measuring all of that be complex? Yes. Can it require a lot of work? Yes. It’s up to you to figure out if it is worth the time and resources. If you have limited resources, you may decide to calculate the ROI of certain activities and not others. You’re the boss in this domain. But if you want to get a glimpse of what the process looks like, that’s it in its most basic form.
5. R.O.I. isn’t an afterthought.
Guess what: Acquiring Twitter followers and Facebook likes won’t drive a whole lot of anything unless you have a plan. In other words, if your social media activity doesn’t deliberately drive ROI, it probably won’t accidentally result in any.
6. R.O.I. isn’t always relevant.
Not all social media activity needs drive ROI: Technical support, accounts receivable, digital reputation management, digital crisis management, R&D, customer service… These types of functions are not always tied directly to financial KPIs.
This is an important point because it reveals something about the nature of the operational integration of social media within organizations: Social media isn’t simply a “community management” or a “content” play. Its value to an organization isn’t measured primarily in the obvious and overplayed likes, followers, retweets and clickthroughs, or even in impressions or estimated media value. Social media’s value to an organization, whether translated into financial terms (ROI) or not, is determined by its ability to influence specific outcomes. This could be anything from the acquisition of new transacting customers to an increase in positive recommendations, from an increase in buy rate for product x to a positive shift in sentiment for product y, or from a boost in customer satisfaction after a contact with a CSR to the attenuation of a PR crisis.
In other words, for an organization, the value of social media depends on two factors: the manner in which social media can be used to pursue a specific business objective, and the degree to which specific social media activity helped drive it. In instances where financial investment and financial gain are relevant KPIs, this can turn into ROI. In instances where financial gain is not a relevant outcome, ROI might not matter one bit.
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By the way, Social Media ROI – the book – doesn’t just talk about measurement and KPIs. It provides a handy framework with which businesses of all sizes can develop, build and manage social media programs. Check it out at www.smroi.net.
Click here to read a free chapter.
Brand Building and Online Marketing Blog 
Olivier,
It’s always good to re-emphasize what social media ROI is and how to actually ask the question, but don’t you think that, by poking fun at how people are asking the question, were are impacting how people in social media and social communications roles are being perceived? Gary Vaynerchuk responded to someone who formulated the question the “stupid” way, “What’s the ROI of your mom?” I think rather than attacking those who aren’t asking it correctly out of ignorance, let’s explain it as articulately as you, then wow clients that way — not wow them into the defensive.
I may be the wrong person to answer that question. (I poke fun at social media charlatans on a regular basis, so it might be a little hypocritical of me to throw stones relative to that topic.)
I was there during one of Gary’s rants and heard him ask the rhetorical “what’s the ROI of your mom.” To tell you the truth, I thought it was kind of funny, but that’s probably the smartass in me coming out. 😀
What Gary was channeling when he said that was the truly social aspect of Gary the social businessman. So… from the perspective of a community manager or digital CSR, he’s right: You can’t calculate the ROI of relationships or human bonds, nor should you. But from the perspective of a marketer or business manager, ROI is still a question that needs answering. What Gary missed in his reply was that although no one can calculate the ROI of their mom, they can calculate (or determine) the ROI of activities aimed at his mom insofar as they influence her purchasing decisions.
So… while his answer was correct from one perspective, it was also incomplete from a business perspective.
I guess the best way I can answer your question is this: I will never make fun of someone for asking the wrong question out of honest ignorance. I may, however, say something to someone who claims to be an expert and asks an amateur-level question. Thus it isn’t the question or the relative ignorance I might mock, but rather the extent to which an individual’s alleged “expertise” is completely fabricated. 😉
So yeah, I’m with you on that.
Olivier, thanks for the explanation. And… I think you’ll enjoy this — that is if you haven’t already seen it 😉
The ROI of your mom: http://www.flowtown.com/blog/what-is-the-roi-of-your-mom?display=wide
I love how you bring back the lost souls on the right track.
Will this be the last time we hear of lack of understanding of ROI, no. Because careers are made from that. ROI is just an misunderstood term that was a free for all concept, even before social media.
I hope more people (who should) read your articles!
It’s kind of like having people try to redefine the definition of revenue. I’m not sure how anyone who either doesn’t know this or does and purposely misdirects potential clients can be mistaken for a trustworthy professional, much less an expert.
“The question, then, is not what is the ROI of social media, but rather what is the ROI of [insert activity here] in social media?”
Bingo. We don’t try to measure the ROI of the phone, but we do measure whether or not the telesales team is generating good leads. Social media is just another layer in the communications fabric (albeit a powerful one). What matters is the value of the apps that ride on top of that layer.
