If you are still having trouble explaining or understanding the intricacies of social media R.O.I., chances are that…
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 is that the question can’t be answered as asked: Social media in and of itself has no cookie-cutter ROI. The social space 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?
You’ve been asking the wrong question.
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?
To ask the question properly, you have to also define the timeframe. Here’s an example:
What was the ROI of [insert activity here] in social media for Q3 2011?
That is a legitimate ROI question that relates to social media. Here are a few more:
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 equations 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) x engagement
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. Their aim is to confuse and extract legal tender from unsuspecting clients, nothing more. Don’t fall for it.
4. Pay attention and all the social media R.O.I. BS you have heard until now will evaporate in the next 90 seconds.
In case you missed it earlier, 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. Stop here. Take it all in. Grab a pencil and a sheet of paper and work it out.
Once you grasp this, try something bigger. If you want to measure the ROI of specific activities 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 relationship between the activity and the outcome(s), the medium becomes a detail. ROI is ROI, regardless of the channel or the technology or the platform.
That’s the basic principle. To scale that model and determine the ROI of the sum of an organization’s social media activities, take your ROI calculations for each desired outcome, each campaign driving these outcomes, and each particular type of activity within their scope, then add them all up. Can measuring all of that be complex? You bet. Does 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. 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.
This is pretty key. Don’t just measure a bunch of crap after the fact to see if any metrics jumped during the last measurement period. Think about what you will want to measure ahead of time, what metrics you will be looking to influence. Think more along the lines of business-relevant metrics than social media metrics like “likes” and “follows,” which don’t really tell you a whole lot.
6. R.O.I. isn’t always relevant.
Repeat after me: Not all social media activity needs to 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. Don’t force them into that box.
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” function 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:
1. The manner in which social media can be used to pursue a specific business objective.
2. The degree to which specific social media activity helped drive that objective.
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.
* * *
By the way, Social Media ROI – the book – doesn’t just talk about measurement and KPIs. It provides a simple framework with which businesses of all sizes can develop, build and manage social media programs in partnership with digital agencies or all on their own. Check it out at www.smroi.net, or look for it at fine bookstores everywhere.
Click here to read a free chapter.
Brand Building and Online Marketing Blog 
Very reasonable breakdown — and love the cross-platform perspective.
Thanks. 🙂
Olivier,
Excellent every time I get a better way to explain this to my clients. The factor that Activity and Time Frame need to be measured is one factor many forget.
Tomorrow I am going to be talking I am going to be talking to bunch of ex-colleagues in the IT Security field on aligning Corporate Governance to Social Media. I will be using your book as reference to get some points across. But the funniest thing I found out yesterday the speaker before me has no presence in Social Media and is kind of trying to talk about the same subject as I am.
I am going to keep my hopes high but I can surely bet he will use one of those strange fractions.
The biggest problem is that many individuals can interact online but probably haver never run the business side. So they measure whatever they understand even if it has nothing to do with ROI.
I just ran into a book on social business at the Las Vegas airport written by a social media “expert” I have NEVER heard of. Over 40 of her 180-some pages book were devoted to “acknowledging” her 35,000 followers.
I’m not kidding: Over 40 pages in her 180 page book was a list of twitter accounts.
The rest was an amalgam of anecdotes passing for “case studies”. Her ROI piece was absolutely ludicrous. But you know what? Every business traveler who picks up that book probably thinks “Yipee! Case studies and ROI stuff!!!” Next thing you know, she’s the expert in the eyes of hundreds of businesses. Wow, 35,000 followers! She’s written a book! She knows all these case studies. We should hire her on as a consultant.
They won’t stop showing up and getting in the way of the real thing just because they’re incompetent or ignorant. I think that’s pretty clear. 😀
Hang in there and do what you do. The smart clients will be able to tell the difference.
Clarity is good. Thanks for your ongoing mission to call BS when you see it and clear the air with good info. My fave line: “don’t think of ROI as being medium-specific. Think of it as activity-specific.” Preach it, brother.
🙂
People (Americans in particular) are great at providing answers. Far too often, though, we suck at framing questions.
Nice post.
K
Thanks, Kevin.
ROI is activity-specific, not medium specific. My “aha!” moment of the day — thank you!
If I could get everyone to understand just that, we’d be in good shape.
Man, I love reading this stuff. It just makes so much sense. It seems a good response to the SMROI question might be, “What do you want to do with it?”
What’s more, the focus on business objectives implies a need to use social media activities to drive those objectives. It’s easy to get more traffic to a Facebook page, but driving that traffic elsewhere – to sign up, make a purchase, refer a friend, et al. – takes real finesse.
