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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?
Slow Down
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.
Your Take
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
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{ 18 comments… read them below or add one }
I thought the subject matter was on point to what is being thought about and discussed today in MANY marketing meetings. Shannon does a great job in defining what is necessary to consider…
My Two Cents…
AMEN!!! I would extend it further to say that many companies simply have no strategy in place for their social media efforts. They jump on Twitter and Facebook (because those are the sites everyone is buzzing about), then after a month ask ‘Ok….what should we be seeing here? What should be happening?’ Then they come back and say ‘We need to figure out how to measure this social media stuff cause right now we have no idea if it’s working or not.’
So we ‘social media experts’ decide that ‘A-HA! Companies need to learn how to calculate Social Media ROI! Let’s talk about that endlessly for the next six months!!!!’
No. We need to make sure that companies understand that they have to have a STRATEGY guiding their social media efforts.
Get that in place. Then you can talk tactics (Twitter and Facebook). Then you can talk metrics and measuring ROI.
But if companies start using social media ‘just to be doing it’, they are going to likely have issues trying to figure out if their efforts are working, because there’s no focus behind them and no strategy guiding their efforts.
Get the strategy set first, then you can talk ROI.
Mack jumps to the heart of the issue here. Companies with no strategy, the ones on Twitter because everyone is jumping on Twitter, have no strategy. With no strategy behind the time they are spending, ROI equations are doomed.
Mind you this is nothing new. The majority of businesses tactic shop. Hey, let’s do direct mail, let’s do a billboard, let’s get on NPR. Rarely do many companies drive their efforts with solid strategy. Social tools just make that tactic shopping easier and quicker.
Amen to you, sir.
Shannon -
I agree with you and Mack on this, and would extend it one step further. The real trouble with the ROI/measurement discussion in social media is more deeply rooted than a debate about what ROI means (it’s return on investment and nothing else), or even which metrics we should use. One of the serious problems we have is an inability to write true measurable goals and objectives. We can write all the great posts we want about SM ROI, but if folks don’t know how to take the benchmark research and turn it into measurable goals then we are DOA.
One other quick point…while we spend a lot of time talking about what SM measurement is/isn’t, we shouldn’t lose sight of the fact that the process by which we measure SM is very similar to the way we measure traditional. We benchmark. We develop measurable goals/objectives. We develop a strategy. We develop tactics to meet the measurable goals and objectives. We implement. And then we measure again and make tweaks as necessary.
This is getting to be a long comment, and I apologize…Thanks for your post, Shannon!
Shannon, why are we still even stuck on this?
1. Define a quantifiable objective.
2. Develop a strategy to reach that objective.
3. Sort out your tactics.
4. Deploy and execute.
5. Measure impact.
If the objective was financial, measure the financial impact both on the front end (cost/investment) and on the back end (outcome/impact), and do your ROI calculation.
ROI is relative to the cost of the tactics and the financial value of the outcome. It doesn’t change because of the medium.
It isn’t a question of simplicity or complexity. (You’re kind of at the mercy of what you have to work with.) It is simply a question of specificity: Knowing exactly what you want to measure and how. That’s it.
I am still scratching my head as to why so many people have such a hard time applying this to social media. (I’m not even talking about applying it to Social Media, here. I am talking about the basic notion of how to relate ROI to Social Media… which in an of itself is as simple as it gets.) Can you shed some light on this for me?
Olivier,
Simply put: there’s still a very big learning curve when it comes to measuring the right things. Your point #5 is a bag of worms most companies have a very difficult time getting their arms around in a meaningful way.
As I outlined above, a lot of companies are measuring the wrong things. This leads to a faulty ROI calculation no matter how dollars and cents focused anyone thinks they are.
Yep. Ironically, the key to ROI lives in #1, not in #5, which is what many companies get wrong.
#5 is an execution piece. It’s the collection of data and its subsequent analysis.
#1 is where the measurement methodology (what will we measure, how we will measure it, where will we measure it and why) is actually born. ;)
We don’t disagree about where metrics should be established, but I disagree with the notion that this is easy for most companies.
The data suggests that this is a very difficult piece for many to grasp. If companies don’t fundamentally understand the web, they may be measuring the wrong things and scratching their heads as to why they’re not meeting the objectives and failing at achieving any ROI.
