ROI Isn't Always $imple

• by Erik Sass , Staff Writer @eriksass1, July 21, 2010

Yesterday I wrote about the need for long-term ROI metrics in social media -- and today, coincidentally, I came across a report by Forrester pointing out that social media success can mean different things, and it doesn't always necessarily boil down to money money money (although that is obviously one of the important ones). Nor can it always be reduced to clicks, downloads, visits, or other purely functional metrics.

In the report, Forrester analyst Augie Ray outlines four main "perspectives" for measuring success in social media, in the categories "financial," "digital," "brand," and "risk management." As noted, financial ROI is probably the first to occur to most marketing officers, and as always the ultimate goal is indeed sales and profit. However, Ray points out that financial success can itself be measured in various ways: for example, Petco found that "products with reviews have return rates that are 20% lower than those without reviews -- and the return rate is 45% lower for products with more than 25 reviews -- saving on shipping, restocking, and customer service costs."

Meanwhile other metrics play an important role in determining financial success, even if they can't be immediately quantified in dollars and cents. In terms of brand, Ray notes that the basic metrics for measuring success are the same in social media as in traditional media and the offline world in general, centering on brand awareness, purchase intent, preference and associations.

Maybe the most interesting category is risk management: here, Ray argues that "this perspective is not about creating positive ROI but reducing unforeseen negative ROI in the future." Essentially, social media can (and should) be used to avert negative PR outcomes by, for example, quickly engaging with dissatisfied customers and defusing complaints which might otherwise snowball into high-profile Web protests. Admittedly, this ROI category seems rather nebulous at first: it's based on calculating the probability of a hypothetical PR problem, and its likely cost, then imagining cost savings achieved through a preemptive social media response. But Ray presents some thought-provoking examples of how it might be calculated.

I think Ray's observations about ROI fit with some of the facts I discussed yesterday -- namely, that social media is a continuous, long-term play, whose full impact on an advertiser's bottom line will be very hard to assess in purely financial terms over the long haul (meaning over years and eventually decades). As marketers seek to grapple with this issue, these other non-financial metrics may serve as helpful proxies -- gauging the health and viability of social media campaigns with an eye towards eventually determining their precise financial contributions somewhere down the road.