Social Media Measurement, Social Media ROI

Is Our Addiction to ROI Killing Social Media?

Matt Ridings Is Our Addiction to ROI Killing Social Media?Guest post by Matt Ridings, founder of MSR Consulting, a Digital Relationship Marketing Agency in St. Louis. He’s @techguerilla on Twitter.

I had an interesting phone call with a prospective client. I didn’t know him, and hadn’t worked with his (large) company. He was looking for a social media vendor, and was referred to me by a mutual contact who had attended one of my training workshops. In that workshop, we discussed social media ROI realities.

Our mutual friend has apparently emphasized the importance of well defined, realistic, ROI. And his belief that if an agency couldn’t provide that, then they weren’t any good. Sounds reasonable, right? Not so fast.

Social Media ROI Addiction Is Our Addiction to ROI Killing Social Media?The reason this prospective client was calling me was because the firms he had shortlisted did *not* have explicit ROI objectives, and he was now terrified since he believed he was dealing with snake oil salesmen. I had him remove any identifying traits from the proposals, and send the summaries to me along with his explanation of what objectives he had given the agencies.

He was right, none of the proposals had included specific ROI objectives. But overall, they were sound. Given his objectives, which were wide ranging, they didn’t look very different from something I would have written, and I told him so. The key is that while these proposals may not have spelled ROI objectives per se, they *did* focus on making sure that the activities that could be measured were being measured.

Sometimes social media measurements can be tied directly to financial transactions, but sometimes they can’t. And that’s not always the fault of the agency, but the nature of what the client can measure, and what they commit to measure.

Social Media ROI is Always Doable. It’s Not Always Practical

What do I mean? Let’s take a customer service activity, how do I *directly* measure the ROI of helping a customer? What about activities designed to increase brand recognition? Brand perception? Secondary lift? One of the proposals sought ROI by setting a financial baseline today, and then reviewing sales growth over an extended period of time matched against the activities taking place in that time period. Of course, that is not true ROI, which requires an actual, definable “return”. Tracking overall sales growth and plotting activities alongside can demonstrate correlation, but not causation. And in many cases, that’s all you can do.

At some point you have to be able to say that this ‘program’ (which can contain as few or as many activities as you like) is beneficial, even if you can’t explicitly measure all of the data points that took place within that program. True, you can absolutely measure ROI precisely if you want to badly enough. But when does it become too much trouble? If you’re spending more time counting than you are doing, has your ROI focus run amok?

You measure what you can measure with a reasonable level of effort, and then you try and make as much sense out of it as you can. That’s the way it’s worked in marketing forever, and social media isn’t any different.

This overwhelming ROI focus is tough for agencies because it’s rare that a client actually provides an agency everything they would need to produce an accurate ROI. Are they prepared to hand over salaries of those people who interacted with the project? Internal materials costs? Profit margin per product? Many of those financials, which the enterprise considers ‘fixed costs’ are necessary data points if you’re going to *truly* calculate ROI.

The “investment” portion of ROI is often much trickier to figure than the reward, and most of the time the company itself isn’t keeping track of data that’s granular – much less giving those numbers to their agency.

Social Media ROI is About Defense, Not Offense

What a client really wants is a way to say semi-definitively that the decisions they have made were worthwhile. Social media ROI is about defense, not offense. You should measure as specifically and rigorously as you can, but the inability to precisely measure ROI shouldn’t be an obstacle to social participation, and too many companies are using “we don’t know the ROI” as a smokescreen for their fear of openness.

Any project needs to be able to “prove its worth”. If it can do that with a high enough degree of certainty for an executive to make decisions, then isn’t that okay? Maybe instead of me ranting about social media ROI for all this time I should have just been saying that all along.

Because sometimes, that’s enough.

  • KV

    Well-worded!

    Very good wriggle out of accountability, typical ‘agency instinct’. The Accentures and IBMs of this world wouldn’t get away with it, but the Ogilvy-s and BigMouths do – quite happily.

    ROI is ROI and it’s either there or it isn’t. Persuading an investor that he shouldn’t care about returns is pure snake oil. Which is legitimate business, btw, and very lucrative, they say.

    Best of luck!

    KV

    • http://www.msrconsultants.com Matt Ridings

      Thanks, it was apparently so well worded that you didn’t need to fully read it :)

      Yes, ROI *is* ROI. That part is pretty simple, the hard is actually *calculating* what that ROI is. I think if you’ll re-read the post you’ll see I am in no way advocating that an activity or program doesn’t need to seek to justify itself. I’ve been one of the louder voices in this industry regarding the need for ROI, the point is that the volume of those voices has apparently drowned out the common sense and I took full responsibility for my part in that.

