Commentary
Is the Promise of Social Media Enough? What About ROI?
- by Jacob Morgan , October 29, 2009
There's something missing, though: ROI. Let's start off by defining exactly what ROI is: gain from investment minus cost of investment, then divided by cost of investment. ROI is a financial metric, which means it deals with the amount of money that is invested vs. the amount of money that is returned, in dollars.
It's quite clear that social media is changing the way in which organizations do business, but is this enough? Can social media be adopted on the promise that it's going to change how an organization functions? What about the impact on the bottom line? What about the amount of money that social media can save an organization? It is around ROI that we are seeing the largest gap in understanding and in measurement. ROI is going to drive adoption of social media among many companies.
The common excuse among many social media folks is that "you can't measure the direct ROI of a billboard or a television commercial -- so why all the fuss about social media ROI?" Just because companies have trouble measuring offline ROI does not mean that we should dismiss online ROI. The online space has given companies a plethora of tools and information that allow for consumer tracking, analytics, direct response surveys, CRM databases, sales tracking, and pretty much anything else you can think of. There is no excuse for companies using social media being unable to track their ROI. There is also no excuse for consultants or agencies to peg offline measurement and ROI with online measurement and ROI, so stop doing it.
In the above examples, Kodak should have a solid number for how much money the company saved by reaching out to its Twitter followers to name a product, as opposed to hiring a design agency to do the work. Virgin America should understand how much it costs for the company to retain customers vs. acquiring new ones, and should also understand how effective social media is at retaining customers. Both saving money and retaining customers impacts the bottom line.
Again, yes, social media is valuable; yes, it can make and save money; and yes, it's going to change the way the many companies do business. However, as mathematical physicist and engineer Lord Kelvin famously said: "When you can measure what you are speaking about, and express it in numbers, you know something about it; but when you cannot measure it, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind: it may be the beginning of knowledge, but you have scarcely, in your thoughts, advanced to the state of science."
Just as these social and digital mediums are changing - so must our definitions of ROI. It doesn't have to be just a financial metric. Either way, it IS a metric so you final quote definitely applies - it will just take time to better attribute financial gain to these new, bleeding-edge strategies.
Return on Investment is slippery. But you can estimate Return on Impressions, Return on Image, and Return on Impact.
Kirsten Osolind
CEO
RE:INVENTION, Inc.
www.reinventioninc.com
Your assumptions sound like those of a direct marketer... DM dominated after the crash in 2001 because they were the only ones with cash. They have left us saddled with the scourge of CTR and other metrics you mention like sales tracking.... is that all we are... a sales mechanism?
Maybe you don't get that this is social.... that means between REAL people.... not be limited just as a sales channel with an ROI focus. Kodak, Virgin, Coke, Kraft, Marriott and many others are figuring this out. We want their branding dollars to be invested in social.
Heard great line the other day... brands used to be rockstars... now they are the groupies. People are in control now of their own attention. Brands will have to work much harder to get in to their world. That is what brands must deal with. They have to think in a way that gets them invited in to peoples communities and asked to stay and be a part.
This is about fitting a different mold. The payoffs will be increased purchase intent, long term loyalty and other measurable value. Those metrics you site will not be as relevant in this coming world.... and will set expectations for tons of busy work that doesn't really matter.... placing resources in counting rolls rather then communicating roles.
Since we are citing mathematicians.... Mandelbrot understands the limits that math has when it comes to measuring human biengs and emotions which is what social is all about.
"The existence of these patterns [fractals] challenges us to study forms that Euclid leaves aside as being formless, to investigate the morphology of the amorphous. Mathematicians have disdained this challenge, however, and have increasingly chosen to flee from nature by devising theories unrelated to anything we can see or feel."
— Benoit Mandelbrot The Fractal Geometry of Nature (1977)
read the whole here... http://www.jackmyers.com/commentary/media-business-bloggers/59019977.html
Show me a company measuring ROI and I'll show you a company pulling together a few convenient metrics to generate numbers which are completely unreliable. The idea of ROI is archaic. Do Google or Amazon use ROI metrics to gauge their initiatives? No they don’t. Instead they focus on one all-important task… that of “value creation”.
