In Social Media, Are We Looking For ROI in All The Wrong Places?

28 May

One of the hotter topics in my corner of the Twitterverse is Return on Investment (ROI).  How do you calculate the ROI of social media?  What’s the ROI of Twitter?  The questions are many, the answers too few.  There have been several blog posts on the subject (here are just three examples – Tim Ferriss, Olivier Blanchard, Zygote ), and I plan to post an overview and synthesis of some of the better ones in the near future.   One important question seems to be missing from much of the conversation, to what degree should social media be considered a cost of doing business (from a corporate/organizational viewpoint) rather than a distinct activity that must/should be justified by hard ROI?

If your customers want the option of customer service via Twitter do you really have an option long-term?  If crises are often spawned in social media, how optional is listening/monitoring if you want to protect your brand?  Increasingly, the corporate world will realize the options are all with the consumers/customers and how, how often, what and why we communicate will largely be in response to this dynamic.  When voicemail came on the scene (patented in 1983), I’m sure the ROI pencils were sharpened and presentations made.  When was the last time someone was asked to justify the cost of voice messaging or 800 numbers or email?  They are all considered part of the cost of doing business today.  In a relatively short period of time I believe many applications of social media – CRM, crisis monitoring and listening to customers/competitors/industry voices and many others – will be considered necessary, baseline activities to doing business in the 21st. century.

The ability and need to demonstrate ROI in social media should be considered contextual and dependent on specific program/initiative objectives.  If the objective is ‘listening and learning’, what’s the ROI on insight?  However, in other cases, program objectives will be to drive a specific business outcome, and demonstrating ROI will be expected and required if budgets are to follow.  Dell offering product promotions on Twitter was closed-loop and easy to calculate ROI.  HyperLocal marketing by Kogi or your local pizza shop on Twitter is measureable in incremental sales.  You can calculate the ROI on a hotel or resort offering last-minute cut-rate weekends via FaceBook.

Knowing when social media should be considered part of the cost of doing business and making this case to your company or clients may just make the ROI imperative a little less urgent and more focused in the right areas.

Thanks for reading and please comment if you agree or see it differently!

Don B

@donbart

9 Responses to “In Social Media, Are We Looking For ROI in All The Wrong Places?”

  1. Marc Hausman May 28, 2009 at 3:31 pm #

    Interesting post, Don.

    I sure get nervous when I start seeing respected professionals present the concept of social media being considered simply as a cost of doing business. Maybe one day when adoption of social networks grows to the mainstream, yet that is far down the road.

    I’ve found that to justify an investment in social media and digital communications it is imperative to align activities with benchmarks related to lead generation, sales cycle support, search engine optimization, and market positioning and awareness. Corporate clients simply do not pay for “community and conversation,” as many social media thought leaders would like to have us believe.

    Here are links to two recent posts of mine which explore sales-oriented ROI as it relates to social media:

    Social Media and Enterprise Sales Acceleration

    http://strategicguy.blogspot.com/2009/05/social-media-and-enterprise-sales.html

    Why “Sell” Isn’t a Four Letter Word

    http://strategicguy.blogspot.com/2009/01/why-sell-isnt-four-letter-word.html

    PS Good blog…I’ve added it to my RSS feed.

  2. Rick Rice May 28, 2009 at 6:00 pm #

    Don,

    I really had to sit and think about this because I know better than to just react to what you say. (And part of me is wondering if you’re tongue isn’t firmly planted in your cheek on this one.)

    You and I have often discussed my long-standing frustration with the lack of business metrics PR uses to prove it has a positive effect on organizational performance. I think we are particularly weak in metrics for areas like corporate reputation, internal communications, investor relations. At least in Marketing PR we can usually prove we either did or didn’t boost sales. Until we do a better job of proving our worth we will continue selling hours instead of expertise.

    At any rate, two basic thoughts on your post.

    1. Organizations should be concerned with how any activity improves performance and SM does need to prove it can do that before it is going to reach an acceptance level of voice mail. And, yes, I’m old enough to have been part of the debate of how we’d pay for those vm systems if we installed them.

    2. We may reach a point where the value has been established well enough that some tasks won’t need measurement and will simply be considered a necessity. I don’t think that will happen until the benefits are much more firmly established and stood up to bit more of the test of time.

    I’m convinced we must do more to back up our work with simple, repeatable and affordable measurements that demonstrates how we can or have improved performance – in all areas.
    Rick / @RTRViews

  3. metricsman May 28, 2009 at 9:19 pm #

    Marc and Rick,
    Let me try to respond to your comments together since I think you each share a concern that my post is suggesting measurement may not be necessary in social media. (By way of introductions, Rick and I were colleagues at GCI Group where I ran the Tech Practice and Rick the SF office. Rick also ran Tech for H&K at one time. Rick, Marc is CEO of a tech focused agency.)