      Cheers,

      -Matt

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks, it was apparently so well worded that you didn’t need to fully read it

      Yes, ROI *is* ROI. That part is pretty simple, the hard is actually *calculating* what that ROI is. I think if you’ll re-read the post you’ll see I am in no way advocating that an activity or program doesn’t need to seek to justify itself. I’ve been one of the louder voices in this industry regarding the need for ROI, the point is that the volume of those voices has apparently drowned out the common sense and I take full responsibility for my part in that.

      Cheers,

      -Matt

  • Dave Van de Walle

    Not only a really good post, but classy as well. Liked how he earned trust up front by asking to see the other proposals without the identifying info. Then said “they were solid and sound.”

    • http://www.msrconsultants.com Matt Ridings

      Thanks Dave, appreciate you taking the time to comment.

  • Doug H.

    Great article. The key to determining any ROI is the ability to calculate what would happen if you hadn’t run the activity/program/campaign. And I’m not sure how you do that with something as far reaching and “squishy” as social media.

    • http://www.msrconsultants.com Matt Ridings

      For me, ROI is simply a financial calculation, nothing more, nothing less. There are definitely attributes of social media that can make it ‘squishy’, but almost all activities can ‘prove their worth’ in real financial terms just not always in hard ROI numbers.

      It’s like trying to measure the ROI of Jay going to a conference to speak only by the new client contract he brought home on the plane with him, it’s simply impossible unless you go another level up and group a larger set of activities together and even then it’s not true ROI. Some things can only be measured over a complete life cycle, and when you’re talking about relationships what is your cutoff point for that calculation?

      -Matt

  • http://www.jesseluna.com jesseluna

    We’re going to see a greater focus on ROI as early entry companies figure out how to measure it. I’ve been researching a major software company that’s has been quickly evolving to where it can easily measure ROI. The accuracy and success depends on factors such as the type of company, sales cycles, and how “customer-facing” the products/services are. For this particular company, ROI on marketing programs is do or die. Investors and boards should worry if a company doesn’t feel that way. However, that doesn’t mean that measuring ROI has to be a part of all social media programs as some programs have different goals.

    • http://www.msrconsultants.com Matt Ridings

      Thanks Jesse,

      I guess I’d put it this way, ROI *is* do or die..for everyone in every industry. The question is whether you have to *know* exactly what that ROI was to such a granular level for those activities in which it’s nigh impossible.

  • http://www.jesseluna.com jesseluna

    We’re going to see a greater focus on ROI as early entry companies figure out how to measure it. I’ve been researching a major software company that’s has been quickly evolving to where it can easily measure ROI. The accuracy and success depends on factors such as the type of company, sales cycles, and how “customer-facing” the products/services are. For this particular company, ROI on marketing programs is do or die. Investors and boards should worry if a company doesn’t feel that way. However, that doesn’t mean that measuring ROI has to be a part of all social media programs as some programs have different goals.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks Jesse,

      I guess I’d put it this way, ROI *is* do or die..for everyone in every industry. The question is whether you have to *know* exactly what that ROI was to such a granular level for those activities in which it’s nigh impossible.

  • http://twitter.com/erob1 Evan E. Roberts

    My only issue with this post lies in the phrase “That’s the way it’s worked in marketing forever, and social media isn’t any different.”

    I understand and mostly agree with the majority of this post but I feel like anytime we succumb to the thought line of “that’s the way it’s always been done,” we’re missing an opportunity to do something better.

    It seems like you’re saying, “if the only roadblock to ROI is time and energy, and those aren’t available, don’t worry about it.”

    I think if those are preventing delivering quality, find a way to systemize the process and decrease the time and energy needed to calculate ROI.

    Other than that, I really enjoyed reading this post Matt.

    Thanks!

    • http://www.msrconsultants.com Matt Ridings

      I take your point about ‘opportunity to do something better’ Evan. First I’d say that I do think there are traits of Social Media that can make it ‘different’, but Second I’d say that there is far *too* much focus on how it is so different from everything that has come before and because of that it scares the crap out of marketers and delays their participation. My preference is to show them how todays world relates to yesterdays world that they already understand so that they have analogies to grasp onto that make things clearer for them (and gives them comfort).

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      I take your point about ‘opportunity to do something better’ Evan. First I’d say that I do think there are traits of Social Media that can make it ‘different’, but Second I’d say that there is far *too* much focus on how it is so different from everything that has come before and because of that it scares the crap out of marketers and delays their participation. My preference is to show them how todays world relates to yesterdays world that they already understand so that they have analogies to grasp onto that make things clearer for them (and gives them comfort).

