Debunking Social ROI: Time for Metrics not Intuition
April 12, 2014
Today, many companies are struggling to identify the Return on Investment [ROI] from their social investment. The intuitively know developing and deploying content over social networks and blog sites makes sense but, when they need to monetize this investment, they cannot. However, this problem is nothing new. It traces back to the start of the development of social media and continues today.
The Myth of Social ROI
Back in 2011, David Meerman Scott, a major force in social media, responded to the question “What’s the ROI of social” with the answer “Well, what’s the ROI of your mother?” In another 2011 blog on the Hypocracy of ROI, he stated “It’s ridiculous that executives require marketers to calculate ROI (Return on Investment) on one form of real-time communications: Social media like Twitter, Facebook, or YouTube. Yet they happily pay for other real-time communications devices for employees like Blackberrys, iPhones, and iPads without a proven ROI.”
While you might think 2011 is too far back in time to be relevant, the same type of argument is being made today. The difference is instead of discussing mothers and receptionists, the conversation changes to a discussion of a very special type of ROI calculation – Social ROI.
Take a look at the Social ROI calculation in the graphic. It is one of many similar ones you can find from a number of social media experts. Everyone of them starts by emphasizing that ROI has to be a combination of tangible [a hard calculation] and Intangible [value to the community]. Unlike any other channel, when you look at social, your SROI must combine these two different types of valuations to create a true measure. So, how do you do that? You don’t. While Social ROI articles imply there is some “hard” calculation to determining Social ROI, they quickly eliminate the “hard number” or tangible part of this equation. Let me illustrate with a blog article called “Why Do Companies Struggle with Social Media ROI – 23 Facts“. It was published a couple of weeks ago by Rob Peterson on Mark Schaefer’s great blog called Grow.
Like many of these articles, Rob starts with this “fact”: Only 8 percent of companies say they can determine Return on Investment (ROI) from their social media spending (source: Econsultancy). While I would dispute the low percentage, it shows the reader that most companies cannot determine the ROI on their social investment. Once established, the equation above is used to address social ROI using the following logic string:
- ROI is a business calculation designed to compare an investment made now with a revenue you will get some time “down the road”.
- Calculating ROI tangibly means you need to take a “leap of faith”. After all, you don’t know the future so you can’t really predict if the revenue will be there.
- This means calculating the tangible part of the ROI is impossible and, besides, social cannot be tracked to revenue so there is no point in trying.
- However, look at his 23 justification points. The premise is “If social has a tangible and intangible part and you cannot possibly do the tangible part, you needn’t worry as there are LOTS of stories showing the effectiveness of social media. His list includes ample stories and non-quantified examples of how social has been used to expand the social footprint of a company or distribute coupons and other content to their social followers.
- Therefore, you really don’t have to do any “hard calculation” of ROI. Intuitively we know it must be valuable because lots of companies have stories of how great it is. And, after all, nobody can measure social from a tangible perspective so just accept the fact it can’t be measured.
Rob ends his article with this statement “How do I measure the return on my social media investment? This question has been top of mind for marketers for the last three years. Clearly very few marketers have figured this one out. (source: Social Media Examiner)” And so it ends.
In other words, the argument I see time and again is ROI is risky and complicated to calculate and really isn’t necessary because ROI is a combination of tangible and intangible elements. The tangible one is hard so let’s just ignore it and focus on these great stories. [Which of course are for companies other than yours!]
It’s time to stop this Social ROI madness. As an instructor at Northwestern, we teach ROI using the above calculation. Notice there is no attempt to add intangible items. It is a hard calculation and one with proven ways to handle the future revenue question.
Because it does attempt to calculate return based on an investment done today against a revenue stream which occurs in the future, we train our students to develop multiple “what if” calculations to show investment gain over time using different response, rate of return, and investment scenarios. This ROI equation is used for all other investments – including all of the other marketing channels used by a company. Why should Social have a separate and totally different way to calculate return? It shouldn’t.
In addition to the hard calculation, we also develop the performance funnel required to move the social visitors from initial engagement through to first purchase. This gives us hard KPIs with each scenario we must reach to ensure the ROI will be reached. These KPIs are the critical metrics and identify the points in the social marketing process we need to test and address to ensure success. Do we consider the intangibles? Yes, but they do not impact the ROI calculation. Even for social programs, your results must meet the requirements used by the C-level executives in your organization. Investments must return real dollar benefits. The intangibles just “ride along” to further enhance the value of your social marketing program.
The Solution isn’t to Change the ROI Equation but to Examine your Social Strategy
Rather than focus on the current “Social ROI is impossible to calculate” mantra, over the last 8 years, i have been examining the 8% of all companies [it is REALLY much larger than this] who developed social programs with proven social ROI. My goal was simply to ask the question “What are these companies doing differently on social”? In other words, why do they have hardcore, tangible ROI from their programs when the others don’t? The answer is YES and their strategies are different because they view social differently than most companies. From my research, here are three critical differences in these companies’ view of social media and social marketing and three action items you need to adapt into your social strategies:
- Think Markets not Networks – As a marketing executive, you develop all of your marketing programs to target specific markets. Even if you do the same for social, your market specific content is placed on your Facebook, LinkedIn, or other sites with all of your other content. And, because these networking sites are untrackable, you can’t determine the ROI. The 8% do it a different way. They target a specific market and then deploy social strategies which databases and then engages them. These strategies – Nurture Marketing and Social IMC – are designed to link the individual or businesses to the company’s sale and marketing systems. This means they can measure their social investment against their social revenue flow to determine sales, profits, and…ROI.
- Identify your Desired Relationship – Not all target markets are created equal. Some have much more value than others. When developing your social marketing programs, this means some markets deserve a greater investment compared to others. When examining the 3 social strategies used by companies today, two of them are designed to create databases of your social visitors to allow the development of a 1-to-1 relationship. These strategies also allow you to develop and maintain a 2-way dialog using social, mobile and other communications channels. To develop social programs with bottom-line ROI, you need to determine what type of relationship you want to develop with each of your high value target markets.
- Think Location, Location, Location – A final point of difference for companies with Social ROI is the way they choose to engage their high value markets. Most companies develop and deploy their social programs on social networking sites like Facebook which are designed to have an anonymous relationship with people. They can “friend” you but you cannot database them or understand exactly who they are. These companyies’ social programs consist of developing content to place on these sites and measurement is done in terms of their social footprint. Whether the markets are high or low value, they engage them all using the same social networks. Companies generating provable ROI and other business metrics on social do it differently. They use portals, landing pages, and private virtual communities to engage with their highest value markets. This takes these high value customers and prospects “off the web” where both the community and the company can best benefit each other. Today, you need to think about where you want to engage your highest value markets and build the type of relationship you desire with them.
There are ample examples of companies using social to generate market share, grow stronger relationships and generate profits. High value and high opportunity markets should have social programs that allow for individualized engagements based on the persona of the individual and their relationship with your company. Lower value markets can receive more “traditional” social programs with less tracking. The key to social success is for you to understand the social strategies available to you and focus on those strategies with hardcore, tangible ROI. Today, your social programs should be an integral part of your marketing mix and a coordinated part of your Omni-channel marketing strategy. It’s time to develop social using the same business metrics and ROI calculations used for all of your business investments.
Randy Hlavac teaches Social and Mobile Marketing at Northwestern University and is the author of Social IMC – Social Strategies with Bottom-line ROI. Randy can be reached at RHlavac@SocialIMC.com or on on Twitter at @RandyHlavac