Time to bring this post back for a second round.
This post is the continuation of a discussion started on Marketing Profs’ LinkedIn group on July 7th. (If you don’t yet subscribe to the group, consider becoming a part of it.)
Today’s video is actually two videos in one:
The first half (Part 6 of our Social Media ROI series) deals with defining ROI once and for all.
The second half (Part 7 of our Social Media ROI series) starts touching on the “how” of calculating the ROI of Social Media by outlining the investment-action-reaction-impact-return narrative.
If the video doesn’t load for you, you can go watch it here.
Let me start today’s post with a confession: Like many people in the business world, I have abused the term “ROI” from time to time. Yes, I admit it, even I have used “ROI” as a relative term on a number of occasions in the past. I’m not proud of it, but there it is.
Here are some examples of what I am talking about:
- Q: What’s the ROI of adding 100 miles to my weekly cycling training?
- A: Faster race times.
- Q: What’s the ROI of writing better blog posts?
- A: More traffic on my blog.
It’s easy to do, especially since sometimes, what you invest into something isn’t necessarily $$$. Perhaps you invested sweat. Perhaps you invested time. Perhaps you invested emotions. It doesn’t really matter. The point is that when the currency is variable, how you measure the “I” in ROI becomes variable as well. For lack of a better term, you start to refer to any kind of positive outcome as “ROI” even when you shouldn’t. It’s an easy habit to fall into, and if you aren’t careful, your definition of ROI can begin to get a little fuzzy. So I get it: I understand why this is confusing to so many folks, especially when it gets thrown into the world of Social Media.
But I’ve also spent enough time with executives (on the client side) to know that when THEY talk about ROI, the currency is NOT relative. In business terms, the currency implied in any ROI question or discussion is cold hard cash. Period.
Marketing professionals need to understand this: If the investment (the “I”) is $$$, then the return also has to be $$$. It can’t be eyeballs or impressions or clickthroughs. You have to tie your results to a $ amount. Anything short of that, and you’re not proving your value to your boss or client.
It isn’t to say that eyeballs, impressions and clickthroughs aren’t important. They are. But they’re one link (of the action-reaction-outcome narrative) shy of ROI. (They don’t tie the investment to the actual return.)
The best way to explain that narrative is this way:
$ Investment by company –> Action –> Reaction –> Non-financial impact –> Financial impact $
As explained above in the video, the relationship between a company’s investment and the return on that investment pretty much looks like this:
What happens between the investment and the financial impact (the return on that investment) is VERY important. And we’ll talk about the importance of monitoring and measuring it in order to tie the investment to the associated financial impact (and ROI) in future posts. But for now, I want to focus on the fact that eyeballs, impressions, positive WOM and social mention, even click-throughs and net new visits to websites do not constitute relevant currency when we are talking about ROI. Social media is no different here than any other business endeavor in this regard.
Impressions, eyeballs, net new visitors, etc. are forms of non-financial impact. In order to determine ROI, you have to take them to the next step: How they affect financial impact. THEN and only then can you tie the original investment to the return (financial impact/outcome).
I know that bringing “media” measurement into the ROI equation is tempting , especially for folks with agency or media measurement backgrounds. That’s what the model has been for PR, Advertising and other marketing-specific firms for decades. And again media measurement is vital here, but when it comes to calculating ROI, that type of measurement is a lot like calculating a crop’s yield by estimating how many of X number of planted seeds will germinate come harvest time. It doesn’t work that way. You have to roll up your sleeves come harvest time *and physically count what the actual yield is. You actually have to do the work. ROI isn’t about potential. It’s about actual performance.
(*Luckily there is no seasonal constraint like a “harvest” in the business world, so ROI measurement – like most performance measurement – can be continuous.)
In order to adequately determine ROI, you must first understand how all the pieces fit. You have to see the entire equation, from start to finish. There is an order to how things happen, how, and why. You have to see how A leads to B leads to C in order to understand how an investment turns into a success or a failure, and to what degree. You also have to understand that the value of a pair of eyeballs, of an impression, is subjective until that pair of eyeballs actually does something. Then the body attached to that pair of eyeballs becomes one of three things: A browser, an influencer or a transacting customer. The first two don’t actualize a financial impact (yet). The third does. That’s where we want to focus when dealing with ROI.