  • http://www.expertlaserservices.com Nathan Dube

    We did not even consider ROI as far as cash returns when we started our social media program (although we did get some soon after) and we have a fairly loose watch on the metrics of said ROI. With that being said we have been pretty successful in garnering great ROI from our social media program.

    I don’t mean to say “ignore ROI and you will get ROI”, however I am saying that to some extent that is what has happened for us.

    In light of the this article I would say most organizations who are super uptight in-regards to ROI def need to lighten up and or surrender to flow so to speak.

    Thank you for this article. Great Stuff

  • Mack Collier

    Great post, Matt. You’re right, clients have had the ‘what’s the ROI of social media?’ club beaten over their heads so much that they just want you to show them that number. And since the return is almost always dependent on what the CLIENT does as well as what I do, it’s tough to guarantee.

    This stuff isn’t rocket science, if you want to use social media, then you need to have a plan in place to guide your efforts, and you need to have real goals in place. This will validate the tactics you use to execute said strategy. Then you need to measure metrics associated with those tactics that tie back to the goals you have for using social media.

    That’s it.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks for taking the time to comment Mack

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks for taking the time to comment Mack

  • Jason Breed

    Matt – Interesting post (and comments). Being the Social practice lead at Accenture, I have to agree with KV a bit. We don’t get away with squishy initiatives, however, I don’t think that’s the point here. Social is usually connected to a larger initiative and co-mingled with other components of the business.

    With that, we need to show value back to the business at every step. Could be that social identifies the right 7 influencers to invite into a new product release demo. That information is captured through CRM, processed with marcomm and the social result is a lot of early reviews that heaviliy spike demand in conjuntion with the other marketing channel efforts.

    In this scenario, social plays a key role and adds a specific value back to the business (impact on business) that enables the overall initiative of increasing sales of the new product. Social is not the driver of ROI, but connected to the overall strategy it plays an identifiable role.

    Not every blog post should be expected to have ROI (unrealistic) just like not every press release does. However, if the overall campaign collectively does not drive results, then prepare to be replaced.

  • Jason Breed

    Matt – Interesting post (and comments). Being the Social practice lead at Accenture, I have to agree with KV a bit. We don’t get away with squishy initiatives, however, I don’t think that’s the point here. Social is usually connected to a larger initiative and co-mingled with other components of the business.

    With that, we need to show value back to the business at every step. Could be that social identifies the right 7 influencers to invite into a new product release demo. That information is captured through CRM, processed with marcomm and the social result is a lot of early reviews that heaviliy spike demand in conjuntion with the other marketing channel efforts.

    In this scenario, social plays a key role and adds a specific value back to the business (impact on business) that enables the overall initiative of increasing sales of the new product. Social is not the driver of ROI, but connected to the overall strategy it plays an identifiable role.

    Not every blog post should be expected to have ROI (unrealistic) just like not every press release does. However, if the overall campaign collectively does not drive results, then prepare to be replaced.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      You’re correct in that that isn’t the point of what I was trying to express.

      To put it simply I would just say “prove it”. Proof is required, not optional. The question is at what layer, and at what level of detail do you make that proof given that in some cases actually trying to quantify it into a ROI would cost more than the activities themselves. There’s a tradeoff here. If you take a customer service philosophy of Zappos for example against that of the traditional CS department focused on efficiency measures alone how would calculate a *true* ROI of executing that philosophy over simply handling communications as cheaply and quickly as possible? You can’t. You can only build rough correlations. But does that mean they shouldn’t do it that way? We all know that’s their differentiator and key to their success, the thought that an executive shouldn’t use their instincts as well as their spreadsheets is a bit ridiculous when you think about it.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      And so we’re clear here, when I say ROI, I *mean* ROI. Hits, page views, memberships, eyeballs on a commercial, etc. are not ROI…they are the *potential* for ROI. Only when that potential is realized into a financial transaction can you call it ROI.

      • http://twitter.com/infinitypg Erik

        Matt, you are correct to make this clear. This is an important distinction. A lot of SM types I see on Twitter, etc. stop at hits, page views, etc., or consider any metrics beyond the ones you mention as unnecessary. To me this is intellectually lazy and a good way to be exposed as either concerned only with “squishy” “feel-good” metrics, or lacking enough business sense to be discussing SM as a marketing initiative.

        I don’t mean to say that these things are not important, because they are. My point is that these metrics are a starting point to measuring ROI. It is after this that measuring ROI becomes challenging.

