Social Media ROI – Show me the Money!

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Social Media ROI | Steve Barnes | MarketingThere is little doubt now that social media is a necessary piece of any corporate marketing mix. The bigger question these days seems to be “how do we monetize social media?” Real examples of a financial Return on Investment (ROI) from social media marketing programs are rare. Unfortunately for most e-commerce teams, having a huge flock of followers often doesn’t translate into revenue.

For C-Level management to take your social media efforts seriously, you need to validate a direct tangible impact that either reduces costs (e.g. reduced customer service calls) or increases sales. At the moment, most social media initiatives are doing neither.

Both Dell and Sony have both stated that they have generated real sales from social media program, but these are definitely exceptions. What’s interesting is that most organizations don’t even measure social media engagement at a basic level let alone try and attribute sales to their efforts. It’s not that there aren’t any tools to do so, it’s just that unless you’re running a direct marketing campaign links to actual sales from social media programs are often tenuous. And where you have tenuous links, then ROI becomes very subjective and only as good as the assumptions that go into the formula. In my experience, the C-suite doesn’t like subjective!

There are a number of sophisticated thinkers and writers on the ROI of social media and Olivier Blanchard is one. He says “You have to understand that the value of a pair of eyeballs, of an impression, is subjective until that pair of eyeballs actually does something. Then the body attached to that pair of eyeballs becomes one of three things: A browser, an influencer or a transacting customer. The first two don’t actualize a financial impact (yet). The third does. That’s where we want to focus when dealing with ROI.”

An industry wide problem is at hand, social media ROI means so many different things to different people. In economic terms, ROI is simply defined as “the monetary rate of profit or return relative to the money invested.” Therefore it goes that ROI in social media should simply be defined as the monetary profit or return relative to the money invested.

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 the social media 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 industry articles that many people say ROI when they really mean results or value.

Don’t get me wrong, impressions, click through rates, conversations, and influential advocates are all important. These performance metrics are at the heart of social media engagement but until you are able to tie the “Return” to the “Investment” those measurements are a vague representation of your success (or failure).

Your C-Level management wants to know how your allocation of time and money has either saved the company money $$$ OR generated an increase in revenue $$$. Phrases like Return on Engagement sounds like soft and squishy marketing speak because engagement is a means to an end, not an end in itself.

What does all of this mean? Organizations must determine a measurement strategy for their social marketing activity that aligns with internal goals, objectives and cultural capabilities. This requires knowing where you want to go with your social programs and how you intend to get there.

I’m a practical guy. I know it may be impossible at this point in time to determine the specific ROI of your efforts.  But there is no excuse for not tracking key non-financial measures that contribute to your company’s goals. 

Are you looking to shift sentiment? Are you hoping to generate leads? Are you striving to increase the share of voice? Are you hoping to reduce the number of inbound service requests? Increase the number of influential advocates? Do you have these metrics defined and implemented in a way that is measurable?

The world would be so much easier if we didn’t have to be accountable for results. But that’s not the way business works. A company exists to create shareholder value, so that’s what we should do — and be PROUD of it!

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About Steve Barnes

Marketing and biz dev fanatic. Student of the world and disruptive influence pushing the envelope of growth through innovation.
This entry was posted in Analytics, Metrics and ROI, Social Media Marketing and tagged , , , , , , . Bookmark the permalink.

9 Responses to Social Media ROI – Show me the Money!

  1. Mark Evans says:

    Steve,

    You’re right; one of the challenges of social media ROI is that success can be defined differently for different companies depending on their goals or objectives. For some companies, it’s simply higher sales, while other companies are looking for better customer service or a stronger brand.

    The other thing about social media ROI is the lack of tools to measure it. Sysomos recently introduced a new service called Audience that helps marketers identify their best leads and puts a value on them. More details can be found here: http://www.sysomos.com/audience.

    cheers, Mark

    Mark Evans
    Director of Communications
    Sysomos Inc.

  2. kim says:

    Well done Steve. I really like your strong emphasis on measuring ROI in purely financial terms. The framework you advocate is very clear in separating non-financial outcomes, that are often reported by marketing execs, from what really matters.

    • Steve Barnes says:

      Thanks for your comment Kim. In my mind, beyond any altruistic company mission, there are three central long-term business goals with social media: to make money, to offset cost, and to realize sustainable competitive advantage. In the end these are the things that really matter if a company is to remain viable. That being said, I emphasize “long-term” here because these outcomes usually will only occur after an extensive effort of consistently doing the right things both inside and outside the organization i.e. listening, adding value, engaging, responding and developing zealots. If organizations go into this expecting a viral result overnight they will be disappointed. Viral successes can happen but are extremely rare. To do social media effectively, you need to give your strategy time. Like a good wine, it needs time to breathe.

  3. Jasmine says:

    One of the great challenges I keep encountering is how to attribute sales revenue and profit to investments in different campaigns or activities, social or otherwise. This problem is particularly pronounced in businesses where purchase decisions may take place over a relatively lengthy period of time, where there are many elements of the marketing mix at play and transactions take place off-line.

    • Steve Barnes says:

      You bring up a good point Jasmine. The fact is, measuring the effect of any Marcom activity is difficult unless there is direct response component. Without DR, you need the ability to track the media consumption habits for a very large sample, which is extremely costly. Also, if your product is sold primarily through retail you need a mechanism that tracks real purchase behavior with a high degree of accuracy. It isn’t cheap, and far too expensive for many brands.

  4. Brian Gant says:

    Hi Steve, it is no surprise that the use of social media by marketers and advertisers does not translate into profits. Social media is really a public relations tool. It is about building relationships, engaging with your public and showing that you listen. It is about listening, engaging and responding. Not about selling and making profits.

    • Steve Barnes says:

      Hi Brian, you’re comment “It is about listening, engaging and responding. Not about selling and making profits.” Is true in the short-term but ultimately it has to be about each company’s business performance metrics which include the impact on customer service, product development, human resources and internal communications in addition to marketing and sales. Only when we look at the whole picture can we determines the true worth of social media activity.

  5. John says:

    Great post and discussion! I’d argue that companies really need to focus on developing solid relationships with customers. When they put the relationship first, they’ll do whatever it takes to strengthen that relationship. And the stronger the relationship they have with their customers the more likely it will translate into revenue.

  6. sarah says:

    Thank you Steve,
    There is so much confusion about social media ROI. There are seemingly infinite definitions that we in the marketing community have come up with for the term itself. Thanks for the clarity.

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