ROI in Social Media – Where Does it Belong?

What’s the ROI of Social Media?” I hear that question all the time, and it drives me crazy.

What’s the ROI of your cell phone? What’s the ROI of using a computer? What’s the ROI of breathing?

At one point, it was legitimate to think about the ROI of, say, a cell phone. But no more. It’s simply an assumed part of doing business, and living. You might think about the return on a specific model or plan, but you don’t wonder any more if you should use a cell phone or a smartphone. It’s about as much a question mark as getting dressed in the morning.

Networked communications – social media – is now a part of life. We’re past the stage of wondering if people are going to communicate and do business via these mechanisms. It’s just a matter of how we, as individual people or businesses, are to engage. Computers, internet, texting, cell phones, social platforms – they’re all networked communications, they’re ubiquitous, and they’re growing in influence.

People breathe. They drive. And they communicate in networks. Period.

That’s why it’s silly to ask, “What’s the ROI of Social Media?” Instead, we should ask, “what’s the potential ROI of this or that specific social media tactic or campaign?” Because you don’t measure the ROI of an assumed cost of doing business.

You don’t ask for the ROI of a medium. You determine if that medium/channel/approach is going to be a viable and potentially profitable place to be. Then you create a strategy. Then you look at the harder metrics of ROI over time on a tactical level, while also seeking to measure “softer” and, when possible, harder $$ returns on the use of that medium over the long haul.

Social Media/Networked Communications are a fact of life. And, there are some things we do because we know that, in the long run, they make business better. What’s the ROI of honesty and transparency? Don’t look for some short-term dollar figure – look at the long-term reputation value. What’s the ROI of getting closer to your customers, of improving communications, of putting a human face on your business, of being part of the marketplace dialogue, of creating strategic serendipity? What’s the ROI of creating opportunities through people-connections? When something is the right thing to do, you do it, knowing that in the long-term, it’s good for business.

That’s why we should instantly dismiss the question, “What’s the ROI of Social Media?” It’s exactly the wrong question. Should companies be involved in networked communications? In every way that makes sense, yes – because it’s smart, it’s right, it’s where the people are. Now – what specific strategies are best, and what measurable tactics should be employed? That’s when we move into ROI territory (and that’s when you start reading The Brand Builder on ROI…).

Then again, you can always take comfort in the return on doing nothing

(Update: Because I kinda jumbled several lines of thought into this one blog post rant, I decided to create a little video to try to clarify some ideas. Thanks to all the commenters and twitter-folk – esp. Olivier Blanchard – who contributed their thoughts to the discussion. Feel free to keep it going! And while you’re at it, read this common-sense social-media-in-business perspective from @jasonfalls – great reality check! Then check out Shannon Paul’s recent musings on ROI. And, if you want to get beyond the narrow ROI/tactical issues into future business design, check out this forward-looking post by David Armano)

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About Steve Woodruff
Steve Woodruff is a blogger, a Connection Agent, and a consultant in the pharma/healthcare industry. He specializes in helping people and companies make mutually beneficial connections.

23 Responses to ROI in Social Media – Where Does it Belong?

  1. Jay Ehret says:

    Steve, I know you’re not brushing it aside here, but I cringe when I hear marketers brush aside the social media ROI question. In my opinion they do so because they simply don’t know what the ROI is. Truth be told, we don’t really know the overall effectiveness of social media marketing effectiveness. There are no comprehensive numbers to prove that it’s more effective than any other form of marketing.

    We’ve had a couple years of this social media marketing think under our belt. Several books have been written on the subject. So I think it’s valid to ask: “What’s the ROI of social media marketing?” And the biggest ROI to consider is time.

  2. Jay, I half agree with you. I think it’s impossible to answer the broad question (What’s the ROI of Social Media? Social Media Marketing? Marketing? Advertising? Training? etc.) because there is simply no way to give any answer to a question framed that way. It’s the wrong question (and sometimes it’s being asked only to avoid the risk of moving into social media).

    What’s the ROI of developing a great logo and tagline? I don’t know, and neither does anyone else. But do we believe it’s important, and worthy of investment? Yes.

