Commentary

A Push Toward Social Media ROI

by Jason Heller , February 21, 2012

As social media budgets continue to rise, demands from the C-suite to prove the value of these investments are intensifying. Executives do intuitively understand that direct consumer relationships are valuable, and they are patiently, albeit eagerly, awaiting the ability of their marketing departments and agencies to correlate the economic impact of ongoing social media investments.

Tying social media engagement to business results is primarily not a linear process, and therefore not easy. Most brands do not have a direct point-of-sale relationship with their customers, and even those that do, have a hard time measuring the impact of a non-linear relationship between social media activity and resulting customer value. While all the studies and research point to consumers’ desire to receive special offers and promotions in social channels, the reality is that response to these promotions is not significant, and force-feeding promos to your social connections too often is a great way to stifle engagement and the overall impact of social media communications.

A Rose By Any Other Name

Some agencies and social media “experts” have decided that changing the definition of ROI is the solution. Well, it’s not. ROI is ROI. Redefining the R (return) automatically changes the meaning of the term to fit a square peg into a round hole.

ROI is not an engagement rate, number of comments or retweets. ROI is not the number of likes or followers amassed. ROI is simply not anything other than the financial calculation that an executive expects it to be.

Of course, social media is the last in a long line of marketing line items that cannot be tracked to a strict ROI -- and that’s OK. There are plenty of proxy measures that we can track and benchmark as we get closer to being able to better measure the economic impact of social media on our businesses.

Clarity of Objectives

From a 20,000-foot perspective, there are only four macro-objectives within social media. All tactical objectives will fall into these four buckets.

Nurture relationships with, increase the value of, and facilitate advocacy from existing customers
Create awareness and acquire new customers
Provide customer service
Acquire actionable insights and research

KPIs must be aligned with primary and secondary objectives, but for most of us, at this point in time, it’s not going to be ROI.

Measurement Model

Even before the social media revolution, we were able to prove that increased engagement with a brand will increase customer loyalty, value and advocacy. Successful relationship-marketing programs have used incentives for loyalty and communications via direct mail and email for years. Social media platforms have revolutionized two aspects of relationship marketing: consumers have control over the relationship, and marketers can easily and passively gain exposure to friends and family through the social graph.

Until we can more accurately model the economic impact of our efforts in social media, the best measurement approach uses a combination of metrics that report reach & growth, engagement -- and for appropriate brands, commerce. Regardless of your current scale, as long as these three buckets trend up and to the right, executives will be appeased -- for now.

Reach & Growth: While the number of likes or followers is not a primary KPI, the more (qualified) social connections a brand has, the more consumers can potentially be engaged. Growth through the social graph will only go so far. Brands should use all of their owned channels to facilitate social connections with existing customers.
Engagement: Ongoing engagement will yield an increase in customer loyalty and value. This value can be modeled by surveying a sample of consumers and projecting to the universe of total active social connections. It’s really difficult to project value of the unengaged majority, as they may not even be exposed to your posts (See: “The Social Media Spiral of Unengagement”). Of course, engagement is also the mechanism by which word of mouth proliferates across the social graph. Reach and engagement go hand in hand and present a chicken and egg problem to some brands.
Traffic & Commerce: For brands that regularly measure multichannel commerce, tracking the attribution of social media influence in the ecommerce purchase path, and the redemption of coupons in brick-and-mortar channels, should be part of your reporting dashboard. While tracked revenue won’t be significant, the trends are improving. As far as traffic goes, you would be hard pressed to find a brand that has not seen a steady uptick in social media referral traffic year over year, month over month.

You may have noticed that I left sentiment out of this model. It’s important to note that sentiment reporting does not so much reflect the impact of social media activity, but rather the reflection of the brand as amplified by social media. However, having the ability to track and benchmark sentiment towards your brand and facets of your business is powerful and actionable.

Actionable Business Intelligence

Some of the most significant benefits of direct consumer relationships are the feedback and insights that can be gleaned from active engagement with consumers, as well as passive listening. Actionable insights that improve product development or otherwise positively affect consumer experience transcend the boundaries of social media and present a clear and undeniable economic impact from social media. Of course actualizing this impact requires a significant amount of collaboration with multiple disciplines within your organization.

The moral of the story is that there is no one universal standard way to measure social media ROI. Redefining the term isn’t the solution. Focus on modeling the economic impact of engagement, scale and insights over time. Continue to demonstrate an increase in actively engaged consumers over time, and you will continue to gain executive support, which is a vital component of social media success. Just remember that eventually you will need to be able to support the economic argument.

How are you reporting social media ROI? What have been your biggest challenges and success stories in gaining executive level support and bigger budgets? Speak up in the comments or hit me on Twitter @jasonheller.