Though we can infer and assign an estimated $ value to browsers and influencers, these values are subjective at best , usually measured in hindsight, and subject to change at any moment for any reason. So their value still falls into the category of non-actualized potential for now. (We will look at the financial impact of influencers in an upcoming post. No worries.) For the purpose of ROI calculation, however, you want to work with cold hard numbers. Not estimates, not potential, not yet-to-happen transactions, but “actualized dollars.” Real revenue from actual sales. Financial returns you can take to the bank and tie step by step through the above chain back to the initial investment.
(Incidentally, financial impact (ROI) manifests itself either as increased revenue or cost savings. Sometimes, ROI is revenue-neutral but cut costs internally. The model I just described above applies ti revenue-generated ROI.)
All of this to say that we have to be VERY careful not to a) mistake non-financial impact with ROI, and b) not to try and redefine “ROI” when dealing with business execs. (They won’t buy into “Return on Influence” or “Return on Interest” for very long, and anyone using these terms runs the risk of losing credibility with pragmatic decision makers in the C-suite.) Social Media is fun, but this is not a game. If a client doesn’t ask about ROI, great! Awesome. They probably get how Social Media is going to help them build relationships with customers and improve everything about their business. So to them, ROI is implied. It’s understood. It isn’t something they are going to worry about anytime soon. But when a client DOES ask about ROI, you have to a) understand what they are asking, and b) know how to adequately answer their questions and put measurement systems in place that will suit their needs and particular culture.
I hope this was helpful. Next, we’ll talk about the importance of timelines in the ROI determination process. (The next piece of the puzzle.)
By the way, if the video didn’t load properly for you or if you are accessing this post from a mobile device, you can go watch the video here (thanks Viddler).
Very interesting! A great point is that the Return is actual money in the bank, not estimates.
Your separation of Investment –> Return ($) and what’s inbetween of non-cash actions/reactions is a solid concept.
Thanks for sharing!
Exactly: ROI is neither subjective nor open to interpretation.
1. ROI is expressed in the same currency from the investment to the return. In other words, if you invest money, your return can’t be calculated in hugs or eyeballs. Impact, effect, outcome – you can measure in anything you want – sure. But not ROI. For ROI to be ROI, the currency has to be the same for the I and the R.
2. ROI manifests itself in the P&L. Period.
3. ROI manifests itself either as a cost savings or as revenue (or both): In the first instance, you can use Social Media to improve the efficiency of a department, for example, or of a campaign or program. In that context, it becomes an opportunity cost equation. In the second instance, ROI is calculated based on the revenue you can attribute to having a social media program.
To be fair, the cost savings piece is a lot easier to calculate – and prove – than the revenue piece. The latter is very hard work.
Thanks for the comment. :)
[…] This post was mentioned on Twitter by Peter Ulstrup Hansen and nancyrubin, tundro. tundro said: Defining social media R.O.I. once and for all http://ow.ly/KfmU […]
Olivier – this post was amazingly helpful and thank you for writing it and taking the time to explain it so clearly in the video. I have to admit, coming from the PR agency side I’ve always tried to tie it back to actual dollars earned but found a lot of my clients were not good about setting up systems so we could track our efforts all the way through the transaction – we could correlate trends in that area, but never get down to the actual penny. I think it might be that difficulty that you are referring to in your comment above. Often when we fell short on data though we used all that fuzzy middle stuff to answer the ROI questions which appeased our clients but never really worked and it’s clear why now.
I’m definitely going to be using your straightforward explanation (with credit to you of course!) of why it’s so critical we think all they way through from investment to transaction so that we can truly report ROI.
Again, thank you.
Hi Rebecca!
Thanks for the comment. I know exactly where you’re coming from: Typically, PR firms and ad agencies don’t have access to their clients’ business metrics – and frankly, the measurement process is split almost on purpose. The only way to make this work properly is to combine media and business metrics. Agencies and clients need to do this work together. Agencies need to understand the impact of their activities on the client’s bottom-line, and likewise, clients need to be able to tie their agencies’ activities to their bottom-line.
1. this will quantify the true value of what one agency does, vs. another.
2. That level of collaboration should cement stronger relationships between agencies and clients.
3. This level of integrated measurement and analysis will allow clients and agencies to understands exactly what works, what doesn’t, and how to tweak the system to make it work better – month after month after month. This kind of feedback is pure gold.
Cheers.