    Plus, in my thinking anyway, it doesn’t make sense to think about social media (in the broad sense) as its own entity apart from other business building disciplines – unless the only way we’re marketing is via social media. We have a blog, we tweet, we advertise in a journal, we have an e-newsletter, we network at conferences, we have a sales force….when business happens, can we so neatly attribute it to only one aspect? Usually not.

    What’s the ROI of using this social media tactic for this purpose? – now you might be able to come up with something measurable. And that’s my point – not to duck the ROI question, but to place it in a strata where some sort of worthwhile answer can actually be determined!

    Make sense?

    • Jay Ehret says:

      Actually, the ROI of a logo can be determined. And I can get a logo for $200 on crowdSPRING in two weeks (and I did do just that). The thing with social media marketing is that it takes time, the most valuable asset of a business. If you’re going to allocate your most valuable asset to a marketing strategy, I think it’s fair to ask, “what’s my expected return?” We’re talking about opportunity cost here. Even if social media marketing does bring me a return, can I get a larger return on my invested time doing something else? A business that does not ask these questions is asking for trouble.

      • Thanks, Jay. I still think we have to re-phrase the question, however. It’s not “What’s my expected ROI on social media?” It is, “If I commit x resources to this particular blogging strategy, and this particular Facebook community-building effort, what will be my short-term and long-term return on that investment?” And maybe it won’t be a good return for a particular company, compared to, say direct mail. Fair enough.

        On the other hand, if we believe that in the long-term, we’ll gain a better marketplace position and reputation by evolving a social media presence (as broad strategy), which will eventually lead to greater financial return – then we put in place a strategy based on principle and (horrors!) faith, figuring out ways to accumulate meaningful measures along the way.

  3. When I read the first part of this, I thought, no, it is important to measure ROI of social media. But, you are right when you explain that’s the wrong question. Its the specific tactics that should be measured. Not the strategy as a whole.

  4. Steve: thanks for pointing me to the backstory via the Twitter exchange – good points above. A few thoughts:

    . Not sure I can easily say that social media is assumed, particularly with F500 clients. If 85% don’t even do SEO, I distrust any study that says X% “do” social media. This is still a very scary and new frontier to most companies.

    . The nature of social media is built over time – you can’t instantly have a social network on Facebook, Twitter, etc. I think we both agree on this. So approaching it as a media choice, the way you would television, print, or even PR, may be misleading. You have to invest in it over time to build enough scale to make it worth doing. Only then can you leverage it.

    The logic of “what’s the ROI of putting on your pants” is an interesting Zen-like exercise, unless you live in a world where they don’t wear pants. And they cost $100K a pair. Then, you need to have your ROI story ready to pitch your pant-less boss. Perhaps the metaphor has gone far enough.

    Thanks!

    Stephen Denny
    @Note_to_CMO

  5. Steve, thanks for this blog post. You definitely hit an interesting topic here!

    I would like to add the following to the ongoing discussion, hope you’ll find it useful.

    Obviously companies need to control costs. So whether it’s a cellphone, computer, logo or social media campaign, they should continue to ask themselves what the added value of each of these journal entries is.

    Yes, cellphones are an integral part of doing business; a new Iphone for your entire workforce, however, is not.

    When companies decide on their marketing/branding strategy, they need to asses where there target audience can be found and via what media they’re best approached.

    We all agree that the very end objective of any marketing campaign is to maximise the value of the firm. We will therefor, especially since we all seem to be marketers, agree that in the early stages of the strategy (re-)thinking process companies need to decide how much they’re willing to invest and what the expected (desired, if you wish) ROI of the campaign is [just like traditional marketing].

    So now we’re back on ROI; if a company decides that it’s in her best interest to have (new) social media at the heart of a campaign, then in my opinion it had better have a system in place to measure the ROI of their activities.

    If (new) social media is just another building block of a larger integrated campaign, it needs to be dealt with and allocated accordingly. Social media then becomes a static costs.

    E.g.

    Coca-Cola’s new advertising campaign would in my opinion definitely need a ROI measurement tool [for each of the different parts of the campaign; like Steve said: what is the ROI of using this SM tactic for purpose).

    On the other side of the continuum; a small local retailer that tweets – based on twittergeo?- on the special discount he’s offering this weekend, would be wasting his time (money) if he started trying to measure a ROI on this text.

