ROI for Social Media Marketing: It’s Complicated
At a recent Social Media Breakfast in Boston, Harvard Business School associate professor Andy McAfee had this to say about the age-old Return On Investment (ROI) question:
“There is not enough ROI for figuring out ROI. It is an intellectually bankrupt exercise.”
Got that? McAfee is not saying that measurement is not important, he suggests instead that it is simply not worth the trouble!
To be clear, when McAfee talks about the challenges in determining ROI, he is referring to Info Tech spending, as laid out in two posts published back in 2006. According to McAfee, the sum of his argument was succinctly laid out in his Harvard colleague Bob Kaplan’s seminal “Strategy Maps” tome. I am going to excerpt and bastardize Kaplan’s text, for my fellow marketers:
“No marketing program has value that can be measured separately or independently. The value of marketing derives from its ability to help the organization implement its strategy … Marketing programs seldom have a direct impact on financial outcomes such as increased revenues, lowered costs, and higher profits. (Rather,) Marketing affects financial outcomes through chains of cause-and-effect relationships.”
This is even more true in the Social Media era. Jason Falls wrote a rock-solid – and highly popular – post about Social Media ROI last month, containing this gem:
“The problem with trying to determine ROI for social media is you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable.”
Or as David Meerman Scott is fond of saying, “What is the ROI of putting on your pants?”
At this point you’re thinking that I am anti-measurement. I’m not. I believe in measurement-by-objective: once you know which needle you want to move, decide how to make it move and how to keep track of progress.
The brilliant Peter Kim, a former Forrester analyst, outlined a framework for measuring Social Media in a September post:
- Attention. The amount of traffic to your content for a given period of time. Similar to the standard web metrics of site visits and page/video views.
- Participation. The extent to which users engage with your content in a channel. Think blog comments, Facebook wall posts, YouTube ratings, or widget interactions.
- Authority. A la Technorati, the inbound links to your content – like trackbacks and inbound links to a blog post or sites linking to a YouTube video.
- Influence. The size of the user base subscribed to your content. For blogs, feed or email subscribers; followers on Twitter or Friendfeed; or fans of your Facebook page.
There’s an “x-factor” that comes into play well: Sentiment. The spirit driving user participation matters. The net result of these adds up to a score for social media engagement.
So what’s the monetary value of a visit, comment, link, or friend? Well, the only honest answer is “it depends.” Only you know how much these interactions matter to your brand, regardless of industry, channel, or competitive results.
The just-as-brilliant current Forrester analyst, Jeremiah Owyang, also offers a whole series of posts related to the measurement issue – but my favorite of the group notes the fundamental difficulty:
(Until) we can measure the impact of a conversation between an employee and a prospect at a coffee shop, it (will be) difficult to measure social media…
What are you trying to accomplish? … (The) trick is to figure out what your goal is first – is it to spread a message among a community? Is it to reduce support costs? Is it to learn from your community? In each of these cases you’ll have to then assign the right attributes to measure against.
So, yea, basically it’s tough to measure ROI for Social Media. This doesn’t mean it is not worth doing! It just means that the justifications that professional marketers will make to qualify for budget are as likely to be anecdotal as analytical/quanitifiable.
What is the dollar value of responding humanely to an angry customer blogger in their public forum, or, say, on Amazon.com? Have you made that customer happier? Maybe. Have you made other visitors feel good about your publicly-displayed good intentions and responsiveness? No doubt.
But did the effort motivate more sales? How could you tell? There is no “I am buying this product because ____” form in the Amazon Checkout Cart.
How much money do you save by having the PR agency monitor Amazon.com, or the blogosphere, so that your customer support reps can instead be on-the-phone with live end-users? There could be a formula for that, but I’m no math whiz.
How much value can you place on the fact that the professional communicators at a PR firm trained the Customer Support reps on tone, responsiveness, etc., before letting them loose to represent the brand in the blogosphere? You can’t measure the value of something that didn’t happen (i.e., a blow-up in the blogs based on a poorly-trained public spokesperson).
Doth I protest too much?
