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Archive for July 13th, 2011

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.

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