Great post…thanks for sharing.
Only issue is……most times there are many activities that contribute “increased revenue”. Company X invests in billboards, TV ads, Radio spots, direct mail & email, AND Social Media which altogether leads to successful product launch. So it’s a mix.
Many of our clients (Alterian SM2) ask “Whats the ROI on my social media marketing/monitoring project”. My response is 1) almost nothing is done in a vacuum, and 2) that it has to be part of the overall mix and evaluated as part of that mix. So the goal of any of the activities can be increased eye balls or click throughs as these contribute together to the output “increased revenue”.
So I would say your chart has many inputs on the investment side and only one output. It is NOT one to one.
Yes and no.
First, “what’s the ROI of a monitoring project” is probably the wrong question to ask. It’s kind of like asking for the ROI of market research. Until you do something with that information and turn it into either a cost savings or revenue, it isn’t an ROI question. I guess you could look at it as the opportunity cost of monitoring vs. some other form of B.I., but I don’t think that’s how the question was asked. So I wouldn’t really sweat that. Reframe that conversation by asking the client what they want to accomplish. What would constitute success in this instance. What value monitoring brings to their organization or program or process.
More often than not, people will use the term “ROI” when what they really mean is “value.”
Second, yes: Very little happens in a vacuum. There’s really no way around that. That’s why establishing baselines is really important. If you capture key metrics for the business for the last, say, 5 years, then map their activities (advertising, marketing campaigns, product launches, et.) You can map out how the business is doing and what it is doing. Step 1. Step 2 is to look at industry trending, and map how the company’s metrics compare. So now you can put the company’s trending in context. For the sake of this example, let’s say that the industry is growing at a steady 14% YoY, and your client is growing at 12% YoY. Let’s say that this trend has been pretty consistent.
Now you add a social media program to the equation, in the form of a community manager, a twitter presence for customer service, and an integrated marketing plan that will make fuller use of social media. Okay? Nothing revolutionary here.
Assuming they do this well, you come back a year later, compare your current metrics with your baseline metrics, and find that a) the volume of brand mentions have increased by 700% YoY. b) The percentage of positive mention has increased from 58% to 89%. c) Their net new customer count has increased by 28% (vs. a steady 15% YoY for the last 5 years). d) Their net transactions have increased by 37% YoY (vs. the usual 18%). e) Finally, their YoY growth in terms of $ sales is 19%.
So already, based on trending alone, you can see that something is going on. And we’re just skimming the surface, right? We haven’t really tried to dive into deeper metrics.
Now compare those numbers not only to the company’s trending, but the industry’s for the same period. Currently, since most companies really haven’t sorted out how to do this, you can have a first mover advantage and see more radical deltas. So let’s say they industry’s YoY growth has remained at 14%. Your client was typically trending at 12% is now at 19%. Not just a jump in regards to its usual number, but also a jump compared to the rest of the industry.
And the only thing the client did differently this year is that they’ve integrated some social media programs into their mix.
See how it works? (Of course, this is an overly simplified example, but you get the drift.)
And third, you always have the option of seeding channel-specific promos and promo codes across a variety of channels: Print, website, TV, radio, FB, Twitter, etc. and see which promos and promo codes come back with actual transactions. This can give you direct (and quick) feedback as to what channels are producing transactions and in what ratio. DELL does this, and they can tell you exactly what percentage of their online sales comes directly from Twitter.
All of this is hard work and it isn’t always exact, but you can get pretty close.
Cheers, Jim. Thanks for the comment. I hope this helped. :)
You would have writhed at the conversation I heard on Charlotte talk radio this morning. Host Mike Collins asked local transit officials which cost more to the city, transporting a rider via light rail or via bus. They didn’t know…didn’t really understand the question.
Understanding ROI — any financial figure, really — is difficult for most people who aren’t CEOs or accountants. That’s not an excuse, just an unfortunate reality.
Careless use of the term will continue (despite your noble efforts to educate) because those misusing the term are often talking to an audience that doesn’t really understand it either. ..often other communication professionals.
I hear ya. That’s pretty scary. Those transit officials should probably go get certified in something. (Kidding!)
I’m not an accountant or a CEO, yet I get it, right? Any manager in charge of a P&L should be able to grasp this, and that should constitute a pretty significant number of people. I don’t know… I have a tough time understanding why this is so difficult for so many folks who should already be fluent in this sort of thing. Know what I mean? Understanding how to (at least in theory) balance cost, revenue, profit and loss isn’t that difficult, right?