Just another reason why your book kicks ass, Olivier. More than a clear, easy-to-understand way to calculate ROI, it paints the larger picture of how to integrate social media across the organization, and inspires ideas on how to use these tools to accomplish all manner of business objectives.
And this is all coming from a greasemonkey. 🙂
See the field, brother. See the field. 😉
I love it. ROI is calculated at the programatic level, not the strategic level. Great post OB.
Exactly.
Brilliant post as usual!
One analogy I have tried to use with clients is comparing social media to using the telephone internally. There is customer support, inbound sales, outbound sales, call centers set up for specific promotions. You can’t lump all telephone usage into one category for calculating ROI. It just doesn’t work. But you can break it down and track where tracking actually matters.
There you go. Exactly.
I continue to look at the case studies offered up by those who either don’t think that a formal ROI process can exist in social media or that think SMROI is about fans, likes and followers. They are rarely profitable efforts – and those that are don’t understand how they made money in the first place, which kind of begs the question. So what’s their motivation for engaging in such activities? No one has been able to tell me other than “it’s good for business”, to which I counter two ways, “How do you know?” and “Prove it”.
I love this post, as usual.
Thanks, brother.
Great post. I think that getting more specific on the question of what you are measuring is great, but I think that you should also be more generic on how you measure it. I always assume that ROI is going to results in some mathematical formula that will result in a hard dollar return for the dollars invested. Instead of ROI, I’d go with ‘return’. What kind of return will you expect to see from a certain activity. They may not all be quantifiable in hard dollars, and they don’t always need to be. So, while you would have to update the sleeve for your book, I’m sure that there is a return to be had 😉
Financial impact vs every kind of impact, sure. But here, the focus is on ROI specifically to allow companies to be able to differentiate between financial returns and non-financial impact.
The more generic you get with measurement and the more vague your measurement becomes. That’s counterproductive. You can measure a lot of different things, but that’s an amalgam of very specific measurements and metrics. The measurement can’t be more generic. It has to be specific. Otherwise, you’re just guestimating.
I agree with you though, that ROI is a very specific and limited focus. Companies need to consider a lot of additional metrics/KPIs that make sense to what they are trying to accomplish.
Cheers.
Brilliant! I’m going to post this in the offices of everyone in my social media department. I also wish I could hand this to certain clients and help them get a better understanding of what they should be expecting when beginning a new campaign. ROI is not rocket science. It’s not even a mathematical formula. You summed it up perfectly.
“What was the ROI of [insert activity here] in social media for Q3 2011?”
It doesn’t get any better than that!
Print it and do it.
Hell, better yet, buy them the book. 😉
Thank you again for providing clear, informative information that I can take with me and actually use in application with clients. Favorite line:
“4. Pay attention and all the social media R.O.I. BS you have heard until now will evaporate in the next 90 seconds.”
🙂 Did it evaporate?
Excellent article. I work in this field and have seen so many people get taken advantage of because they do not understand how social media should work for their business. Too many are viewing it as traditional advertising, which it is not. Sad to say, there are still a LOT of black hat operations out there that rely on confusing the clients and then charging them thousands per month just for some lukewarm, cookie cutter content.
Thanks for clearing things up.
It’s why I do what I do, man. Thanks for the comment. 🙂
I just came across you from a doc on Scribd – great posts, sound insights – looking forward to following!!
I’ll try not to disappoint. 🙂
Great post makes perfect sense when you break it down can’t wait to read the book…
When you do, let me know what you think. 🙂
nice article, nice thought
Your book is the next one I’m going to buy, fyi. It was going to be a read for over my vacation but you were bumped by Abraham Lincoln. That’s not too bad though, right? 🙂
ROI is perhaps the single most misunderstood term in the online world, and I think you laid that out pretty well here. The biggest concern I have is for those who equate followers or “likes” to ROI. It may be an ROI of sorts, but if businesses want to succeed whilst using Social Media as a tool, talking money would probably help a great deal. According to several experts I’ve talked to, businesses like money.
Great post, sir!
I’ll play second fiddle to Abe any day. 🙂
Loved the line “What is the ROI on email?” I guess the bottom line is it has to be measurable.
I agree with you, Janet. I think that for many people in the corporate world who aren’t as familiar with social media and how ROI relates, framing the question like that will help them understand better than talking Twitter and Facebook.
Olivier, I enjoyed reading your book and this post! Thank you!