  • http://membershipjedi.com MikeCassidy

    Matt’s a hero of mine, and this post only confirms why. “…the nature of what the client can measure, and what they commit to measure.” Interesting how ROI often means “how much it will make me in sales or donations and when.”

    Determining the starting point or benchmark pre-campaign will serve agencies well in establishing client credibility. My personal focus is on the existing customers (members) and in our industry we have clear retention metrics to which we are able to weave campaigns.

    ROI cannot be creatively crafted — that’s the campaign, the ROI must be directly correlated with an existing measure that the company currently lives and dies by daily. ROI is also not social media heroin, it’s the heroin of business – always was and always shall be. Our role is not to create new ROI, it’s to use what’s there and improve it.

    I fear granular. Show me the ROI on naming a stadium and I’ll show you the ROI on an active Facebook page (less a few thousand percentage points…maybe).

    Love your insight Matt, many thanks.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Umm, thanks Mike. Humbled.

  • Colin N. Clarke

    In order to get to measurement that is relevant two questions need to be answered:
    1) By what standard is your company’s marketing efforts being measured?
    2) By what standard are YOU (marketing manager) measured?

    We can build campaigns that will positively affect both… but be careful what you wish for. A campaign that totally drives sales objectives or totally drives inquiry may completely undermine long-term brand strategy and positioning. And this is the issue I have with too strict of a focus on tactical-level ROI.

    I think we’re on the same page, Matt. Yeah, ROI can be built in at any level, but at what cost? We all have to manage expectations with our clients on what is worth measuring indiviually and what is best measured at an aggregate impact level.

  • Peter Brill

    Matt

    A really provocative article. I think various people have made good points here. While KV has, perhaps, missed the point, it is easier for the Accentures of the world to measure ROI because they have the budget to be able to buy the tools. Not, so easy for smaller organisations.

    Measurement and evaluation is a debate that has been going on in the media and public relations sector for many years, too. The biggest change in the advent of social media and web PR generally is that measurement is so much easier and accessible than previously, so there is less excuse for not having the basic data.

    However, while proving ROI still remains a challenge, this shouldn’t necessarily be a reason for not participating in the broader social dialogue, providing it is well targeted and there is evidence of reaching key target audiences.

    I also think that Jason’s point is well made about social media being an integrated part of a broader marketing/comms strategy and, if it doesn’t hang together as a whole, you’re in the wrong business. It helps with consistency and visibility of message across a wide range of publics.

    In my view, much of the ROI argument is not just a smokescreen for openness, but also a shield against personal prejudice by a generation of senior execs who have not grown up with the concept of social media.

    As you say, it may not always be possible to prove ROI, that doesn’t mean you should be closing off an important channel for dialogue with your key publics.

    • http://www.convinceandconvert.com jaybaer

      The very real question becomes: what’s the ROI of precisely measuring
      ROI?

      • http://www.techguerilla.com/ Matt Ridings – Techguerilla

        And that Jay, is *the* eloquently summed up question

    • http://www.convinceandconvert.com jaybaer

      The very real question becomes: what’s the ROI of precisely measuring
      ROI?

  • Joe

    The old addage of “If it is not measured it’s not managed” applies to socia media as well. It is also a high risk to social initiatives to not be able to provide measurable results to executives. There are many ways to measure results but you may have to look outside of the traditional thinking of facebook and twitter and focus more on creating consumer communities that leverage the consumer voice firectly in ecommerce and marketing strategies. The strategies that you use to leverage consumer voice can be very effective in increasing conversion and cross sell. UGC strategies and can dramaticlly increase marketing effectiveness both electronic (email campaigns, banners etc.) as well as traditional merchandising/hard marketing. For example we have a client that has seen a 32X increase in click through rate on banners by leveraging user generated content. We have been able to leverage UGC to increase email open rates by more than double. These are powerful tools that when managed can guide you to where the focus and investment should be.

  • http://twitter.com/abonde Allen Bonde

    Great post, topic and comments! Here are a few quick points/observations from 20 years of pitching CRM/Web/eComm/social projects to a lot of skeptical folks:

    1. ROI is only an issue when the exec team or sponsor doesn’t believe in the approach. I think this is part of what Peter is saying, and can be as much about culture and bias and stage of a tech market, as it is about getting hard data.

    2. Social media is a tactic and a channel (for us marketers), and as such is a contributor to success but typically not the sole reason for it. So to Jason’s point, we need to look at success/ROI at the campaign level, but not at the post/tweet/comment level.