Ironically, for all the hemming and hawing, it is sometimes easier to show “needle movement” via traditional PR. For one start-up client, “new users” was the metric we were asked to improve. They came to us with a base of 5,000 alpha users, and our outreach to traditional and social media outlets led to an additional 200,000 users in just two weeks! How’s that for ROI?
Lessons?
Know your objectives in advance. Start small, when possible: think “proof of concept.” Track the metrics obsessively. Make sure that your interactive marketing efforts are tied to the sales funnel (e.g., your vp of sales ought to be able to determine where most leads are coming from online). Report frequently.
Lather, rinse, repeat.
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Todd, it’s true, measuring ROI can be tricky. And there is a myriad of other metrics that companies should be looking at as well.
As David Meerman Scott mentions in his video, companies should be measuring how many people are exposed to their ideas, how many people are talking about their products/services or employees and so on.
But there are also tools out there that allow measuring ROI for certain campaigns. And it’s pretty easy. I’m not associated with any of the companies – just a happy customer, but Salesforce, HubSpot and Google Analytics work very good, especially when they are combined.
I live in a world of metrics and performanced based advertising and media models but I always keep in mind the words of Tim Ambler, Senior Fellow, at the London Business School
“Marketing Metrics create the illusion of certainty and control.
Cannabis has much the same effect.”
Great Post. I do think though there are ways to measure Social Media results once you figure out what your goals are. Though the items you list are very very important.
Agree with Mike – measuring social media campaigns or any other advertising, outreach platform is imperative for success. A more critical aspect, however, is altering the conceptions of success for a clients. As the quote from Jeremiah mentions, “(The) trick is to figure out what your goal is first – is it to spread a message among a community? Is it to reduce support costs? Is it to learn from your community?”
If you are wanting pageviews to your website, you shouldn’t be surprised when that facebook group fails deliver. There is still a lot of education necessary before social media metrics can reach the status of nielsen, zagat, or other entrenched rating systems.
Andy
Great discussion going on here. When I first read your post, I almost nominated Andy McAffee for Menace of the Month — because if measuring ROI of social media isn’t worth it, then what am I doing in business? But in reality, I tend to agree with him.
There are some things that can’t and shouldn’t be measured— like your pants — and Shel Israel said that long before David Meerman Scott, by the way. But I’m sure when pants first came on the scene, there probably WAS a discussion about whether they were a good or a bad idea.
The telephone sparked endless debates about ROI, as well.
Yes, at some point we can stop worrying about measuring these things because it will simply be an accepted fact that yes, you need to listen to your customers on Twitter, or wherever. But right now, when organizations are trying to figure out what IS working and is NOT working, and what old fashioned tactic can be dropped in favor of a new approach, measurement is critical.
I also agree with Mike and would take it one step further. The ideas mentioned above from Jeremiah are spot on “is it to spread a message among a community? Is it to reduce support costs? Is it to learn from your community?” and each of those are tied to value drivers and KPI’s of the business. Then, if we focus on the business processes, the various tactics we employ (social media, traditional marketing, tho9ught leadership, or others) can be more readily and effectively measured against impact and results.
excellent video…ROI is still the largest challenge for most social networks.
research, plan, execute and measure….
sandy
megastarmedia.com
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I totally disagree with the statement that “Marketing programs seldom have a direct impact on financial outcomes such as increased revenues, lowered costs, and higher profits.”
I think people are tending to put marketing into a bucket of white paper creators and creative staff. Marketing IS the thing that generates revenue, etc.
I also think that things like white papers, etc. CAN be measured to impact revenue – the problem is that marketing is so poorly organized and operationally immature, often subordinate to sales who is caught up in their own oedipus complex with marketing, that they give away the farm without focusing on results, let alone measuring them.
Just my 2 cents.
Yeph – it WAS complicated
@KDpain – were were not sure either. But there are good reasons to do so.
The Social Media Academy worked on a research to identify a method to calculate ROI that is mathematical correct (currency on both sides of the equation) and is relevant to a CFO.
CM / IC = SM-ROI
You find the details here: http://xeeurl.com/A0567
And a discussion on Social Media Today here: http://xeeurl.com/A0568
Axel, don’t look for an equation, brother. Too many variable in the execution to have a cookie-cutter formula. Look for a method. It’s a multi-step process.