Oy vey, the blind leading the blind.
Thanks for the astute observation, Scott.
Thanks Olivier- telling it like it is!
Unless I go into a strategy meeting with the type of ROI you mention – COLD HARD CASH – then I would get very little backing.
On the other hand, I am convinced, if done right Social Media can achieve the ‘R’eturn.
Many of the projects I push for aren’t cash investments – they are actually time investments but I still need to prove the COLD HARD CASH return to justify the time outlay.
Sometimes, ROI doesn’t even come up and that’s fine. But it eventually does. Companies look to cut costs everywhere they can. If you don’t understand your value to the business (and can’t demonstrate it in business terms), you run the rist of seeing your program eliminated or your budget cut. So in that sense, beyond the “pitch,” understanding this and being able to demonstrate ROI is a good survival mechanism as well.
”And the only thing the client did differently this year is that they’ve integrated some social media programs into their mix”
This is based on the hypothesis that the only thing different from last year is the integration of social media programme
In real life however,you know it better Olivier, things are very difficult with social media roi,that is for me because
1)the market itself changes and you have to consider internal changes that affect the Performance of the company ( and how easy are these changes to be calculated when you think of the roi?)
2)A Typical company uses many marketing channels,this is one basic problem,to isolate the social media performance from the other channels
Apart from this i want to ask you
<>
you had said that not,and that’s a soft goal .On the other hand,there are some brands lke media sites or brands that are now being introduced to the market that do not have the goal of revenue increase or cost reduction for the time being
what about them?
To address your first point, actually, no: Every business I’ve worked with so far has done the exact same things and used the exact same channels year after year for at least five years (often far longer than that). The campaigns may change from year to year, but it’s the same basic crap: Same basic advertising/media buying strategy, same PR, same trade shows, same stuff on the website, same catalog, etc. The pictures may change, the copy may change, but it’s the same. Even down to the media planning, release schedule, etc.
Adding social media into the existing mix is a radical change. So (at least in my experience) this isn’t a hypothesis or an assumption. It’s reality.
I would also argue that a company that does radically different things with its marketing, customer service and business development year after year is either a rare gem of genius with insane growth and a rabid following (name three off the top of your head), or a complete wreck with no semblance of strategy, vision or consistency in the C-suite.
As far as companies without a revenue goal… wait… a company without a revenue goal? Like what… a government site like a .gov? A resource like the CDC? Okay, fair enough. They aren’t companies, but I’ll bite: For them ROI isn’t an issue. No revenue goals = no ROI discussion. No cost considerations, no ROI discussion either. Whatever their goals are, they aren’t tied to ROI.
For charities and not-for-profits, revenue isn’t an issue either. So ROI might apply to cost savings: Adding social media to their marcom mix might save them a huge amount of money (DIY vs. pushing all of their marcom activities through marketing services firms). So ROI exists here as well, even if revenue isn’t an issue. Although… I would argue that financial donations (which tend to be pretty important for organizations of that type) is a form of revenue.
Example:
In 2008, charity A spent $100,000 in marketing to raise $1,000,000 in donations.
In 2009, charity A spent $50,000 in marketing but supplemented much of its reach programs with in-house social media. They raised $1,000,000 again.
In this case, ROI increased by virtue of the fact that it used Social Media to cut marketing costs.
Or in another scenario: In 2009, charity A spent $100,000 in marketing and added a Social Media program into the mix. They raised $1,500,000 and can track $500,000 in donations through FB, Twitter and their other community outreach programs through SM.
The ROI equation changes there as well, even though “revenue” isn’t really an objective.
Lastly, I’ll say this: For-profit companies with soft goals are asleep at the wheel. There’s no such thing as a soft goal. That’s lazy thinking. Goals should be specific. “I want to run a marathon someday” is a soft goal, which is to say it is no goal at all. It’s hot air. It doesn’t turn into a goal until it becomes “I want to run the 2010 Chicago Marathon in under 5 hours.”
Great questions, Stelios. Much appreciated. ;)
what i mean on is
is building awareness or engaging a real goal?
They’re the beginning of goals, but they aren’t goals. Building awareness is to vague. “Engaging” is even more vague. The client needs to actually SET goals, not just guess at them.