    3. A focus on ROI is a really good thing, and instead of killing social media I’d like to think it is forcing it to evolve and perhaps morph into ‘social commerce’ – which by its nature IS more about selling stuff and getting closer to the transaction.

    If folks are interested, I’ve been writing a bit about moving from social media to social commerce including here: http://t.co/3DfIylP (1to1 blog), here: http://t.co/ozS6Jmk (Social Times) and here: http://blog.offerpop.com (my company’s blog).

    Thanks for allowing me to share some quick thoughts!

    - Allen

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      First, excellent comment.

      Second, this is probably a future post topic for me, but in regards to the word “campaign”…On the one hand I hate the word when it’s used in conjunction with most social media activities because to me it connotes old school marketing thinking that shouldn’t be directly applicable to social. That said, I think there is a bit of a conundrum when it comes to ROI because unless you slice something up into smaller parts with finite end dates how do you accurately calculate an ROI? And isn’t that basically what a ‘campaign’ is? I’ll have to wrap my head around that a little more I think before I try and clarify a viewpoint because my current thinking seems a little at odds.

  • mikep

    This is a funny little aside but HP is running a cool campaign about ROI…return on investment for individuals, not businesses! Check it out at:
    http://www.hp.com/united-states/campaigns/reimagineroi/index.html

    You can also enter a story to win a 5 day getaway to Napa for up to Six people in your office, nice incentive!:
    http://www.hp.com/united-states/campaigns/reimagineroi/index.html#/contest

  • http://www.skypulsemedia.com/ Howie at Sky Pulse Media

    I am an ROI champion. I am not offended by your post. But Marketers don’t tend to be Sales/Finance folks, never mind economists. When it comes to maximizing returns which all of our businesses exist for in a general sense, but is ALL PUBLIC COMPANIES LIVE FOR btw sorry for the Caps but its a very important fact, we have to allocate resources for the greatest impact on revenues and profits.

    When it comes to Social I view it as a way to increase loyalty and customer retention. It does not have scale yet and is not moving sales needles for big Brands, so I can not say it won’t eventually. What I can say is for a CEO paid in stock options he will view Social as an Accessory that is nice and helps in many ways like reduce R&D costs and maybe learn insights, but it is not hitting his bonus just yet. So is ROI everything? No. I am a strong believer in Social Media….but not necessarily as a marketing platform. Remember Social is not a Marketing Platform, we just hijacked it. Its a revolution in interpersonal communication technology. If you ask people why they use Social…connecting with Brands is way way way down the list.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      While I can’t say I agree with 100% of your comment, there’s a lot in there that I do (resource allocations, etc.).

      But I’d mention that any medium which needs to be subsidized by advertising and marketing activities is a marketing platform. People don’t watch TV so that they can see commercials, that just happens to be the business model involved that allows them to see the main content. So until Twitter, Facebook, et al start charging you to use a ad-free service I have to consider them marketing platforms because that’s what their owners consider them. It’s not like TV and Radio were any less revolutionary in the way they changed the social fabric simply because they are ad supported.

      I’m a marketer, but I’m also somewhat of an armchair social anthropologist, the two viewpoints aren’t mutually exclusive they are just different perspectives.

  • http://paulgailey.com/ Paul Gailey

    To answer the blog post title question: NO. The fact the SM ROI debate energetically continues, draws out more proponents and success stories, that will in time alleviate the hesitancy of the laggards. Let it be.

  • http://conradflynn.com/ Conrad Flynn

    Social media can be a “tactic” but tactics and tools are useless without strategy. And, at the end of the day, intelligence gathered is only as good as what you do with it. Right?There is a big difference though between the overall return on ALL marketing efforts and specific, direct measurables. Measuring MANY, smaller but more direct and easy to measure events will probably add to to more meaningful insights than measuring the whole effort against the success of the brand. I think that’s where a lot of people go wrong.

  • http://www.taglinemachine.com Simon Gornick

    ROI in social media is a luxury. And the only brands that can accept that are likely to be big ones with multi-platform marketing budgets. The larger the brand, the more likely they are to use social media without concerning themselves with it’s dollar ROI, when goodwill for them, is priceless. With mid-level brands the debate becomes more acute because the marketing budget is more thinly spread. And as for small brands, there’s no debate at all. For the most part, all they have is social media – so ROI is a matter of hope rather than measurable statistics.

    • http://www.convinceandconvert.com jaybaer

      Brilliantly said. A matter of hope, not statistics. Nice. You should write a guest post around that theme. Let me know if you’re interested.

      • http://www.taglinemachine.com Simon Gornick

        It would be a pleasure, Jay. Many thanks for the opportunity. I’ll start jotting down some thoughts and will email you. Best Simon.