My objective with this post is to flesh out that particular piece of the equation. That’s all.
It makes sense doesn’t it? When this social media space was on it’s baby legs, you’d hear the bubble yelling all the time about how every business should be using social media. So, businesses listened, without really knowing why they were listening. If enough “experts” tell you to do something, you should probably do it right?
This was a very clear post Shannon. Thank you for that. Too many ROI posts just confuse the readers further.
David
Community Manager, Scribnia.com
@DavidSpinks
Olivier,
I think it’s still a constantly-resuscitated question precisely because most corporated social media endeavers exist somewhere between marketing and customer relations, so they necessarily produce vague outputs. If a drugstore cashier helps me out and improves his company’s brand, he doesn’t make a cent more. If a marketing company interacts with 10 customers on twitter, they stick in in their stats and bill for it! The marketing companies promoting social media are doing it because it’s billable and seems like an obvious good idea, but that doesn’t mean that they have a clue how to measure the impact. So some rock star or basketball icon just tweeted his love of your candy bars…? What does that mean for sales?
Good point. To Shannon’s point: Vague objectives = vague metrics, etc. You’re taking it a step further and suggesting subjective metrics as well. I agree. I see this too often as well.
Excellent post, saw it on a tweet from someone.
You bring up some really good points. I have worked for a few fortune 100 brands; and the question that always comes up from senior management is: what’s the financial investment AND what’s the return?
Easy to say; MUCH harder to do especially for ingredient brands, like my previous employer Intel.
I think all metrics are good to quantify, even the ones that seem fluffy (i.e. increase in RSS/Twitter followers) but the important ones are the metrics that can be directly correlated to some level of business value, however that may be defined.
It’s up to the industry and some smart start up to define these “business value” metrics and create a tool that spit out a quantifiable ROI. Omniture and other similar tools just aren’t smart enough.
Until then, it’s all fluff and speculation but I sure do love to talk about it.
@britopian
Ron Ploof did a good job here of starting to put numbers around how to value audience.
http://ronamok.com/2009/11/11/audience-is-an-asset/
In the end isn’t that what this all comes down to – not mass audience, but if you’re Social Media efforts are being seen by no-one then it’s pretty clear there is no value there. This is not to suggest that a small audience cannot be highly valuable, especially if you can start to factor engagement in.
His post is worth a read in relation to the ROI discussion because it starts to try to put dollar values to this asset (audience) whereas a lot of the ROI talk in SM is, as Michael points out above, fluff and speculation.
Michael is also right in that it’s still fun to talk about anyway.
Reply
Great intro piece to the issues of measuring Social Media success (and I would use the word success rather than ROI as a more flexible label).
Trying to come up with a universal social media score, (particularly one based on throwing in a load of numbers and multiplying them together in a magic formula) is like trying to measure happiness, or love:- criteria that work for one person are very unlikely to work for another. Likewise criteria for measuring one company’s social media activity are unlikely to be 100% transferable to another company’s efforts, unless they both share the same goals, objectives, starting point, character, etc.
Set a strategy, set objectives for different stages, define relevant measures for each stage and then move into your benchmark/measure/improve cycle.
Here at Tamar we advise clients to take things one step at a time – if they need to work first on increasing reach, then success can be counted against all those size of audience/traffic measures that we know and love; if they are trying to improve ‘engagement levels’ then look to track key interactions, etc. etc. Fit the measures to the objectives, and fit the objective to current needs and opportunities.
I couldn’t agree more! I’ve listened in on so many ‘ROI’, or what is falsely perceived as ROI Webinars related to Social Media. It’s not all about increasing unique visitors or the number of replies one receives on a corporate blog, rather it’s more about the quality and relevance of who is visiting and commenting. In B2B, it’s more about lead gen, gaining intel and learning about your target audiences’ interests and pain points and hot topics.
Maths and economics are nice and tidy. But how about translating ROI to users, influence, alexa ranking etc?
Laura Chapman
wadja.com
Does Social Media and Friends = $$ online. In my experience it is relative to the product and audience. I also find that many smaller business cannot properly execute a social media campaign because they forget a few important steps: planning, create goals, budget and analysis.
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