    I read your blog posts, Marc, like your thinking and approach, and don’t disagree that sales oriented social media efforts should have measurement systems in place to evaluate ROI. I tried to make this important distinction in my post. That said, not all social media efforts have sales as the objective. Some try to build brand, others reputation. Brand and reputation are both process and not transaction-oriented. Some programs are for monitoring and crisis purposes. Others customer service. You have to determine the value generated by these types of programs in ways other than short-term revenue generation. (Thanks for your kind words about my blog. I expect to learn from your blog in the future.)

    Rick, my tongue was not in my cheek, but perhaps I was stating my positions in a binary/B&W way in an obviosuly grey and nuanced area. Makes for more interesting reading…and writing. :)

    When I said some aspects of social media programs should be considered a cost of doing business I can see where you may have believed I was implicitly saying social media should not be measured. On the contrary. I was attempting, perhaps not at all clearly, to draw a distinction between where it makes sense to prove ROI and where it may not. ROI is measurment but not all measurement is focused on ROI determination. Of course you should still measure. Anything worth doing is worth measuring. Use measurement as a diagnostic to make the program better.

    Lets take the corporate website as an example. In today’s world (despite some recent commentary to the contrary) it is expected that a company will have and maintain a website. It’s a cost of entry, an ante to play the game. You don’t worry about it’s ROI. That’s not to say you don’t measure it. Who visits, where they click, how long they spend with content, from which domain they found your site and other metrics are readily available and should be measured.

    Since we’re all techies, let me also use an engineering analogy. When I was in engineering, we organized our activities and budgets into two broad categories, sustaining and non-recurring. (Non-recurring is the engineer’s attempt to make events, campaigns, programs and initiatives sound as boring as possible) Sustaining activities kept the factory open, non-recurring varied by how much product was built). You could also use the fixed and variable cost taxonomy. My point in the post was that some level of social media involvement should be considered sustaining activity. It’s table stakes. My personal view is that any forward thinking company today should have, at a minimum, some presence on Facebook, YouTube and Linked-in and a basic PPC search program. Twitter and blogging optional but encouraged. Should maintaining a basic presence on FB, YouTube and Linked-In be thought of as a cost of doing business or an ROI engine? Clearly we believe there is both tangible and intangible business value in this social media presence, but why focus time and resources on trying to prove the ROI? Non-recurring activities are all the programs and campaigns we launch on top of our sustaining presence. These programmatic efforts should always be measured and often should be expected to deliver a measurable ROI.

    The issue you both raise on timing is valid. Perhaps we are not yet at a point where even maintaining a sustaining presence can avoid ROI questioning. It’s not really for us to decide the timing. Customers/consumers will decide for us.

    Thanks again for your thoughtful comments.

  4. Rick Rice May 28, 2009 at 10:05 pm #

    Don,

    Marc, nice to ‘meet’ you and I’m catching up on your blog. And, yeah, I need to get off my butt and publish mine the way Don has been coaching me to it. I’m working on it.

    Don, I get the sustaining / non-recurring idea and agree that it could become a necessity. There are definitely good examples out there for customer service and even some for rumor control. Not sure it is table stakes yet but do agree it could get there.

    Don, I frankly think that if we take the corporate Web site as the ante we’re likely to keep getting what dominates today. Obligatory, formulaic and unresponsive one-way broadcasts. I’d like us to prove that SM is making that obsolete, but that’s not going to change unless we prove there are benefits to making it a conversation.

    There are real opportunities here if we can prove the value of real conversations to our clients. Prove = metrics = how do we do better Don? You’re my expert here…

    Rick

  5. metricsman May 29, 2009 at 9:23 am #

    Hey Rick,
    The website was just an example, like voicemail, of technologies previously optional but no longer so. Not advocating a return to Web 1.0.

    On your question, I’ll take another post to address that. I think the value chain may look a little like this:

    Community—Engagement—Trust—Business Outcome

    Thanks for your interest, comments and tweets!

  6. Chuck Hemann June 1, 2009 at 1:46 pm #

    Don – this sort of slicing and dicing of social media is helpful, particularly when it pertains to the ROI discussion. There is certainly a portion, probably a pretty large one, of the social media outreach that is an essential part of doing business. The other, is the more formalized external outreach, which should be measured. That said, I think the former should be measured, likely in the form of customer satisfaction scores.

  7. metricsman June 2, 2009 at 8:20 am #

    Hi Chuck,
    Thanks for your comment. Agree that we still should measure the sustaining part of social media to gain valuable insights into how programs are working and improve our efforts over time. My argument is not anti-measurement, but that not all measurement should take the form of hard ROI calculation.

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