Social media is the ultimate CRM tool. It’s an inexpensive way to stay close to your market and your customers. If you want to measure its value, then measure it by how well it allows you to outmaneuver your market to increase your share of it. Go big picture. Trying to determine how many units are moved through social media efforts is an exercise of counting trees in the forest. It’s a fool’s errand.
I’ve post a piece a while back called "How can we help brands become more social?" I thinks it’s very relevant to this topic.
http://neteffect.wordpress.com/2008/07/16/how-can-we-help-brands-become-more-social/
Thanks for the post.
Here's a measure a lot of folks like: Their content is used by someone else and they're given credit for it. They love that! Not sure what it actually does for their business, but they love it anyway. Or here's another measure of value: A reporter called them because of a tweet. They'll tweet forever now.
The most important thing people are missing here: social media is NOT media. its a misnomer. Facebook, Twitter, Yammer, Blogging, etc. are *communications* systems. That's why they are so critical. Its not about advertising or looking for specific ROI, its a MUST because you have to be in the conversation. The way to 'market' your company in social media is to have someone in all the conversations possible, gently building the brand and relevance of what you do.
Not being part of these systems is like not having phones or fax machines, you'd be left out of touch. No one ever ran the ROI of having phones.
CNN, ESPN, Yahoo.com et al are a media sites. Communicatons is a much bigger market ($) than media too. Hence the valuations and uptake of these services.
Great article. ROI needs to be measured in some shape or manner, because when the luster and good will for Social Media efforts have worn off within a company, you are going to lose out in the budget and resource allocation meetings. There needs to be some definitive and quantitative way to describe what benefit social media is providing the company. Everyone else is accountable, why should social media be different?
While I agree that the lack of discernable ROI from marketing tactics outside of the social media space should not give us an excuse to disregard ROI in the social media space, it'll be difficult (and maybe useless) to measure one without the other.
And the measurement is what's really hard. With print, you can say you're getting X in circulation and Y impressions. Is that your ROI? Impressions? Or are you really interested in favorable impressions, sales, etc.
Similarly, there's online. I may never click on a banner ad, but maybe in three weeks from now, I'll go to a site directly when I do need that brand of whatever it is they were selling.
Marketers don't even yet understand how (many ties even ‘why’ they are.) best to use the overall platform and we're already singing ROI validation. It’s tiring to continue many in the industry ascribe financial return to specific media channels. These are only vessels of what truly facilitates return: IDEAS; CONTENT; EXECUTION.
It’s nice that Kodak, a company hemorrhaging and nearing exchange delisting, landed a product name from tweets.....why they didn't just ask 8 guys at the bar over a couple of drinks is beyond me.
To assume that specific return outputs are irrelevant---just make sure you have one--- is pretty dangerous a leap here. Twitter has interesting potential as a tool, but exactly what kind of tool is still being shaped. But right now it's a collection of mental pollutants and drivel, somewhat along the lines of "The View".
I love the new social playground and like many, am exploring and experimenting as a participant. Pretty much what the marketing community is doing since the majority is still experimental marcom turf …at least that’s how we should see it if we are honest with ourselves. Our understanding of the “if, how and where” the internal machinery behind brands fit has a way to go. And I don’t think mathematics has any valid role in the process quite yet.
I'd go on but KinDigs and Social symphony already nailed it.
Kodak and Virgin didn't necessarily fail to measure ROI. But they did conveniently leave it out of their respective presentations. Good article.
To Scott Milener, I disagree that social media is not media but instead communications tools like phones and faxes. They are media because they enable individuals to publish whatever they like for their networks, friends -- or the masses. Not what "traditional" publishers want to hear, but the tin ear is what led to their woeful state today.
Our definition of ROI is definitely changing. Many businesses define ROI as an overall increase in traffic and revenue. Cost reduction should also be taken into account. It will be interesting to see how ROI (true definition) will be adopted by businesses in the coming future.
