ROI is important for every function in business, but what if it’s measured too hastily?
I wrote about social media ROI last week and some of the comments in response to that post highlighted a tendency many have to oversimplify this calculation.
Simple is good; overly simple is not.
ROI Blah, Blah, Blah, More ROI
What if ROI is the thing so many people are distracted by while screwing up the metrics?
ROI is an economic equation that looks at costs and benefits, but how do you quantify what gets counted as a benefit? There are many steps on the road to ROI, but deciding what gets measured and how much weight to give it are the keys to giving an ROI calculation that actually makes sense.
For the record, let it be known that nobody is saying ROI calculation isn’t important — at least not me :) But, I don’t think hasty measurement or oversimplification is the way to go either.
This line from a recent post by Peter Kim got me thinking more about this:
“I think that too often, people jump from measurement to ROI too quickly. If we take a different approach that accounts for the interim steps required to get from start to finish, we’ll be able to sleep better knowing how our social business investments are performing.”
Yes, ROI is a simple economic equation that subtracts cost of investment from benefits of the investment and divides the result by the cost of the investment. Whatever.
Figuring out the costs has to do with the amount of money spent and work-hours devoted to the cause. That’s the easy part, right?
The tough part comes in when you try to put real economic justification on any social media endeavors. I’m of the belief that social media marketing works, but a lot of the numbers signifying failure in the industry are because too many measure the wrong things.
A significant disconnect between goals and success metrics was found in this year’s Tribalization of Business study by Beeline Labs and Deloitte.
Most goals of businesses surveyed centered around increasing word of mouth and brand awareness, but the top metrics positioned as indicators of success were things like number of active users and user engagement on the site.
I’m just thinking out loud here, but a better metric for word of mouth might be an increase in the number of branded keyword searches, and a better metric for an increase in brand awareness might be the number of incoming links and mentions on 3rd party sites including social networks.
My point is, the math involved in the ROI calculation is easy. Deciding how to measure and quantify what gets counted as a business gain could use some noodling.
As we move into 2010 (time flies!), what are some of your goals and what do you plan to measure to ensure you’re meeting them? How does what you’re measuring eventually ladder up to ROI?
Does having a better sense of the role of measurement in ROI make you more confident in your efforts?
Photo by Vincent Ma