Surely, given all the data points available, calculating ROI can't be that hard, right? For example, Syncapse -- a social media management and measurement service -- suggests that you can at least determine the value of a Facebook fan by looking at value-per-customer, loyalty rates, media value of social engagements, new customer acquisition costs and brand affinity. Unfortunately, this formula involves a number of debatable assumptions and does not account for the value of interactions with fans on other networks.
You might well ask at this point, “Drew, why is calculating the ROI of social media so hard?” There are many theories on this, and many boil down to the challenges of online attribution. Dumbing this down mainly for my benefit, consumers tend to make a lot of stops during their purchase journeys and typically, social media is not the first or last stop before buying. In fact, social is more often than not a stop after the purchase, when people want to share their new acquisition or seek assistance from the brand itself.
Okay -- so let's run with the notion that social media is more about customer retention than acquisition -- perhaps we can find an ROI there. After all, Syncapse's study reports, Facebook brand fans are 80% more likely to be brand users, 18% more satisfied with their brands than non-Fan users [and even] 11% more likely to continue using the brands than are non-Fan users.” Now we're getting somewhere, right? Seriously, why the heck would anyone like a brand page unless they had a direct interest or connection with that product?
Given all those wonderful statistics, real ROI seems within reach. Just prove that your fans and followers on Facebook, Twitter, Instagram, Pinterest, YouTube and everywhere else are customers, assign a value per customer, add in a value if they remain a customer longer and another value for referrals, and voila -- Social ROI! Piece of frickin' cake. But as Lux Narayan, CEO of Unmetric, notes on Forbes.com: "If social media ROI were indeed determinable, we'd have solved it over a not-so-busy weekend.
At this point, you might be fair in asking, “So what's a marketer to do -- just accept the value of social media on faith and keep investing time, resources and, in some cases, media dollars?” I could be flip and just say, “Yes,” but I’ll cede the floor to author and former CMO of Kodak Jeffrey Hayzlett and his famous quip, “What about your ROI (return on ignoring)? (return on ignoring)?” Hayzlett's point is that the social conversation is going on with or without you, and there's little upside in not being part of it. In fact, there's a real and potentially costly downside to not taking social seriously, especially if your competitors are listening and responding ahead of you. But of course, Hayzlett's “ROI” won't help much when it comes to budget allocation.
Lest you think this particular debate is all for naught, let me offer up one more possibility that I'm calling “non-linear ROI.” The operating principle here is that every positive social interaction has value but that the value will not reveal itself in a linear, directly attributable fashion. Robert Moore, CEO of Internet Media Labs, concurs with this assessment, noting that many of his business relationships happen “as the result of seemingly ‘random’ intersections,” a turn of events he calls “the serendipity of social.” For a lot more on non-linear ROI, see my interview with Moore -- and please, if you've cracked this ROI thing, do call me post haste.
Here is the problem. Asking for a single SM ROI formula is like asking for a single internet ROI formula. Use case matters. Matters a lot. What are you using SM for? Recruiting, brand monitoring, SM research, lead gen, advertising, engagement, social care, etc.
If you want to invest big $$$$ you best be able to show returns.
I like Bentleys (the list is endless). The ROI if I would use fbeast to like it is worthless. Spreading the word to my friends would be worthless. Unless I (countless others too) am looking to buy something and want to know about it, liking it is useless. Trip Advisor is a specific user utility advisor. What other people say makes a difference with the choice of purchases. But one does not need twits or fbeast to utilize. Liking = 0 ROI; specific reviews of users have value (and then it has to be weighed on an individual basis of specific need for one particular time).
Here's the problem with trying to determine ROI of any platform or medium. Today, we live with a 'multi-attribution' model, where the fan/customer/prospect is influenced from all sorts of stuff...some we can plot out, and some that just happens...so to say 'A Facebook Fan is worth $xxx" has no basis in reality. Especially because people who 'Like' you on Facebook already like you...and have no doubt bought from you...in real life. Did these fans have no 'value' before they clicked the 'Like' button? Of course not.
Just accept Facebook and other social media for what they are: an opportunity to share and converse with customers on a deeper level, not to sell more shit.
Years ago Yahoo published a piece about attribution (in the insurance space) called "The Long & Winding Road." People do indeed make many stops in the purchase process, especially with complex products. So that's a good metaphor but I think an even better one is Freud's concept of over-determination: It's never one thing but always MANY things that lead to mental, emotional illness. In the same way, it's never or almost never one thing that "causes" or creates a sale.
The question of SM ROI is itself bogus. Yes, per Hazlett, you need to be in SM because your customers and prospects are there. But SM Is just one part of a whole portfolio of activities that you are or should be conducting on the Internet -- and of course offline as well! -- and it is the ROI of that portfolio that you need to be measuring.
Thanks for all your thoughtful comments.
Tom--yes, finding on simple formula is a pipe dream.
Paula--love "fbeast" and agree a page Like is initially meaningless but that's the start of the engagement which does have value.
Kenneth--yes, complex journeys beget complex attribution challenges. Yet somehow most clients want some indication that money spent on social is well spent thus the pursuit of proxies that can show directional value.