What does “awareness” mean? In other words, how will you measure “awareness” – and more to the point, CHANGES in awareness as you deploy your programs. Once you have that sorted out, you can a) baseline where you are now, and actually set a quantifiable goal for where you want to be in X time period from now.
“Engaging” also has to be clearly defined. I know that “engagement” is a popular buzzword right now, but what does it mean? You have to define it. You have to quantify it. Then you have to set specific goals – meaning an actual number AND a hard timeframe. (And that’s assuming that you’re only looking at one metric for “engagement,” which I sincerely doubt. You could be looking at several dozen metrics, depending on the company.)
“We want more awareness and engagement” is a good start, but… neither is a goal yet, no.
Cheers.
ROI is still simple math. The trick is in replicating the non-financial impact elements that prove the most ROI. That right there – determining what works – could get convoluted.
ps – as a best-case scenario, in your illustration “If the “investment (the “I”) is $$$, then the return also has to be $$$.” the return needs at least one extra $ to be accurate. ;)
Touche.
Yes but still there is one missing point, about media sites or companies at their beggining that see social media channels as channels that would help them gain awareness from the community that they want to target
So what happens with such brands that although pay social media gurus, they do not see any short term roi,or their short term roi is considered to be the branding that will be achieved through the social media presence?
Here there is a missing point.Alhtough some companies pay for social media,themselves see the roi if they are at there very begiinning point, they consider success if they attract their potential customers eyes in order for them to boost.
so where does measurement stop when we deal with new companies or media sites?
thank you
I hear you. :)
If it isn’t financial, it isn’t ROI. So… Awareness isn’t ROI. It’s a different discussion.
[…] you want to get the entire backstory), and the ever-present discussion of ROI in social media (see Olivier Blanchard for this […]
Olivier – great post! Besides our quick Twitter convo on the Mike Greenberg look-a-like comment, I knew taking time out this morning to read your blog would be worthwhile.
Back to the post – I’m glad you did a video on this topic.
As social media evolves this becomes core to the conversation (and the future). The biggest reason why most Fortune 500 companies struggle with an investment in social media is because of this ROI equation. ROI has been easy to demonstrate with ‘paid search’ & ‘banner ads’ but social media professionals are struggling with showing this true ROI that you point out in your video.
Until a larger return dollar amount is shown to Fortune 500 companies then social media may still stay on the back-burner of marketing budgets (currently I think it only accounts for 5% of budgets this year). Every single conversation I have with CMOs or Marketing Directors comes to ROI.
I really believe that social media needs to evolve and go beyond pure analytics and even past ROI. But, the fact of the matter is that ROI how business works.
Going back to Jim’s comment on (nothing happens in a vacuum) and your response, made me start thinking a lot more about the fine line that social media walks. Social media = earned media and earned media is something that happens over a period of time. It’s very comparable to brand building (no pun intended).
Example: Nike has built their brand over a period of time, through bought, owned and earned media. This happened way before social media was around. There’s millions of Nike fans out there and brand advocates. I’m sure you could measure it but the the ROI on Nike’s earned media would be tough to quantified. And for the most part I don’t think the CMO at Nike cares. He does care about the marketing campaign success of Air Jordans or the Livestrong line of products. But overall brand is at 50/50 control (Nike/People). Nike’s uses social media two ways – 1) to effect individual campaigns 2) guide the brand back if it goes astray.
There is a part of me that looks at social media in a very broad sense. Social media presents a very real opportunity for any company to influence earned media. This influence (before social media came along) was not as easy as it is today – with social media. Social also allows mid-level companies to influence and establish brand far better than before. Finally, the residue – is that small businesses are using social media purely for marketing.
Yes, you can demonstrate this ROI but in some cases does it really need to be shown?
Cheers
Mike
Thank you. Yes. You’re spot on.
A better way to look at the ROI of Social Media is to eliminate the notion that Social Media, in and of itself, offers any ROI at all. The ROI comes from what you DO with Social Media (how you use it) rather than… just having it around – as in creating a blog, a twitter account, a Facebook page and a YouTube channel, and waiting for sales to go up. It doesn’t work that way.