    Now the grey area, as always, is where things get messy. This is, or so I think, what we are discussing here.

    In my opinion many companies need to asses the way they’re doing business, considering the changing business environment.

    Where they once, and probably still, did cold calling for instance, they should now spent time identifying their target audience on each of the social media platforms they utilising and built a brand personality that connects to this target audience.

    The results of these efforts, ROI if you will, can be measured in similar ways to how traditional brand building efforts would be assessed. Online recommendations vs. traditional recommendations, online network size and quality vs. traditional network size and quality. Just as two simplified examples.

    In short. ROI needs to measurable if the initial investment in social media requires it. If the social media efforts are limited, there is no need to worry about ROI. If companies are integrating social media in their daily activities, they should measure the results of qualified leads coming from their online network.

    Hope my text was a) readable (I’m Dutch) and b) added some value to the discussion.

    Regards Michael

  6. Of course, the best summary comment of all was Olivier Blanchard (@thebrandbuilder)’s tweet:

    The right question isn’t “what’s the ROI of Social Media?,” but rather “what’s the ROI of doing X in Social Media?”

    Which pretty much replaces all my verbiage in this blog post!

  7. Roy Atkinson says:

    The “What’s the ROI of your phone” question is completely valid. You can measure some parts of an ROI–say, if someone who finds your company, product or service on Twitter or Facebook buys your product or service immediately upon finding you, and you can show a connection. Fine. But not everything in your business world has to have a measurable ROI, e.g., your phone. If you had to justify your phone using only ROI, I’d be interested in how you would do it. Sales vs. phone bill? What if you’re not in sales? % of sales generated by phone enterprise-wide? Not sure about that–it justifies *a* phone, but not necessarily *your* phone.

    In short: ROI should be one measure of business expenditure. It should not be the only measure, nor the most important measure in many cases. Rethink it.

  8. Social Media and Social Networking is a much tastier dish for decision makers when it is placed in the customer service and customer communication realm. It speaks to the relationship between the company/brand and the consumer.

    The moment the customer service or customer communication element is removed from the equation or thought process, that company’s contemplated “Social Media” or “Social Networking” strategy becomes simply another form of push marketing.

    Being able to network with the people behind the brand, even if it’s done with the brand’s name facing forward, builds trust based on “access.” I think that’s one of the biggest factors for me as a consumer. Social Networking (verb) with brands (those who use social media as an extension of customer service) gives me a feeling of trust. I trust they will be there if I have trouble with their service or product and… well, that makes me feel good about their confidence in their offering. The more I trust them… the more comfortable I feel telling my friends and colleagues about the product, service or company. That’s WOM and isn’t that the most valuable form of marketing for any business?

    Companies probably need to be concerned with the question savvy online consumers are probably asking themselves (and the assumptions consumers may make); “Why is this company NOT providing me with a social media / networking channel?”

  9. Jeff Elkins says:

    As a new business owner (and one not really schooled in marketing) I only have anecdotes and my own, admittedly limited research. I have made the decision to invest resources (time) into Social Media Marketing. But I actually hear this question most often from communications department employees–who have been convinced by their trust network, and “have the faith”–but need to, as Stephen put it, convince a more traditionally-minded boss that there is value. We fail as leaders and advisors unless we can help define “it’s smart, it’s right” a little better. Even “it’s where the people are” can no longer be a trusted measure as recent web/email studies are showing that the traditional “eyeballs and clicks” measures aren’t providing the promised return.
    I don’t disagree that it’s wise to be thoughtful about the strategy. But I think that when we tell folks that it’s the wrong question, we need to give them a more concrete reason /why/ it is the wrong question. Thanks for making me think about this Steve!

  10. Dag Holmboe says:

    There are ways to measure Social Media ROI and the Social Media ROI should be measured depending on the size of the campaign.

    When the local coffee shop tweets a few times a week, an ROI is probably not necessary but if Coke (to use the example above) creates a multi-million dollar campaign, the Social Media ROI has be measured, tracked and analysed.

    If we don’t measure the Social Media ROI, how do we know if we are successful?

    I agree with a poster above stating that part of the reason for not measuring the Social Media ROI is that it might not be known how to measure the ROI. Taking that thought a bit further, the reason why ROI is not being measured is that it is tough to determine how you define the ‘return’ and also how you define the ‘return’ in dollars and cents.

