Don’t want to read the post? Watch the video. (It’s faster.) Note: That last little part got cut a little short, but you’ll get the point.

Okay, so it became obvious to me last week that the term R.O.I. has been seriously corrupted in Marketing and Social Media circles lately, and it might not hurt to bring some clarity to the Social Media R.O.I. discussion again.

(I swear I was going to talk about other things this week, but I keep getting pulled back in.) πŸ˜€

First things first: You have to understand the difference between Impact and Return On Investment.

Impact can be anything: Increased traffic on a website, more visitors to your store, increased participation on your blog, more mind share, being discovered by people who may become customers, a rise in positive social mention, and even increased sales. There are hundreds if not thousands of potential incidences of impact when it comes to your Social Media activities, and every single one can be easily measured using a variety of tools – from Google Analytics to Radian 6. As a matter of fact, every possible kind of impact you deem relevant should be measured and taken into account when it comes to gauging the effectiveness of a Social Media program. In this, we are all in agreement.

Impact can be measured in eyeballs. Impact can be measured in comments on a blog post. Impact may be measured in conversations. Impact can be measured in responses to a BOGO offer or discount offer. Impact can even be measured in smiles.Β  When it comes to impact metrics, the sky is the limit and every business has its own mapping to figure out and play with.

But then you have ROI, which is a completely different animal: ROI is a very specific subset of Impact in that it relates specifically to the business’ bottom-line. In other words, Return on Investment cannot be measured in eyeballs, unique visitors, conversations, mentions, impressions or smiles. ROI can only be measured in currency. (Think of ROI as the subset of impact that specifically addresses revenue and nothing else.)

There is no “Return on Impact”.

There is no “Return on awesomeness.”

For the sake of this discussion, there is no “Return on conversations” either.

These things are cool, they’re fun to tweet about, but they don’t exist in the world of revenue, payroll and pragmatic business decisions. “Return on investment” is simply that: A business commits a certain dollar amount to a program and expects to see that program produce just like any other investment. If it doesn’t, it gets cut and a program that will produce better R.O.I. will take its place faster than you can say “huh?”. It’s that simple.

Some businesses are okay with cost-neutral investments: If they put in $100K and get $100K back as a direct result, you’re fine. The program has paid for itself, and the collateral impact was worth it. (More visibility, more conversation, more word-of-mouth, etc.) But many don’t. When I was learning FRY from Microsoft, their R.O.I. expectations for any program they funded in their distribution channel was 10:1. In other words, for each dollar Microsoft invested, they expected to see $10 back.

Trust me: In that kind of environment, you learn how to define and calculate ROI pretty quickly. And while eyeballs, unique visitors and social mention are nice, they don’t fall into the realm of ROI. Nice try, but no dice.

All of this to say that no business will invest in a program that offers a negative return on investment. Conversations, transparency and positive WOM may be the currency of choice for many of us, but unless you can show that they generate dollars, you are not demonstrating ROI. You are only demonstrating impact, and that is not enough.

What everyone needs to start realizing right now is that the business world is not going to change in just a few months just because a few thousand of us evangelize the immense potential of the social web. Business managers are not going to change anything they are doing because you have introduced them to transparency or dialogue or the power of communities. PR directors are not going to suddenly going to stop crafting press releases or relinquish control of the “messaging” they get paid to create. CEOs aren’t going to drop what they are doing and start blogging because you tell them to. CMOs aren’t going to fire their copywriters and replace them with community managers. Customer Service managers are not going to cancel their call center contracts with India and the Philipines and hire US-based Tweeps to replace them. None of these things are going to happen UNTIL you show business owners that Social Media can actually improve their bottom-line, their balance sheet, their P&L, and how.

This starts with a basic understanding of what ROI is and isn’t: If you don’t understand what your client or boss is asking for when s/he brings up ROI, you cannot help them. If they repeatedly ask you for ROI and you keep giving them impact on X instead, how disconnected are you? Think about that.

If you can’t give them what they want, if they don’t get what they keep asking you for, before you know it, they will give up on your Social Media program. And all because you didn’t know how to connect the dots between activity, impact, and ROI.

Likewise, if you are a business manager and your resident Social Media consultant/expert doesn’t understand the difference between impact on X and ROI, it’s probaly time for a new expert.

One last thing:

Anyone who tells you that Social Media ROI cannot be calculated, that the tools don’t exist yet, or that Social Media is about conversations and not ROI is putting up a smoke screen. What they should be saying is “I don’t know how to do that yet,” but it’s a lot easier to perpetuate the myth that Social Media ROI cannot be calculated – for obvious reasons. It’s a terribly self serving and counterproductive thing to do, and “professionals” in the Social Media world need to stop hiding behind that argument before business leaders looking for real traction give up on Social Media altogether. At some point, all that hot air has to actually turn into something real.

The irony in all this is that the ROI calculation process is the same regardless of the medium: Old Media, New Media, Print media, Digital media – The medium doesn’t matter. ROI is ROI. Anyone who talks about Social Media ROI as being somehow radically different from other types of ROI is demonstrating a profound lack of understanding of ROI as a whole. Red flag. BIG red flag. Learn to spot it.

I hope this helped reframe the ROI vs. impact conversation a bit. If so, do me a big favor and pass this on to someone who will get some value out of it. The faster we help people use the right terminology when talking about this stuff (and dispel myths about ROI measurement), the more likely we are to see broad Social Media adoption for business actually happen (and be done well).

Thanks for hanging out with me, and have a great day. πŸ™‚