So when a CEO or CMO asks for the R.O.I. of Social Media, you have to start narrowing down the question. Are you using SM to cut customer service costs? (Shifting some of your phone operators to Twitter, for example, and steering customers to that. Result: Faster resolution times = more tickets handled per hour. Bonus: higher rate of positive sentiment, retention, loyalty, etc.) Are you using Social Media to increase net new customers? Focus your activity on that. Focus the metrics on that as well. Look at R.O.I. in terms of the activities directed at reaching your net new customer growth objective. Same thing with increasing buy rates/frequency of transactions. Same thing with increase average spend per transaction (yield).
In other words, you have to get specific. The R.O.I. of the telephone is… a silly concept. The R.O.I. of calling 100 people a week with that telephone, resulting in $4,000 in revenue is pretty clear.
As far as things taking time, yes. Goal setting has a time element as well. It isn’t just a sales number or a $ amount in a column. It’s also a timeframe. “$500,000 in net new sales” is meaningless. However, “$500,000 in net new sales by Q3” is an actual goal.
R.O.I. doesn’t exist in a broad sense. It has to be specific. ;)
Cheers, Mike.
As a long time proponent of direct marketing, I’m stunned often by the refusal of agencies and clients to do the hard work of measuring the hard ROI of projects, campaigns, ads.
It always gets down to clients, either from belief or naiveté, swallowing the agencies lines about awareness, engagement, etc.
Those may be valid milestones on the road to ROI – but they ain’t ROI.
You simply cannot improve what you cannot measure. And often campaigns that create the highest awareness – do poorly against actual sales. At the end of the day, high level executives and successful business owners mission is to grow their businesses. They can only do that with ROI.
You’ve done a great service in this post.
And once an agency or social media marketer learn to both measure and CREATE ROI they will be surprised at the new level of influence and revenue they can create for themselves.
Thanks, Robert!
“You simply cannot improve what you cannot measure.” Exactly.
And I’ve always wondered what the value of doubling visits to a website and/or increasing “impressions” by 67% if all of that churn resulted in exactly zero net new customers, net transaction increases, uplifts in net sales, or anything actually measurable from a true business performance standpoint.
Cheers, man.
Oliver is very correct, in the world of commerce the only web conversion metrics that matter are those that are sales related-like sales, sales to ad spend, and etc .
The reason that this is true is that if one organization is able to get double the sales from the same ad spend as its counter part organization, then its counter part organization is at a severe disadvantage.
One little wrinkle that can complicate this view that sales is the most important measure is something that I don’t recall seeing mentioned in this discussion-what happens if it is difficult to track the sales conversion?
i.e. let’s say you are a campaign mgr running a campaign for a client on the Google content network and at the end of the campaign we are able to see that the campaign generated its “x” number of impressions but there were much less first-time conversions (or rather no sales that resulted from the consumer clicking the banner and going straight to the shopping cart and making the purchase) than expected.
However, over the course of the campaign and even up to one month after its end you notice that there are noticeable but unexplainable ramps in sales…If you are working for a client that has multiple communications channels and are only using sales as the performance measurement you might fall into the trap of having the sales dept. or the print marketing team saying that their efforts produced the bump in sales, right? Without a way for tracking how those sales came about even if you knew that the sales came from your campaign you might be forced to pull the plug on it or at best you’d have to bare listening to other departments high five each other as they take the credit for your work.
My point is that when we make sales the sole performance benchmark we must be prepared for consumers who do not convert upon initially viewing the ad because more often than not a person who views an ad will purchase-after the fact.
To account for this we must be prepared for such behavior and proactively find ways of isolating the right metrics so that our efforts don’t get over shadowed by other departments who may not have contributed to the sale. One metric that can tell us whether someone who viewed an ad less than 30 days ago and then went directly to the client’s url is Google’s view-thru metric.
Thanks for validating my central point, Benin: The P&L rules. Everything a company does has two ultimate objectives: A. Maximize profits and B. Sustain A for as long as possible.
Conversations, engagement, influence, customer service, designing great products, innovation, quality control… all of these things are means to those two ends.
1. You start out with 1,000 visitors to your website and $1,000 in sales
2. You spend $200 on a program to try and double visits to your website.
3. The company you hired for $200 measures website visitors, because that’s what they were paid to affect.
4. Your website now has 2,000 visitors. The company you hired shows you that for only $200, you gained 1000 new visitors. They provide you with an extensive set of metrics explaining how your $200 investment doubled your web traffic, your reach, etc.
