Five Things You Should Know About Social Media ROI

In a January post of 2009 social media predictions I wrote:

2009 will be the year when the pendulum swings from experimentation to accountability.  2009 will raise the bar on all of use to demonstrate how social media and PR programs are helping to drive desired business outcomes.

Are you are seeing the accountability bar being raised this year?  In my corner of the world, the volume of conversation about social media ROI is high and accelerating. Unfortunately much of the conversation has been misinformed and misguided.  It seems like every week brings another post attempting to reinvent the acronym or the meaning – ROI really means Return on Influence, or Return on Engagement is the new ROI, and on and on.  There is another group of online Zen Masters who would have you believe social media ROI is old school thinking and not in tune with social media Zeitgeist.   In that case, I’ll take’ Old School’ for $100, please.

Here are five things about social media ROI you should know:

1. Return on Investment is a financial metric.  It tells the percentage of financial return you generated for a given investment level.  The financial return is usually revenue, but may also be money you saved by making the investment or money you avoided spending in the future.   Notice the common thread here – its about money.
2. Attempts to reinvent the acronym are counterproductive.   Return on Influence/ Engagement/Whatever; do not ever get to the basic money question.  Most of these attempts share two characteristics – they are confusing ‘return’ with impact/results (read Olivier Blanchard’s The BrandBuilder Blog for more on Impact/Return confusion), and/or they are making an argument that social media ROI is largely intangible, represented by relationships, engagement and community.   What they are really saying, perhaps unintentionally, is ROI is often difficult to determine and I really don’t understand it.  In my opinion, attempts to reinvent or circumvent ROI discussion in social media actually hurt credibility with the people writing the checks.  They expect an apples-to-apples – money in and money out – discussion.
3. ROI in social media has a time dimension.  Value may be created in the short-term and longer-term.  Social media-specific promotions are an example of easily measured short-term ROI.  Longer-term value is much more difficult to quantify.  There are some similarities between social media and brand in this regard.  Success in each is a process and not an event.  You generally will have ongoing activities that sustain the brand/social media program and brand building events or campaigns that provide short-term spikes in awareness and engagement.  Contribution to organic search results is another example of longer-term value creation with branding and social media efforts.   Managing and measuring your social media effort properly requires thinking about the value you are creating in the short and longer-term.
4. Linkage and correlations are important.  In order to demonstrate ROI in social media it is necessary to link the results seen in social media with the relevant business processes they are addressing.  For example, in a B2B company, you might try to link social media efforts with the lead generation and closure process.  For a program aimed at employee engagement, you might link social media efforts to the employee recruitment and retention business process.  For an eCommerce company you might be able to directly link to the sales process through unique URLs or click-tracking technologies.  When attempting to show statistical relationships, correlations become important.  We might try to correlate social media brand engagement and audience influence with metrics like likelihood to recommend to a friend, likelihood to seriously consider the product or likelihood to purchase the product in the next X months.
5. All ROI studies are custom.  The simple fact is you cannot buy an off-the-shelf solution to calculate the ROI of your social media effort.  All ROI studies are custom.  This is primarily a reflection of the unique objectives each company may have for their social media efforts.  Objectives are specific and contextual, and your ROI measurement efforts will need to be as well.   Attempts to develop ROI Calculators where you simply plug in several numbers and hit a button to calculate your ROI are not worth the time it takes to plug in the data.  They are a one-size fits none approach to ROI.  (Read this brilliant and very humorous post by The Brand Builder where he methodically skewers a recent ROI calculator attempt).

We are in the very early stages in our ability to measure the ROI of social media.  Not enough cycles yet.  Case studies are limited but growing.  The need to demonstrate a financial return on social media investment, if not here already, will be here shortly.  We have a lot of work to do.  Let’s get started.