Wow great comments, I created an account just to respond to everyone :)
@Nicole
The problem is that definition is changing, ROI is a financial metrics that deals with the amount of money being invested into something vs the amount of money made (or saved). We'll see what the next few years brings!
@Jim
You are absolutely right, I didn't meant to make it sound like they aren't measuring, I meant to highlight the fact that they SHOULD understand the amount of money made/saved. After speaking with Jeffrey I definitely get the sense that Kodak has a solid understanding of ROI.
@Sean
Definitely disagree, mathematics and measurement is absolutely crucial to understand return. Companies are rushing into things to quickly without building their measurement frameworks, that is their problem. I'll respond to the folks you mentioned as well.
@Bill
Anything financial is ROI, non-financial is Impact. If you're connected to a brand and end up buying something 2 months down the road as a result of that interaction, yes there are ways to attribute your purchase to your interactions via social media. 2 challenges for companies, business and technology, there are solutions.
@Tony
Absolutely agree!
@Scott
Now we are dealing with semantics, I agree it's not media which is why my company is branded as a Social Business Consultancy, Social "media" is much more than just a media channel, it's a way to shape and build a business...we agree here. At the same time though, why do I need to be involved in the conversation if I don't see any business value? If I am making the same amount of money either way, then who cares? You need to be involved in the conversations to affect some sort of business objective, i.e. improve customer service, increase market share, sales, etc. You can't say it's a "must" without justifying cost and investment. I agree it's important, prove it!
@Renee
I agree, that's valuable but that's not ROI that's impact.
@Paul
Kodak is measuring ROI and they are doing a darn good job of it from what I can tell, you can even look at small businesses such as Naked Pizza which are doing a good job of ROI measurement as well. Don't think ROI is archaic at all because at the end of the day if you're a business you need to be making more money than you are investing otherwise you die. If you don't think that Google and Amazon are carefully measuring and tracking the ROI of their efforts then you are definitely mistaking. Having said that I do agree that social media is a fantastic CRM tool, having said that you won't be looking at the ROI from your CRM tool you will be looking at it's impact, which is also fine if you understand that it's impact your looking and not ROI. Outmaneuvering your market or increasing market share boils down to ROI, you have to connect the two. ROI is crucial but so is an understanding of the variables that affect ROI so that you can increase them, the number alone without context is useless. Understanding how many units you sell via social media is not a fools errand at all. You can't expect a company to invest money into something without getting something back out of it. The entire problem of measuring social media ROI stems from what Michael Dunn calls the problem with marketing accountability as a whole. Thanks for the comment.
@Tom
The metrics you cited all boil down to ROI. Sure it's great, social media is about being social. We're talking about business here, and telling an executive with a 7 figure budget to invest in "social just to be social" is in no way justified. You need to be able to show some sort of return on the investment otherwise what's the point? I'm not saying social isn't between real people, and I also agree that social media has more value than just ROI. However, if a company is debating between investing in PPC or social media and PPC has demonstrated a solid return on investment, then why on earth with the company go with social? Stick with what works, with what shows results, and with what impacts the bottom line.
Just wanted to compliment all the posters for a very robust discussion. And kudos Mr. Morgan for not just posting but also responding. There are several aspects of this discussion I find very interesting. First of all this forum is an Ad Centric forum. Meaning most of our jobs revolve around advertising and marketing. I bet in a tech forum social 'media' truly is technology for communication, that just happens to have a marketing aspect/value.
Social Media is definitely a revolutionary technology tool for personal communication between folks. It also allows the same type of discussions we have in person to reach broad audiences. These discussions are often publicly out there on the net so brands can listen/view what is being said and even respond/participate. But they are the same discussions we used to have in private on the phone or at dinner.
One issue is volume. While I see value in social media networks the sheer volume of chatter drowns out 75% of more of the chat from being seen by many. I bet very few here read every tweet or news feed post to your accounts (and if you do please get a hobby!). I read only the front page on Facebook and Twitter, though I do search for things. But that doesn't mean this isn't an exciting communication tool.