5. Your sales manager reports that in spite of the extra 1,000 visitors, your sales have remained the same.
6. You realize that in spite of all the cool metrics and excitement about website traffic, your $200 didn’t actually result in anything except more traffic and more work.
You nailed it: In the C-suite, performance isn’t gauged by subjective metrics. The guy who grows his business the fastest and/or the most gets the budget, the staff, the resources and the attention. The guy who shows up with intermediate metrics but can’t convert them into a + on the P&L doesn’t get squat.
Cheers.
Ok Olivier Got it and agree.When we are talking about ROI we talk revenue generate or cost reduction in 99% of all cases . (how about a politician’s roi? =votes instead of revenue generate)
My question has moved from ROI to targets. Would you consider as the final target for a company to build awareness from a social media campaign? this could happen to a company =new entry where in that case it’s short term goal is to make it’s name a household name.
So would you consider this a realistic goal?
thank you
Right. That’s really up to the company. I can’t give you a generic goal that will work for everyone. Every company is different – with different obstacles, different abilities, different resources, etc.
A B2B business, even a leader in its industry, for example, may never be able to become a household name. I worked for several companies that were clear leaders in their industries (and household names there) but no one outside of the industry had ever heard of them.
And being a household name is too subjective to use that as a goal. Know what I mean? How do you measure that? You have to assign a number or % to it.
So for the sake of argument, let’s say a company wants to be a household name by Jan 2011. They now have to define what “household name” means. So after a few discussions, they agree that 66.6% of the industry knowing of them would constitute their being a household name. 66.6% now becomes their target.
Step 1: Benchmark. Poll your industry and figure out what % of it has heard of your company. Get deeper analysis too (how much do they know about your co., how do they feel about it? How would they rate it? etc.)
Let’s say that your study tells you that 46% of the industry is familiar with your company. Now all you have to do is bridge the gap between 46% and 67%.
Step 2: If in terms of net numbers, that constitutes 15,000 people, you know that you now need to develop a program to reach 15,000 net new people in your industry in some way.
The question now becomes how.
How will you combine traditional and social media? What kind of content and other vehicles will you create? How will events play a role? Trade shows, trainings, sponsorships, mailers, workshops, #chats, white papers, press releases, blog posts, etc.
See how we went from “household name” to 15,000 net new contacts?
;)
Then the real work begins: How do you turn those 15,000 net new contacts into transacting customers?
Larry Brauner made a recent post about roi on his blog.Well,i am confused i must say because on the one hand ,Olivier you got my attention when you explained the non financial impact and the financial impact but Larry gives us another part of the coin
”There are some marketing efforts that don’t directly increase sales. Big companies can advertise their brands like Coke and Pepsi in order to maintain parity and to create economic barriers to entry into their markets.
These marketing campaigns are brand and reputation centric, and as such the public relations function could presumably conduct the very same campaigns just as effectively.”
Here he says the same thing that i asked you. It is,what do you say about roi when you have some companies like pepsi and coke that do brand and reputation campaigns.
Of course,what you said is that you speak for roi if you ask about and in this case maybe you won’t so you might also agreee
One other part that drew my attention on his post was
”Marketing tends to revolve around cost per acquisition and ROI. However, public relations relies on softer metrics, and since reputation is invaluable, PR almost never requires ROI justification.
Public relations and social media are a perfect pairing according to Chris’ four R’s.”
I would also like you to comment on this too. It’s really great that we have this open conversation,you have really draw my attention as roi expert but many views are being raised on this issue
Right. I hear ya.
But with all due respect to Chris, or whomever claims that PR almost never requires ROI justification is complete hogwash. I’m sure that some PR professionals would love for people to believe that, but that’s just ridiculous.
Can a company choose to ignore ROI when it comes to PR? Sure. But to say that PR uses softer metrics to measure invaluable things like reputation and therefore can’t be accountable from an ROI perspective is completely ridiculous.
1. Reputation is customer perception. Customer perception affects customer behavior. Customer behavior in turn affects customer transactions.
2. Customer perception of a brand can be measured. Customer behavior can also be measured. And yes, customer transactions can also be measured. Not by soft metrics, but hard metrics – some financial, some not.
There are no soft metrics. There’s only good measurement and bad measurement. That’s it.