  • Mark W Schaefer

    Anybody who has worked in a company (including IBM and Accenture) would know that ROI is simply not practical to measure at every turn. That does not excuse accountability, it is a just a reality of life. I believe that every core marketing activity should be measured and tied to creating shareholder value in some way, but practically speaking you could use up your entire marketing budget in measurement and at some point you need to “do” something too.

    I agree with Matt. He has presented a real-life and practical view of the world.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks for the input Mark, always respect your opinion.

  • Social Steve

    Excellent!

    Thanks,
    Social Steve

  • http://www.communicationammo.com Sean Williams

    As commenter Jason Breed mentioned, the critical need is to help people understand the VALUE of communication activity, whether social, marketing, PR or employee. It’d be great if we could spend the time, effort on cash to properly quantify each of the many impacts on buying decisions, reputation and brand, but as Jay comments, what do we get from that?

    If we could study over time (and across several industries) the communication mix model, we could begin to have some sort of normative idea about the potential ROI of each discreet element in the mix. We could issue a prediction about it, then do gap analysis when reality didn’t match the model.

    That’s really what business wants when it asks about ROI — what is that activity worth to my business?

    The question of value isn’t asked about a lot of things — it’s just assumed. Building effective relationships in an organization, deepening employee understanding about the business, conflicts avoided, a smile after a compliment.

    We can establish dollar value — we have the capacity — but does it matter in every case? No. Value is subjective and non-scientific in these matters, but that doesn’t make it useless.

    Sean
    @commammo

  • http://www.communicationammo.com Sean Williams

    My salutation disappeared! Matt, thanks for a thoughtful post!

  • http://thebrandbuilder.wordpress.com olivierBlanchard

    These are all sound arguments, and I can’t disagree with them. Except… for the one bit that bothers me, and it’s this: Why in the world would” the client” hand over its Social Media program to an outside agency? What exactly is being outsourced?

    This betrays a fundamental flaw in the client’s understanding of what the Social Web is and how it must be integrated into a business practice. “Social Media” is not implicitly a marketing endeavor. Is the agency handling digital customer service as well? Online reputation management, digital crisis management, even? Is the agency handling internal collaboration within the client’s organization as it pertains to its Social Media activities? Is the agency handling all of the monitoring, measurement and analysis of the inbound, outbound and latent content relevant to the client’s business?

    Here is what I see: The same old “campaign” mentality and dynamics that were the staple of the pre-Social Web era. (Hire an agency to “do” Social Media for us. They can handle reach and content, as always.) This is the wrong approach. Can an agency handle some of a client’s Social Media related activities? Absolutely. Should it? Probably. But the ROI piece is 100% the client’s responsibility, starting with purpose, objectives and targets. The agency can only deliver what it is hired to deliver, which – in the earned media space, not the bought media space – can be relatively limited.

    As for ROI being defense rather than offense, no. It is neither a strategic nor tactical motion. It is simply financial measurement. Though, to your point, it is often used as a qualifying question during an initial project proposal discussion (as well it should), it really serves two clear purposes: 1. Business justification (Is this project worth the investment?) and 2. Project diagnostic (what is working and what isn’t working?) in semi real time.

    An agency’s answer to the R.O.I. question should always be this: “What do you want the R.O.I. to be?” If the client doesn’t know, they need to figure it out. It’s their business after all. Asking an agency to figure it out for them is just silly. Hiring an agency to do anything without a specific set of outcomes in mind, without having already worked out targets (financial and not), is simply irresponsible (I would go as far as to call it negligent) management.

    I enjoyed the piece, Matt (and Jay). Cheers.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      Thanks for the feedback Olivier.

      Right, or wrong, the reality is that there are a lot of clients (most?) out there are basically saying “We want to be involved in social media but aren’t sure we fully know what that means, how about we have a lot of agencies/consultancies (both old and new) make proposals on what they think we should be doing.”

      In this way the agencies are shaping both the problem and the solution, but honestly it’s not that different than the way these things have always worked. The proposal process is being used as a tool for the clients to help educate themselves. To some degree that will always happen, but you’ll see it reduce over time as the industry matures and the internal folks become more specialized themselves.

      And the response of “what would you like the ROI to be” will rarely be answered because at that stage the client views this as a negotiation not a partnership. Thus the question is being viewed the same as a car salesman asking you what you’re willing to pay.

      Is there a better way? You bet. But we can’t ignore reality either.