I think people get stuck on this because we’re so early in the adoption cycle. So even if they’re thinking about specific business objectives, they don’t connect the medium to the applications. My view is that you address this with testing. I.e., identify applications that seem promising, plant a lot of seeds, learn, measure, refine and pick winners.
Exactly.
It’s amazing how clear things get when you start thinking about ROI in terms of how it’s used and to what ends. Once you get that, conventional business acumen steps in to pick up the slack. *click*
1. How do we want DSC (I’m not calling it social media anymore unless I absolutely have to) to impact our business?
2. How will we measure that impact?
Le ROI est mort, vive le ROI! 😛
Amen.
This was an excellent article for me as I am a new social media manager, and have a hard time (sometimes) explaining ROI to my clients. Thank you for the extreme clarity!! I really appreciate it!
Hey this was a good article. Im definitely not that great of a writer as you are but I guess we thought identically. Do check this post as to how I had intended to calculate ROI http://anikethdsouza.com/business/how-to-calculate-roi-on-social-media/
Let me know if we are thinking on the same lines and how I missed making the point in my blog post
good article , great blog.. thanks for share
Not the snappiest of them all, but this is my favorite post you’ve ever written. Printing it out even. Bravo, OB.
Here is my 2cents on all of them. It’s all about the Pee Pee 🙂
Twitter: I need to pee pee!
Facebook: I pee peed!
Foursquare: I’m pee peeing here!
Quora: Why am I pee peeing?
Youtube: Watch this pee pee!
LinkedIn: I pee pee well
New myspace: let’s dance while pee peeing!
Google+: Let’s all pee pee in a circle
http://awesomize.me : HOW AWESOME DO I PEE PEE on Twitter, FB, Foursquare, Quora, youtube, LinkedIn, myspace and Google+
Agree 95%, Olivier.
My one nit is: “In instances where financial gain is not a relevant outcome, ROI might not matter one bit.”
In any profit-seeking firm, financial gain is always the relevant outcome. The only reason it might be treated as irrelevant is because the outcome isn’t itself ROI-estimated. So you might count positive reviews as an outcome outside of ROI, but this is only temporary until you’ve estimated the link between reviews and your funnel.
Yes, it’s an art determining these links. And, yes, estimating an unknown quantity as zero is never the right estimate.
I enjoyed this post. Well done!
Hi Olivier,
This i my first time finally stopping and taking the time to comment and introduce myself.
Funny, I was thinking of Gary Vee’s comment about his mom as well when I read this. I think you do a great job here of explaining what can be quite a gray area as everyone figures out how to measure this consistently. Thank you!
Nice post as always Oliver. On the opening bit of your point 6, I think ROI for investment in social still does (or can, at least) apply when it comes to cost-center activities like tech support and customer service. In a number of large organizations I know of, the social investment driven out of the service and support teams are measured against their ability to reduce the cost to service a customer, or address a query.
In Microsoft for years, starting way back in the early ’90s when product support online was largely handled via Usenet group support, and continuing on today, investments in social (mostly just termed “community”) have been judged against a goal of reducing the volume of inbound calls (“call deflection”). If you can answer a question via posting an FAQ link via a tweet, and that translates into some # of people not picking up the phone to call in for help, then you can measure the ROI of the resources invested in that Twitter engagement.
All of which reinforces your core point, of course. The ROI isn’t so much about the social media activity, but in the allocation of support team resources to handle questions via a specific channel.
Again, good post, thanks for the read.
Oliver-
Thanks for the great post! This article provides much needed clarity on the intricacies of ROI from social media. To really understand how your social media is working for you, you have to look at the results from your activities within the various channels. However, I’m in agreement with Kevin and Peter in that even if there are not specific financial transactions tied to the activities, they still have effects on the financial success of your brand, be it through customer service, brand reputation, etc.
That being said, the best way to gauge the ROI of all of these activities is through monitoring and measurement. Once a brand has established the most relevant KPIs for their brand, they can turn to social media monitoring software to gain actionable analytics and insights on how to improve the efficacy of their social media actions. If you are interested in how social media monitoring can help to determine ROI, you should check out the white paper published by MutualMind on the topic: http://bit.ly/mmproi
Thanks again for the great post!
Danielle Latta
Brand Evangelist @MutualMind
Hi Oliver! I see your commenting system already picked up the post we just released earlier (nice system, I’m curious what you use!). But, we wanted to tell you how this article in particular did give us a load of clarity of social media ROI.
In this post, we’re talking more about the qualitative part of ROI, but next week we’ll be talking about quantitative – I think a little more up your alley. We’ll keep you posted!
Mahalo for your inspiration!
http://wahinemedia.com/2011/08/the-roi-of-social-media/
Turns out someone has measured the ROI of your mom! http://www.flowtown.com/blog/what-is-the-roi-of-your-mom