Great points! This was refreshing to read. Thanks for sharing…
Olivier,
THANK YOU! I’m a fifty-something publishing CEO, now also, thanks to client requests, a fifty-something marketing CEO, and I’ve had to rely on my twenty-something ‘Social-gurus’ to tell me why Social should matter to our clients. They’re great folks, but at twenty-something, maybe they don’t know themselves why Social should matter in a business context. I’ve been haunted by that old question, “What’s the ROI of Social Media”. You’ve helped clarify what should have been obvious to an oldster like me all along. The real question is “What’s the ROI of anything?” Social is just another tool in the box; it’s the goals of the business that drives what tools you’re to use and how to use them.
I am so looking forward to reading the book – I and my twenty-somethings will be serving our clients from a more enlightened perspective … one I understand.
Thanks,
Nice topic…you may be interested to know about Social India Conference 2011 in Bangalore,India which is organized by Akshay Patra Foundation to raise funds for a non-profit cause. The event brings together world’s well known social media speakers at the event…visit
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Reading your book in Dr. Simmons class at UNR, great book and great article.
Awesome. Thanks, Adam.
thanks, very informative. ROI is an interesting topic as not a lot of businesses can figure it out. The reason – they are calculating the wrong things.
This is your SM ROI explanation? Yikes!
Okay company management, want Social Media Marketing ROI? Nope. None for you. “Okay, keep up the good work Smothers.”
Your writing sounds very expert-like. But, for example, your argument that measuring SM marketing results is just like measuring results (aka ROI) from other, traditional (100 year old) marketing channels is surprisingly wrong.
And this is all really difficult to explain to the masses and to management. (???) That’s misleading at best.
– Specific email campaign? Splash/specific campaign page on website + assign code + Google Analytics (for fun) and count sales.
– Specific TV campaign? Assign a code, count sales.
– Specific newspaper campaign? Assign a code, count sales.
Etc.
Identifying campaign results isn’t difficult (for the last 100 years).
Sorting activities and channels within a company’s SM marketing efforts and reporting ROI information can be (and is) done by professionals who like paychecks. People with no or byzantine answers haven’t learned how to remain on the payroll. Except you apparently. Yikes! pt. II
Real world:
For the most part, company management have shareholders to answer to. For instance, “No ROI data? How much does that SM marketing director (or consultant) cost us again. And the director’s staff and activities? Hmm.”
These aren’t people in their twenties and thirties. They barely know how traditional media should be maximized (and, okay, measured) for ROI.
Sooner or later the need for ROI answers are going to bubble up and be answered. Good SM people will have answers that don’t require a 100 page report and translator when sitting around the table with management.
Most management personalities require very good and fairly short answers to kick a conversation off with a SM marketing director or consultant. Especially when fairly good-sized chunks of capital are involved. The ones that like their jobs anyway.
Hey SM directors. Find better answers than in this article’s argument in order to sell the boss on your existence in the company directory.
Please strike Murray Taylor’s comment 🙂
(mtwhere@gmail.com)
Moderate the hell out of it to the point of non-existance (unless you can go further than that).
He is too red-faced to explain his too-quick conversation with a friend and got your post WRONG in which alleged friend argued the wrong side and tricked me…I mean Murray into a hair-trigger response…and that’s all the excuse I’ve got…for that Murray guy.
Sorry…
I’ll creep back to the underside of my rock now…and join Murray.
This may be the most bizarre comment thread I’ve had in the history of this blog. Thanks for that, Murray #1 and Murray #2. 😀
Thank you very much for publishing the initial post AND second post…especially after my request to “moderate” the first to oblivion.
Apparently entertainment (for all) won the day,
Class isn’t always an expert’s first choice and I understand that asking doesn’t always result in receiving but I’m glad you and I are breaking new ground… in that you found my mis-guided post and mea culpa worthy of sharing.
Faithfully yours,
Both Murray and I
It’s scary to think about how much misinformation there is on social media ROI and measurement. I am currently in the beginning stages of researching how organizations measure their social media tactics. This article was helpful in outlining some of the typical pitfalls when social media is first introduced into an organization’s measurements.
My question is: where can I find some examples of proper social media ROI measurement in action? I am a student and I would like to see how some of this advice looks when applied.
@wants_a_unicorn
Figure out which social media sites your audience uses the most and then set up accounts on each. Use a survey or poll on your website to find out where your viewers like to hang out, that way you’re not wasting your time on websites that won’t be driving traffic to your site. Make sure to post regularly to keep people reading your feeds.
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ROI is imperative to any business which considers social media seriously