      The good news for you and I is that we make a lot of our living by educating companies on how to go about this in the best way, so look at it this way, the moment everyone has this all figured out is the moment you’re out of business. There’s a free plug for Red Chair :)

      • http://thebrandbuilder.wordpress.com olivierBlanchard

        Believe me, if my business revolved around Social Media R.O.I., I would be in serious trouble come 2011. ;)

        For now though, when the question is asked, I don’t worry too much about not being prepared to answer it properly. Cheers.

    • http://twitter.com/HumanRacehorses Harold Goldner

      The penultimate paragraph of this comment, “an agency’s answer to the ROI question…” is all anybody has to say about ROI and social media, or ROI and any kind of marketing, for that matter. Great response.

  • http://www.afmarcom.com/ Angelique

    It’s not killing social media, but it’s giving social media advisors ulcers.

  • http://www.pamelahazelton.com Pamela Hazelton

    I agree! I wrote an article about how conversion rates are decreasing as a result of social media, and that store owners should look at the ROI overall, rather than one specifically focused on social media itself:

    http://www.practicalecommerce.com/articles/2004-In-Social-Media-Era-Nine-Techniques-to-Improve-Conversion-Rates

  • Rhondahurwitz1

    Just wanted to add the small biz perspective.

    Small business owners have their own metric…it’s called a gut check. Either their gut will tell them more traffic is coming through the front door, or the phone is ringing more, or it won’t. They will give it a few months, tops. The IBM’s of the world may have the budget and staff to buy advanced dashboards…not so, the
    business owners I work with. They are a practical bunch…if they start to see opportunities that wouldn’t have occurred otherwise, it’s a win.

    Loved your original post, and all the comments. In fact, blogged about them here. http://bit.ly/bWqCCF

  • http://www.facebook.com/people/Seiji-Kato/631878571 Seiji Kato

    Nice article and some very thought provoking arguments. It is a big question though, the last one that you make. Is it not enough that you can measure how much worth a product has? Is an ROI really needed in that case?
    I am very much a novice in these things, so my words do not carry any weight, but perhaps another method of measuring worth is required? One which doesnt have company’s shaking in fear of the prospect of the dreaded measurement, or use it as a smokescreen. Still, that is but wishful thinking.

    • http://www.techguerilla.com/ Matt Ridings – Techguerilla

      I think there are a lot of other ways of defining worth, they are simply not ROI calculations.

      There are many occasions where a large company sponsors events that it knows will never actually result in enough sales to cover its sponsorship costs for example. Contrary to popular belief not everything a greedy, cold-hearted, selfish corporation does is actually greedy, cold-hearted, and selfish.

      But when it comes to marketing, by definition the objective of marketing is to deliver on a call to action. In that way it is distinctly tied to moving the sales needle, so I’m not sure where marketing is concerned we need another method. We just need more common sense.

  • http://reallifemadman.wordpress.com Marjorie Clayman

    Great post Matt. These conversations are always difficult.

    Ultimately, ROI is about lead conversion/nurturing. As an agency, we can make recommendations about how to do that (no matter where those leads may be coming from), but there has to be an internal structure within the company that takes the leads marketing sends them and turns them into paying customers. From there, they can also measure the investment against actual sales.

    A proposal really is not going to include a definite ROI metric unless there is already a mechanism in place within the company. I would send the responsibility back to that prospect and say, “We can consult with you on how to do that, but measuring clicks from a Social Media site is not the answer.”

  • http://reallifemadman.wordpress.com Marjorie Clayman

    Great post Matt. These conversations are always difficult.

    Ultimately, ROI is about lead conversion/nurturing. As an agency, we can make recommendations about how to do that (no matter where those leads may be coming from), but there has to be an internal structure within the company that takes the leads marketing sends them and turns them into paying customers. From there, they can also measure the investment against actual sales.

    A proposal really is not going to include a definite ROI metric unless there is already a mechanism in place within the company. I would send the responsibility back to that prospect and say, “We can consult with you on how to do that, but measuring clicks from a Social Media site is not the answer.”

  • http://oxsteinlabs.com BrettGreene

    The comments on this post are as essential as the post itself. Thanks for the great perspectives and insights.

    Another question that’s good to ask a client is, “How do you measure ROI in other areas of your company?” This, combined with Olivier’s question of “What do you want the ROI to be?” usually reveal that the client’s haven’t thought about many details of how to define their ROI strategies. They also may not know how to determine when they have gotten there aside from seeing a general uptick in revenue.

    The difference between correlation and causation is also a big factor. If the client rolls out a strategic social media plan that is integrated with their operations, including and beyond marketing and customer service, there will be gains that cannot be directly tied to social media marketing. The cause of ROI may look like it was or wasn’t tied to social media depending on whether the correlation is direct and obvious. If instead, it is a part of collaborative efforts involving other marketing and outreach in addition to social media, tying back the ROI to social media won’t happen.