As for ROI. I have a BS Finance. And hate the voodoo/hocus pocus/this is really neat stuff. Budgets must be allocated and without measuring you might lose investment to other segments that can 'prove' a return. Even if their ROI is lower in reality. I know many jingles and many brands image/commercials with 100% recall that I never ever purchase from. So the ROI when it comes to me for them is zero. So measuring ability is important.
The biggest area/value I see is CRM. Using this technology in your own walled in gardens like General Mills does to create consumer feedback forums and discussions outside of twitter and facebook. It is cheap technology that can shorten R&D and Marketing to bring products to market faster or improve products faster. This is not chump change!
Jacob thank you for sharing. Virgin and Kodak are big business.Very interesting to hear their takes on things.
@Kevin
I don't believe the definitions of ROI should ever be changing, that's what causing all of the problems. We have "consultants" running around saying ROI = return on influence or risk of ignoring and that's just not true. ROI needs to stand for the ration of money invested and returned. Sure social media is great for impacting various aspects of a business but remember when we are talking ROI it needs to be in dollars and cents, otherwise it's Impact, and there is nothing wrong with that.
@Howie
Thanks for that, I noticed that a lot of writers usually don't respond so thanks for noticing :) Definitely worth commending the fine folks who commented here, some very good points and insight. Social media is definitely a killer CRM tool and we are already seeing it integrated into platforms such as Salesforce. In my opinion to really understand ROI we need to be looking at sales data, analytics data, CRM data, business/survey data, and then data from tools such as Radian 6 or Techrigy. We can't make sense of things just by looking at one corner of the proverbial chess board; we have to look at things as a whole. Thanks for your comment Howie!
Great points...
And when you survey CEO's on why they do not participate in this shinny new object called social media..that dreaded "ROI" term always raises its head.
Some say “set your social media efforts free..." Ya and they are smores (social media whores) acting like PR reps but calling it something new that would never pay their own fees if the roles were reversed.
Social marketing has a value, and you must be able to quantify that value. Failure to do so and you become a "marketing tool" or worst yet a "smore" as I discuss in my blog: http://nosmokeandmirrors.wordpress.com/2009/10/28/20-top-entrepreneurial-best-practices-to-insure-2010-is-a-profitable-year/ (click on #15)
Mark Allen Roberts
www.outbsolutions.com
"You can't measure the direct ROI of a billboard or a television commercial"
If you want to you can and assuming that you can not is a false premise.
Every marketing effort has an objective (that could also be a false premise). That objective typically ties into a metric that ultimately effects sales. Connect the dots. Might be less dots for a company such as Zappos that is transactional in focus versus Coke that needs to measure the impact of brand presence factors on volume but it all can and should be measured.
@Jacob: Keep writing articles like this! I'm with you 100% on the basic financial definition of ROI. That IS what return on investment means and there's no reason to change it. Also, there's no reason that we can't make those same measurements in social media.
Yes, social media is a different type of communication and yes it will change the way a lot of companies do business, but it doesn't change the fact that these efforts can and should be measured.
As we marketers/advertisers look for higher adoption rates of social media by corporate executives and budget planners, we will have to show the justification for hte investment, and that is what ROI is meant to prove.
All of these discussions about measuring return on influence, risk of ignoring, etc. are great things to be thinking about, but they do not replace the basic financial calculation to score marketing efforts in social media.
I see a lot of great conversations in this post about things we can augment that financial calculation with to better explain results, but ultimately the ROI equation still holds true (and always will).
Jacob,
You are spot on about lack of true ROI discussion! There is a lot of talk about soft impact metrics, but the data the C-suite recognizes is the hard numbers. We need further discussion and actual experimentation of drafting measurable objectives and showing the $ impact.
Lauren Vargas
Community Manager aty Radian6
@VargasL
Thanks for the response Jacob. I don't disagree. You make many great points.
