The perpetual myth of ROI

by Shannon Paul on August 1, 2008

Like everyone else, I have been stuck thinking about ways to tie social media for public relations directly to sales dollars. But, it finally occurred to me after some time that the numbers have always been fuzzy when it comes to proving any kind of ROI (return on investment) in public relations.

The difficulty in measuring ROI didn’t begin with the introduction of social media into communications.

I distinctly remember having the discussion in my Intro. to Public Relations course about how issues of measurement and ROI have always been difficult to quantify in dollars.

Why do you think people still use advertising equivalence to measure ROI in PR?

For those unfamiliar with advertising equivalence, it is basically an analysis where you measure the physical space of print media coverage, or duration in broadcast, and put it in terms of how much an equivalent-sized ad would cost in that particular medium.

For instance, if my company has a positive news story that takes up a 5″ X 8″ space in print, I would find out how much a same-size advertisement would cost in that particular publication and, voila, a specific dollar amount would be generated to determine the value of that placement; a value that’s both excrutiatingly calculated and arbitrary at best.

What exactly does that dollar amount mean? Not a lot; especially when you figure that the value of advertising is still determined by the number of impressions.

The problem with determining the number of impressions is that people can be exposed to a lot of things without being impressed.

I could bore you with stories of internship experiences where I was stuck measuring news articles with a ruler and calling local newspapers to ask about the going price for a column inch of ad space in their paper, but I won’t.

While I understand it’s the imperative of any business to make money, any business that plans to stay in business for a long time had better think of endearing itself to company stakeholders in addition to being concerned about profits.

Businesses engage in PR for many reasons that aren’t directly intended to boost sales and that is likely to carry over into social media as businesses adopt new communications strategies.

Examples of this are:

Crisis Communications – Many times crisis PR is engaged in order to minimize losses, or ease shareholder grief. In fact, the need for PR typically ramps up when a company is already losing money and going through massive layoffs. In this case, hopes for increased sales have already been written off and the strategy becomes one geared toward sheer survival.

Internal communications – Good companies recognize that there can be huge gaps in interdepartmental communication, often resulting in redundancies and dissatisfied employees. Again, there may be a slight reduction in losses, but measuring the value of efficient internal communications has an extremely indirect effect on increases in sales and profitability.

Philanthropy aka Community Relations – Many companies feel the need to adopt philanthropic and community outreach policies as part of their overall business strategy. This usually involves giving money away and while I understand there are tax incentives and good marketing agendas driving most companies’ philanthropic activities, the correlation to profit is extremely difficult to measure yet most would agree that corporate giving is a good thing.

Jason Falls wrote a fantastic post a few months back that I was rather slow in discovering, titled Perhaps Social Media Measurement Shouldn’t Matter. In it, he offers up the idea that perhaps social media shouldn’t be measured in terms of ROI because, “The core reason social media programs are successful is because they’re about people, not money”.

In this same post, Jason shares a quote from John Iwata of IBM as told to Shel Holtz and Neville Hobson during the May 5 edition of “For Immediate Release” public relations podcast where John suggests that ROI in social media should focus more on the “I” and less on the “R”.

“Some might obsess with the ‘R’ but I would ask them to first begin with the ‘I.’ What is the cost of the methods and technologies? What is the big ‘I’ with new media? I would start there. That, in fact, it is pervasive and is becoming a global and historic phenomenon because the ‘I’ is virtually not there. It is essentially free and available to all. It is very cheap to adopt these things. If there is an investment, it is on management attention and time to make sure these things are done and adopted thoughtfully and strategically.”

John Iwata, Senior Vice President of Marketing and Communications at IBM

With or without social media, the value of relationships has always been paradoxically undeniable, yet immeasurable.

Rather than trying to stick an arbitrary dollar amount on the value of relationships, maybe we need to simply change how we frame the entire purpose and value of social media.

Instead of focusing on profit forecasts, simply show how much can be done with how little. Then ask, what’s the risk?

Am I being naive, or is it time to throw out the rulers and calculators and admit that the numbers never really represented what they claimed to represent and that real, lasting value has always really been about people?

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{ 10 comments }

August 1, 2008 Jason Whitmen

I found your site on Google and read a few of your other entires. Nice Stuff. I’m looking forward to reading more from you.

August 1, 2008 Phil Baumann

ROI probably won’t go away (people love numbers, sometimes more than other people), but you hit something with “we need to simply change how we frame the entire purpose and value of social media”.