    Most marketing that does not have specific tracking elements built in, such a s A/B testing, has nebulous results. Clients often forget this along with statistics like TV advertising only having an 18% ROI. At least with social media you can track more than how well a billboard performed. Matt’s point about social media efforts proving their worth rather than focusing on (mostly) incalculable ROI is the real takeaway here.

  • http://www.techguerilla.com/ Matt Ridings – Techguerilla

    Great recap of the topic here Rhonda, I appreciate you taking the time to write about it.

  • http://twitter.com/Collectual Collective Intellect

    You make an excellent point. Unless you have specific identifiers associated with link you are using in tweets or in facebook, it’s very hard to track social media engagements directly with sales. Engagements and conversations with the customer are part of a comprehensive plan of working with, listening and responding to customers. After all, I don’t remember ROI demands being attached to data sheets or white papers.

  • http://www.mobilemarketing305.com Joe

    I have had quite a bit of success using social media (and lately mobile ads) to promote the small businesses of my wife & I. Now, I want to branch out and help other local businesses in Miami have success with these tools. I know the ROI is way better than with print and Yellow Pages and flyers that they still do and can’t really measure. My main hang up has been how to measure the ROI for them so that they see the value and keep paying every month to run great campaigns for them. Apart from lead generation, coupons dowloaded, ecommerce sales, RSVP, etc what are good ways to convince brick & mortar businesses that this is well worth the cost?

  • http://twitter.com/kregobiz Kerry Rego

    My problem is that without standards, the metrics we are working with tend to be all over the map. A lot of conflicting information adds to the confusion. Using the same tool in two different locations to measure the same traffic and getting different results? Big pain but it happens everyday!

  • http://www.skypulsemedia.com/ Howie at Sky Pulse Media

    I think its the opposite. I think we dont demand enough ROI on Social. It doesn’t move sales needles for big companies. VP and C level get paid big bucks on needle moves. If we can prove it moves needles the ROI demand will be reduced. But until then if someone who’s bonus can be significant if the stock increases, and I can invest in non-social and gain more personally and for shareholders. Then Social is completely toast. It will lose out 100% of the time.

    I am not trashing social. I love it Jay. I connected with you via Social. It has been completely critical to my professional networking and has proven to me ROI in one sense. But not in my bank account yet. So you can say that tosses my theorem. Not really. If I was CMO and had a real budget, millions of customers, a big org and a public stock my strategy would be 100% different with Social being a small AND right now. Not THE strategy.

    • http://www.convinceandconvert.com jaybaer

      The challenge is that social’s ROI is almost always long-term, like customer experience, customer service, etc. It’s hard to stay that course when shareholders expect quarterly numbers. Just one of the many reasons public companies don’t often lead in customer experience.

      I do disagree, however, that social cannot move the needle. Lots of case studies out there of it doing so.

  • http://www.skypulsemedia.com/ Howie at Sky Pulse Media

    I think its the opposite. I think we dont demand enough ROI on Social. It doesn’t move sales needles for big companies. VP and C level get paid big bucks on needle moves. If we can prove it moves needles the ROI demand will be reduced. But until then if someone who’s bonus can be significant if the stock increases, and I can invest in non-social and gain more personally and for shareholders. Then Social is completely toast. It will lose out 100% of the time.

    I am not trashing social. I love it Jay. I connected with you via Social. It has been completely critical to my professional networking and has proven to me ROI in one sense. But not in my bank account yet. So you can say that tosses my theorem. Not really. If I was CMO and had a real budget, millions of customers, a big org and a public stock my strategy would be 100% different with Social being a small AND right now. Not THE strategy.

  • http://www.skypulsemedia.com/ Howie at Sky Pulse Media

    I think its the opposite. I think we dont demand enough ROI on Social. It doesn’t move sales needles for big companies. VP and C level get paid big bucks on needle moves. If we can prove it moves needles the ROI demand will be reduced. But until then if someone who’s bonus can be significant if the stock increases, and I can invest in non-social and gain more personally and for shareholders. Then Social is completely toast. It will lose out 100% of the time.

    I am not trashing social. I love it Jay. I connected with you via Social. It has been completely critical to my professional networking and has proven to me ROI in one sense. But not in my bank account yet. So you can say that tosses my theorem. Not really. If I was CMO and had a real budget, millions of customers, a big org and a public stock my strategy would be 100% different with Social being a small AND right now. Not THE strategy.

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