My point is that ROI and social are going to be as tricky and elusive as ever because of the high-speed and openness of networks. When a company makes a major product, customer service or communication blunder (and we all eventually do) how can they incorporate their “fans” turning on them and using their own networks to disparage the brand into their measured ROI? I believe that if you are using social media to “sell”, than you are totally missing what this incredible new opportunity delivers from a branding, PR and CRM standpoint. I’ve said before, and I’ll say again… “Listening” is the investment, and “strong relationships” are the return. If you focus on relationships instead of conversions you’ll eventually see huge returns. Because strong relationships produce long-term customers that generate future sales from many channels, these returns are incredibly difficult to measure. Social ROI will be much easier to gauge if you are a single pizza shop than if you are a large multi-national company with many complex sales channels.
I’m looking forward to better understanding your definition of ROI as it relates to social, and the proven methods for accomplishing measured results. The BIG thing that companies are having a tough time understanding is that they aren’t really “in control” in the social space. So what works today to move the needle won’t work tomorrow, as there is no static in networks… only movement. Relationships will trump all in the emerging economy. Maybe a metric that tracks our brands relationship index is more suitable to the task. I think the future of social marketing is Real Time Response. Today it wins elections. Tomorrow is will sell cameras. I’m working on a blog on this topic.
Thanks for this great article. I’ll keep reading!
@Paul
Yep ROI is tricky, which is why I mentioned in one of my other comments that orgs have 2 challenges to overcome. The first is the business challenge which involved structure, understanding info such as avg $/per transaction/etc. Second is the tech challenge which is gathering, aggregating, and making sense of the data. You would be surprised what you can pull via APIs from some of these platforms. There are all sorts of things you can do to tie back activity to a dollar amount. I'm also not saying I have all the answers either because I certainly don't. I strongly believe though, that in order to justify the cost of investment for a social media strategy that you have to be able to show some sort of return on the $ you are investing otherwise it's a sunk cost. Thanks again for the comment!
@Lauren
Howdy Lauren, always good to hear from you folks at Radian :) Yep, I have lots of ideas on how to make this happen. Far too much fragmentation right now.
@Lance
You are absolutely correct, my statement was meant to be an assumption that most people make. Of course there are plenty of metrics and data points that companies can use to measure effectiveness of billboard ads.
@Mike
Thanks a lot, glad you agree. I definitely believe that we need to stop walking on eggshells when the topic of ROI comes up. This needs to be addressed head on and we need to stop making excuses and trying to re-define what ROI is.
@Mark
Haha I love the folks that say SM is free. It's free to create accounts on various SM platforms but if you are an organization looking to develop a strategy and really integrate SM into how your business functions then it's far from free. There are a lot of costs involved in terms of being able to gather data, tech development, man hours, etc. Not free at all.
Thanks for all of the great comments everyone, please share this article and let's get more people talking about it!
Saying you can't measure the ROI of social media is a copout, plain and simple. It is hard work and perhaps that's why social butterflies are reluctanct to do it.
We've recently built a matrix that attempts to look at this issue. It isn't perfect but it's a start. It requires that you measure multiple social touchpoints across your efforts; choose for yourself what is most important. Then separate these efforts out by brand-led activities vs. audience-led activities.
If you can build a correlation between an increase in brand-led activities, and then a resultant increase in audience-led activities, then that is a great start. Follow that up with a positive increase in sales then you have ROI. (after, of course, factoring in the cost of investment)
It's as simple as looking at three trend lines: 1st) growth in the amount of social activities driven by employees, 2nd) growth in brand mentions in social channels, & 3rd) growth in sales, especially in markets where audiences are well represented in the social sphere.
@Kelly
Absolutely agree with you and it is definitely hard work that requires organizations to address both business and technology challenges. It's great to hear your view considering you are coming from a very large organization. I'd love to hear more about how a company such as Intel is looking at ROI from the social media space. Perhaps there is quite a bit that other companies can learn from how you guys are getting things done.
I've read all the comments and I would love to comment very simply with my two cents re: ROI of Virgin America & Kodak.
I used to work in traditional media in which Nielsen ratings ruled the roost. That media company does not get nor use social media in the "appropriate" way and employee moral and company profits are down.
I do understand the need for metrics but this new phenomena of social media, as we know it, is not always measured in that way. Nor is it imperative that we do so.