I don’t know how much dollar value an attractive, open and inviting lobby area generates for a business, but I’m pretty sure it can make or break first impressions.

You’re right: it is about value. But knowing what that value means…ah, now there’s a question.

August 1, 2008 Webconomist

Some of the best points I’ve heard yet on ROI in PR/Social Media; advertising ROI is totally different, I think, than ROI in PR.

Ogilvy Said: “I know advertising works, just not which half.” And advertising measurement hasn’t really gotten much better in terms of measurement.

So how can it be a comparative to ROI in PR terms?

How do you measure conversations? Do you pull out a calculator at a party?

It’s a company trying to turn a conversation into an ad campaign. They’re 2 entirely different messages and mediums.

TV advertising is “passive” and Web advertising is “disruptive”…Social Media is contiguous.

August 1, 2008 Chris Poterala

I hate ad equivalency. The PR trade subordinates itself to the ad world by using that “standard.” If anything’s true, the earned media from PR is “worth” more than the paid media “earned” through an ad buy.

Lots of companies want/need to be able to measure the effectiveness of both PR and marketing activities. Maybe it’s not ROI, but some sort of measurement is imperative, so that we can as practitioners can “prove” that our work is providing some sort of “value” to the client.

There are lots of ways to measure a campaign that are not tied to sales, but may still be helpful to a client:

- an increase in traffic to a web site (you can track these visitors for conversions!)
- an increase in mentions on blogs/message boards
- a change in tone for coverage of the company/brand (crisis communications)

There are many others.

I think it’s also critically important to understand how a client measures success. We have great ideas and thoughts on how to measure this space, but we need to do a better job of educating clients and helping them gain a better understanding of these new measures and why they can be more powerful than “old school” measures like ad equivalency.

August 1, 2008 Scott

Any good business exists for the singular purpose of making money. Contrary to what Twitter (and others of its zero income ilk) may have you believe, even the most well-intentioned & philanthropic businesses will not be able to keep their doors open if they do not eventually turn a profit, or at least break even.

That being said, ROI should always matter, and can always be calculated. If I convince a client to invest half-a-million dollars in a social network, and they don’t see an eventual benefit to their bottom line (in terms of sales, recruitment or employee efficiency and productivity) the project will be mothballed and I’ll probably lose a client. Businesses don’t get involved in social networks or design a beautiful lobby because it makes them feel good. At least, not the ones that will stay in business.

August 1, 2008 Kate Carruthers

We still need to be able to justify the spend made on social media to the CFO in ways that make sense to them (if only so we can get more money later). The use of advertising/PR style metrics is done because it is easier to do than to come up with some real measurements. Coming up with ways to measure engagement is key to effective metrics for social media, and that requires good planning and definition of the campaign up front. You can’t have good metrics if you don’t plan for them from the start.

August 1, 2008 David Szpunar

@Scott: I don’t see anyone saying ROI can’t be calculated, just that it’s difficult or impossible to do so accurately in many situations involving social media. It’s there just hard to put useful, measurable numbers to. True? Maybe, but I think the point is that relationships have more value than they’re being given.

August 1, 2008 Ed Nicholson

We’re all compelled to measure and report. Sometimes it feels gratuitous. Many times it is. Many times, however, that measurement is good for us all. However:
The best senior managers intuitively comprehend the value of community, positive reputation and relationships–no matter how you build these things. The inexperienced or naive deny or ignore that value. Sooner or later, there’s a _measureable_ price to be paid for the lack thereof.

August 2, 2008 Laurie Slade

As soon as we try to quantify, catagorize or, worse yet, control social media, we hamper the organic process that makes social media work.

Undersanding that there IS an ROI is valuable. But trying to exact a statistic or an absolute quantity is stifling.

Blog, Tweet and Post only truth and it will work for you. Spin, convolute the truth or out-right lie and it will bite you in the rear.

August 4, 2008 shannonpaul

I am so grateful for everyone’s participation in this discussion! Feel free to drop me a line anytime!

My main inspiration for this post was the fact that social media in general takes a lot of hits from skeptics who don’t necessarily understand its value; who like to rally around the cause of old-school ROI calculations.

My hope with this post was to turn that accusation on its ear a bit, by helping to spread the word that the old school ROI calculations were bunk to begin with.

I understand the value of having numbers to support the work of social media, but since the investment is typically very small, the arguments would be better made with a change of values that can actually mean something.

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