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7 comments about "A Push Toward Social Media ROI".

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Joe Bencharsky from WebTraction, February 21, 2012 at 5 p.m.
Chasing ROI is still the Grail quest not so much for marketing people, but executives and management, because it is a figure they can understand.
Having recently come from the iStrategy conference, the consensus among CMO types, agencies and heads of social media for companies like AOl, AARP, IBM, McDonalds and others is that KPI (Key Performance Indicators) are a more fluid and relevant measurement of goals. Strategies and goals of marketing are quite different, and traditional business minds forget the evolution of the current set of statistics. KPI can be follows. They can be engagements, they can be opt-ins, or any other conversion action in a click-stream.
Since there never was a direct result of an advertising campaign in traditional media (Print, Broadcast, Display, etc.) other types of statistics had to be created (reach, brand lift, etc.) marketers (and more so management types) need to loosen their stranglehold on demanding ROI, and begin to look at sets of metrics that measure the LIKELIHOOD of effect on sales, PR, brand exposure, developing influential brand ambassadors, etc.
Creating one brand ambassador can return a hundredfold or thousandfold on the cost of building that relationship.
But all this is a conceit. Because of the new technology, I have given solutions that not only show ROI, but directly show 1:1 relationships between views, interactions and sales, and even THAT statistic has been downplayed by management and even the traditional marketing minds.
There has to be a shift in understanding new marketing that accompanies the development of viable statistics to show any kind of return on social media investment.
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Cory Treffiletti from Rembrand, February 21, 2012 at 5:17 p.m.

Jason - wait till you see my article for tomorrow. Its all about changing the definition of ROI - so obviously we are thinking about the same thing, but i most definitely am coming at it from a different perspective. I sense a great debate is about to emerge!!

Yuko Ichihara from NYU, February 22, 2012 at 11:05 a.m.

Our team is to present the importance of social media analytics (how to measure ROI) to one of our big clients. To prepare for it, I have done fairly good amount of research on the subject.
The more I read, the more it has become clear to me …

One of the articles on the subject, written by David Berkowitz, 100 ways to Measure Social Media, http://barnraisersllc.com/2010/08/100-reasons-measure-roi-social-media-bunch-bs/ made me see this; social media metrics is multi dimensional.

Take some parameters and combine them, depending on your objective, what you want to measure. Within a business organization, different divisions/departments would have different objectives to measure. Cost saving or increase in sales, # of leads it generated, review/rating influence, indirect reach by share/reference, impact on specific activities/other media/channels … all different dimensions and levels. And over time different models, depending on the goal, will evolve.

Jason Heller from AGILITi, February 22, 2012 at 12:06 p.m.

@Joe - Ultimately execs will always want to know the economic impact of large scale investments. ROI is probably too strict a KPI - and that's sort of the point of this piece, but economic impact, at least through modeling, if not directly, will become important to be able to report to execs over the next year or so, as social media budgets are now regularly in the seven figures. Remember that even brand metrics indirectly get tied back to business results. Brand equity is an asset that has proven to drive revenue growth. Soon enough we will be able to prove the same of social media engagement, at scale.

@Cory - bring it on brother! Looking forward to reading it.

Nick D from ___, February 23, 2012 at 2:33 p.m.

"Some agencies and social media “experts” have decided that changing the definition of ROI is the solution. Well, it’s not. ROI is ROI. Redefining the R (return) automatically changes the meaning of the term to fit a square peg into a round hole.

YES!! It's fantastic to see someone FINALLY point out this fact.... even if you do then back out of it somewhat by retreading familiar ground.
The thing is, despite your last few paragraphs, ROI is NOT about how many fans a brand has or how much they interact; and really, we as marketing experts who were around before Facebook, Twitter and the latest Flavour of the Month (TM) need to reiterate that point.

Jason Heller from AGILITi, February 27, 2012 at 10:47 a.m.

@Nick - indeed. However, eventually execs do expect us to eventually be able to model the economic impact of the proxies that we measure. How engagement translates into economic impact (not exact ROI) is an important point to get to. Especially when brands are spending millions of dollars in social media.

Latease Rikard from LMR Publishing, March 11, 2012 at 2:13 p.m.

One important aspect that is left from this post is the value of social media influencers as valuable tools which can impact the bottom line. The impact of social media influencers is a measurable social media metric that brings the relationships to the brand the way a Hollywood A-Lister is used. The article "No Oprah Effect In Social Media," has not examined the impact of a Scoble or Zarrella on a brands' level of engagement. Social media engagement is about social, it's about powerful word of mouth marketing, and brands can no longer disappear behind a spokesperson, they have to get in front of the customers who can see if the emperor has on clothes or not.