If a PR professional tells you that PR can’t be held to hard measurement standards and in turn can’t be tied to customer behaviors (including transaction deltas) they don’t know what they’re talking about. They might be great at PR, sure, but they don’t understand a whole lot about measurement.
I would be a lot more comfortable with a PR professional admitting that they don’t know how to do something than try to excuse their ignorance by making incorrect statements. Know what I mean?
Even cost of acquisition and retention can be measured. A basic way to do it is to look at your entire marketing spend vs. #net transacting customers. It gets more complex than that because customers come and go and change their purchasing habits – and acquisition isn’t the same as retention, so you have to look at net new, existing, returning, etc. – but essentially that’s it. Hard metrics.
Ultimately though, brand awareness and reputation campaigns don’t exist in a vacuum. They exist to drive sales, capture and/or maintain market share, and ultimately result in a positive net impact on the company’s bottom-line. Even if the project manager or Director of such a program is laser-focused on awareness metrics or reputation metrics, trust me: Someone outranking him is looking at the impact of that program or campaign on the company’s sales.
Don’t ever let anyone tell you that a reputation, awareness or even an engagement campaign isn’t directly tied to an effort to drive revenue. Anyone who tells you that isn’t high enough on the food chain to grasp the most basic realities of business management. This is one aspect of business that never changes, from your local family-owned paper store to a global soft drink giant. ;)
I will consider your comments Olivier,great post and useful comments.
”Can a company choose to ignore ROI when it comes to PR? Sure.”
I am about to make a social media strategy plan ,a proposal for social business ,how to influence through content marketing tactics ,build a community around a product and then influence. This is true story – I have already prepared a powerpoint presentation and a white paper with the strategy data (presentation is much bigger,white paper only the important)
what i want to ask you about my white paper is this: the company has accepted the fact that roi in this field is something subjective and hard to measure. Should i stick to the strategy or should i also include my roi philosophy which is near yours?
what would you do? is roi another subject not for the white paper or a social media strategeist who respects himself should in any case incluce the basic principles of return of investement calcucations?
thank you
Excellent. So many focus on the social part and forget the media or think that because technology is involved that this is something new. It is a way for people to market more effectively while allowing them to monitor their brand and get more real time feedback. Social media is a tool in a companies P/R arsenal and should in truth be treated no differently than any other business tool. This was an excellent write and very educational.
[…] Defining Social Media ROI Once and For All […]
first of all appreciation for taking that awesome video on marketing ROI and the ways to calculate ROI.proffesionally taken video.
People always have a tendancy to calculate ROI in terms of money as fast as possible.your blogpost is good enough to remove that misconcept among common businessmen
I’m sorry to react so late, but I’m a slow reader :-)
I was thinking… and I came to the conclusion that there is one thing you overlooked here.
I agree that it’s all about how much money there is in the bank… but it’s also about how much money would I otherwise have spent in another way to get the exact same result.
In the end the return on investment of a PR company is about how much it would have cost to get ads on exactly the same pages – not about how much extra sales they get out of this publication (as this is completely unknown and can never be known… unless your sale is online only and you somehow get to place a cookie with this person…… and then still: did this person also see other advertisements before he/she converted….)
just my two cents.
And one last thing: nothing lives in a vacuum.
ROI is fine – but you can never with total clarity say what an ROI will be. There are too many factors to hold into account to give a true account…. so receiving a set ROI is false hope.
[…] here is a good discussion Social Media ROI from Olivier Blanchard. I think the guy is smart and has figured this out. Tags: connection, […]
[…] Defining Social Media R.O.I. Once And For All: It’s all about the Benjamins. (The BrandBuilder Blog) […]
[…] Olivier Blanchard: Defining Social Media R.O.I. Once And For All: It’s all about the Benjamins. […]
[…] detalle lo encuentran aquí y la explicación en el siguiente […]
thank you for your information to give us.
my comment is.
you write all needs bu i like to say to add if i need to mork mediia same organizatins how i to consultant.
best regards
[…] brands. Olivier isn’t writing for the ivory tower or theoretically-laden academia. His common-sense style focuses on actionable and applicable insights for the everyday brand team. His message is […]
[…] about how much money you earn, not about exposure or click-throughs. Long, but well worth the read. Read it Follow Olivier Blanchard on […]
Ive often heard companies having hesitation with social media and ROI because it can be hard to track and show improvement. I think its a must either way. Great article, you really brought up some valid points.