I may not have a degree in marketing but after 20 plus years in TV/AD/MKTGE and my newly acquired knowledge of Social Media constructs & best practices I can offer up these examples of how reputation & choice are more important than metrics.
Virgin America gets it and is now my carrier of choice. Not only that, I wil go out of my way to try to schedule to fly with them. Before I flew them the first time, their image of hipness and Wifi on the planes intrigued me. After I flew, the customer service, the cleanliness of the planes and the cool safety video all were icing on the cake. Plus, I will often buy the cheapest seat availble in advance, but when I get to airport with luggage I will upgrade to better class or even first class.
So their reputation and delivering on promise of great service equals a very loyal & happy customer which translates into increased revenues. Isn't that "metric" enough when your bottom line shows the sales and/or the revenues are up. Isn't that direct proof?
Just sayin' :-)
@maria We often hear about how airlines are not meeting our basic needs and expectations, so success stories such as yours are nice to hear (and perhaps will prompt others to give Virgin a chance).
Your comment about how it’s not imperative to measure social media is concerning. True, we’re not measuring social media in the same way as Nielsen traditionally measures advertising but any time a company spends money, they should know the ROI. With 13 years of trad mktg experience on the media agency and client sides, any time I spent money on, let's say, a print campaign with my objective being to increase sales revenue, I would measure the ROI of the campaign: how much money did I spend, and how much incremental sales revenue was generated by the campaign.
If Virgin has increased your loyalty, was it through their social media spending or was it through your in-person one-on-one interaction with a flight attendant. Or was it that you received the cheapest price? Or maybe it could have been because of your ease of use on their online reservation system? These factors are not directly correlated with the social media spending of the company. So to say that their reputation and delivering on a promise of great service is metric enough doesn’t mean that it was their social media spending that drove the increases in their revenue. That’s like me saying I am really impressed that Virgin is always on time and will fly again with them because of that, and therefore their social media investments are justified.
I would hope that whatever program and spending that Virgin implemented to reinforce their reputation and gain your loyalty was measured, whether it was a customer service program, a pricing strategy or a social media campaign.
When you say that increases in bottom line is “metric enough” makes sense but are those metrics based on social media spending or could it be traditional media spending or another channel they used to gain your loyal dollars?
I think Dell can be an example of the type of ROI measurement that makes sense for social media as well as for overall effectiveness of communication, marketing and customer service efforts. Dell uses the Net Promoter score which is simply the % of people who would recommend your product/service to a friend minus the % who wouldn't. Social media should help build favorability towards a company that would be captured in this metric over time. If you are interested, read Fred Reichheld's book, The ultimate question. It changes the way you think about communication and business.
I agree with @Marla. Social reputation will emerge as the crux to social marketing. Companies use to purchase their reputations and images through costly ad campaigns. Those days are over. Now, companies must "prove" they walk the walk... and social media will prove the cheapest and most effective way to do it.
Scott makes an interesting point. Distinguishing social media as a communications channel rather than a more traditional media channel gets us closer to the proper mindset for approaching ROI for Social Media.
Bravo Jacob for finally saying what needed to be said. Yes, we don't measure hard ROI for traditional media buys (unless there's a direct response mechanism). But you're right, it's no excuse not to measure it for Social Media Outreach.
To further Scott's phone example, phones are a communications channel, a conduit for conversation with our customers. While we may not be able to quantify the precise ROI of having phones, we can certainly understand the cost of not having phones. And the cost incurred by slower, clunkier, less advanced ways of communicating: Snail mail, courier, etc.
Missed customer service calls, inability to connect with customers, failure to rapidly respond to emerging needs, etc.
While not ideal, we may want to approach ROI from the standpoint of cost reductions and efficiencies. While it makes it a little tougher to sell our initiatives in, perhaps an exploration of the cost achieving our initiative's goals through slower, clunkier, less advanced means relative to our SM investment might be enough to peak the interest of the C-Suite.
Another angle to consider in ROI is the tremendous opportunity that Social Media presents to supplement traditional research, http://snurl.com/lvs . Traditional research can be costly and time consuming. Using social media measurement tools can present a cost savings.