    The investment (the ‘I’ in ROI) is easy to define (= technology + marketing effort).

    This is a two-step process where step one is to define the ‘return’ in dollars and cents. That can be done by using offline costs and benefits. Step two is to use the offline benefits in a meaningful comparison with online benefits and you arrive at a dollars and cents value that roughly approximates the Social Media return.

    Now, together with the ‘investment’, run the ‘return’ through the standard ROI formula and you have your Social Media ROI.

    If you have done your ROI analysis well and assuming you measure, track and analyse the results, you will find that your ROI calculations will get better and better over time. This is useful for (a) your own budgeting, (b) for applying for money with your CFO/CEO, and (c) for creating Social Media campign proposals for clients.

    (Jim from medxcentral – good to hear from you again!).

    Dag.

  11. This is great Steve. Of course, when it comes to Social Media ROI we all bow at the altar of the almighty Blanchard (@thebrandbuilder – a.k.a. High Priest of Nutella). But for most of my clients, for whom the term “Social Media” sounds like “Matter Transporter Beam”, Olivier’s deep, comprehesive, and strategic approach is, sadly, terrifying. They want easy answers, and the correct answer is: there are none!

    I’ve always said asking about social media measurement(or in my field brand equity) is a bit like asking a concert pianist: can you teach me to play? It’s possible, but it takes time, practice, and a whole bunch of skills that don’t fit on the balance sheet.

    You’ve done a great service to the planet (and me) with your simple opening question: What’s the ROI of your cell phone? Perfect.

  12. Steve – good post. I recently posted on a similar topic of ROI related to Enterprise 2.0 and the enterprise use of social technologies. My conclusion is also that this core collaborative capability achieved by Enterprise 2.0 technologies is a necessary piece of infrastructure for enterprises, like email. The right question there is not what is the ROI of Enterprise 2.0, it is what is the ROI of certain applications of Enterprise 2.0 collaborative capability (e.g. do I enable collaborative selling? do I enable customer support via Twitter and Facebook and connect my contact center to each?).

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  14. Todd Perlee says:

    I prefer to look at the increasing market share of competitors who have comprehensive social media strategies. It’s like the wild freakin’ West out here. You guys go right on measurin’, debatin’ and duckin’. There’s equity in them thar hills and I’m a gonna grab me some for my clients. YeeeeHaaawwww.

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  17. RayBilodeau says:

    The first question you need to ask yourself before what is the ROI is “What is the objective” the second question is “What is the reach and frequency of my social media marketing campaign going to be” (Is your target audience using the medium you are?)

    If you can not think of a specific objective but still feel the desire to use social media, perhaps what you are feeling is a desire for an increase in people’s awareness of your company or some public relations.

    For me the ROI question at the moment is associated with Social Media Marketing has to be viewed more inline with Public Relations rather than a specific Ad Campaign, Sales Promotion, direct mail or some other traditional monetary return.

    Increased sales, memberships, enrollment, sponsorship dollars or share price are all good objectives to have. However less tangible objectives are of value as well. For example Jay bought a logo for $200 – that’s an investment, the return on that investment might come from increased awareness of his company. Using his new logo consistently in all his marketing campaigns might make people associate his company logo with a certain position in the marketplace. If successful the logo might sell for more than $200 as Goodwill when he goes to sell his company. I would think that Goodwill came about as a result of numerous campaigns over a longer period of time and integrated with many forms of communication.

    Hence at the end of the day Social Media Marketing is just an expression given for a number of new mediums or Electronic Platforms (Twitter, Blogging, Facebook, etc) all of which are communication tools. Which falls in with the traditional marketing mix (4 P’s) under promotion. And the same rules apply “Integrated Marketing Communications” being the main one that comes to mind.

    Thanks for letting me share my morning coffee thought with you all. Catch me on Twitter raybilodeau (I know not very original for a marketing guy)

    Best,

  18. Hi Steve,

    Thanks for your article. You raise some good points but I generall have a dissenting view from yours. Your article prompted an article length reply from me and you can view it here…

    Yes Virginia, You Do Need To Determine a Social Media ROI
    http://ow.ly/IexN

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