Relief from your Social Media ROI Angst

Return on Investment (ROI) is one of the most discussed and agonized-over topics in social business today.  However, much of the discussion around social media ROI has been simply confused, confusing or misguided.  There have been posts on large, well-known blogs (riff on ways to prepare potatoes) that are incredibly naive in their discussion of ROI.  In some circles there is endless philosophic debate bounded on one side by the Puritans who believe ROI is an old/incorrect way to think social business and on the other side by the Analyticans who seem to believe you can always determine ROI with a web analytics package.

The net-net of all this is a lot of frustration, even angst over how to think about ROI and social business.  We’re here to help.  Take two deep breaths and read these four points.  You’ll feel better soon.

Point Number One:  As a practical matter, the majority of social business efforts will not result in true ROI (in the short term).

In fact, I would guess far less than half will.  Maybe less than 10%.  But that doesn’t mean the social business effort was not successful, or did not create significant value for the brand or organization.  It simply means the primary objectives of most social business efforts are centered on concepts like community-building, engagement, listening, and participating in conversations.  It is difficult and expensive to attribute financial value to these areas.  To use the old saying – the ROI on these sorts of ROI efforts is not good.  Traditional public relations, branding and reputation programs suffer from some of the same challenges.  So when a study like the one published by e-Marketer* suggests ‘only’ 16% of social business programs are measuring ROI, while many are surprised it isn’t higher, it actually sounds a little too high to me.   I wonder how respondents were thinking about and defining ROI.

Point Number Two: Loose use of the term ROI is a major cause of angst.

ROI is not synonymous with results, KPIs or value.  ROI is not the only or perhaps even the most relevant way to define success in social business.  ROI is a financial metric.  ROI can only be measured in terms of revenue generated, cost savings or costs avoided.  It is transactional in nature.   There is ample evidence on twitter, blog posts and in blog comments that many people say ROI when they really mean results or value.

Many of the well-intentioned but misguided attempts to rename or reinvent what ROI means in social media – return on influence and return on engagement probably getting the most play – seem to be the result of an inability to distinguish value creation from ROI.

Point Number Three: Understand the difference between value and ROI.

Social media efforts may create financial impact (ROI) and/or non-financial impact. Engagement and Influence are examples of non-financial impact.  Other non-financial impacts like increased brand awareness or purchase consideration may eventually result in ROI at a point in the future when a financial event occurs.  Try to be explicit as to whether the social business program is designed to generate non-financial impact or true financial ROI, and make sure the people writing the checks understand the difference.  Show how the effort is linked to one or more business processes and how it will deliver value by helping to drive the desired business outcomes.

We know social networks have the ability to create value through customer engagement and community building.  However, ROI can only be measured by their ultimate impact on downstream metrics like sales, employee retention and customer loyalty/repeat purchase.  Many social business efforts are in an investment phase.  The value is largely intangible.  Some may eventually become transactional and result in true financial ROI.

Point Number Four:  ROI in social business has a time dimension.

Value may be created in the short-term and longer-term.  Social business campaigns utilizing channel-specific URLs and ecommerce landing pages are an example of easily measured short-term ROI (setting aside last-click attribution issues).  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 may have ongoing activities that sustain the brand/social business program and brand building events or campaigns that provide short-term spikes in awareness and engagement.  Managing and measuring your social business effort properly requires thinking about the value you are creating in the short and longer-term.

Your investments in social media or public relations remain an investment, creating additional value if done correctly, until which time they can be linked to a business process transaction that results in ROI.  Calculate ROI whenever you can, but also try to articulate the value your programs will be creating, and how this value aligns with, and contributes toward, achieving one or more desired business outcomes.

If you are not feeling better already, please leave a comment and let us know why.

*Mzinga and Babson Executive Education, Social Software in Business, September 8, 2009