There’s been a lot of conversation lately about social media ROI but the hand-wringing about it is totally misplaced.
True ROI (return on investment) calculations are possible in cause/effect marketing scenarios where you can isolate tactics and variables to determine incremental revenue generated. Today, the only marketing programs that can semi-reliably generate “real” ROI calculations are SEO, PPC, email marketing, banner ads, and in some cases direct mail. Even these programs can only generate decent ROI calculations for e-commerce or lead generation.
Social media is anything but cause/effect. It’s by definition amorphous and circumstantial, and because it’s a two-way conversation rather than unilateral shouting, the customers control the frequency and intensity of the message in a way that they do not elsewhere.
Thus, true ROI measures a la SEO, PPC and their brethren are not possible for social media.
But, guess which other tactics suffer from fuzzy ROI calculations? TV. Radio. Print. Out-of-home. Public Relations. Event Sponsorship. Sky Writing. Paying People to Tattoo Their Bodies With Your Logo. Of course, being new and experimental and scary to many executives means that social media needs to prove its mettle more so than TV…
And that mettle can be proved, if you completely change how you think about social media.
It’s About Customer Service, Not Sales
Almost universally, the concept of “ROI” is rooted in customer acquisition, and is comprised of these 3 questions:
- How many new customers did we reach via this tactic?
- What did they spend, or what are they likely to spend?
- How does that revenue compare with what it cost us to create and distribute the message?
- Points of Light. Measure revenue generated from customers that you have engaged with in social media. Fiskars could do this (and they may be) by measuring scissor sales among customers registered to use the Fiskateers Web site.
- Lifetime Value. Measure average order frequency and annualized total purchases before and after your social media program launches. This necessitates some pre-social media measurement to set a baseline.
- Loyalty. Measure churn. How many customers quit you, and how much did that volume diminish after you started in social media? Comcast could do this (and they may be) to measure the impact of @comcastcares and their other outreach efforts.
- Operations. A dollar saved is a dollar earned. How much have your expensive inbound customer service calls dropped since you started social media? (again, a good one for Comcast)
How Can You Measure Bottom Line ROI for Social Media in Your Organization? Leave a Comment With Your Ideas, Please.
Welcome. If you liked that, there's plenty more. Please subscribe to my RSS feed. You can also find me on Twitter @jaybaer
Twitter
Linked In
Facebook
My background is in building social networks and turn-key marketing tools for brands and marketing companies. A fast rule of thumb here about social media marketing is that it’s all based on trends. Here today, gone tomorrow. These are called “fools investments.” The best way to sell something valuable is to give it away.
Jason,
You make some good points here. The prospects and customers I speak with want measurable results and Social Media is difficult to quantify in many cases. Certainly though, as you point out, it is much easier to do than with traditional forms of PR.
I wrote on a similar topic yesterday. While Social Media ROI is hard to measure, I completely agree with you that most traditional media ROI is just as hard to measure as well.
I think we may just have to be patient to let more efficient social media ROI measurement tools be developed. As much as many of us have been using some of these tools for years, they are still relatively new and haven’t been fully realized yet. I believe more accurate and reliable tools may be developed in the future, but for now it is going to be tough. Also, maybe some of the areas of social media ROI really can’t be calculated. Not every action that a company invests time and money into has a clean understandable ROI figure associated with it, but we know that it is valuable. The same could become true for many areas within social media.
Drew Gneiser’s last blog post..Traditional Media ROI – Just As Hard To Quantify?
“your ROI analysis needs to focus on social media’s ability to turn customers into fans.”
That’s the money quote, IMO. Let direct response channels catch new customers, and social media bring them into the fold as true WOM evangelists.
Good stuff!
Jason,
Love the idea of looking lower on the food chain and longer on the horizon for ROI. We don’t have near the client base to see the low level long term benefits such as @comcastcares, but I will say that top line measurement has actually been something we’ve been able to see in obvious chunks. With three years of lead gen data and conversion metrics, there were two major spikes in activity. The first was when we turned on search engine marketing, the second was when we allocated resources to social media. The past 12 months of increased social media presence through blogging and linkedin (and now just 3 weeks of increased twitter experience), we have seen significant increases in inbound traffic which converts directly to the top line.
Some gray area ROI benefits we’ve seen:
- Increased PR and Analyst exposure
- Channel marketing to Partners
- Competitive Intelligence
- General (non-sales) networking
- Recruiting (big one)
Keep up the great blog! @damphoux