Social Media ROI Idiocy
Wednesday
Jan 27, 2010
It’s time to counter a growing sentiment among social media types – including some nationally recognized practitioners who really should know better - that trying to justify your company’s decision to pursue a social media strategy based on ROI is somehow foolish.
Now, these same high priests of social media don’t ever suggest a better alternative or method to determine whether or not your company should pursue a social media strategy, they just insist that you’ve got to do social media because it’s just so darn important, and besides your competitors are.
If their argument sounds like your teenager’s argument insisting that you’ve just got to let him stay out til 2am because everyone else is doing it, well, you’re right.
However, unlike gullible parents, the executives who make investment decisions aren’t easily duped, they don’t jump on every trendy b-school bandwagon and they’re not scared of your newfangled technology. They want more than breathless claims. They want proof.
Twitter is that thing Ashton Kutcher and Oprah play with. Facebook is the place where their teenagers waste their entire evenings. And your preoccupation with these platforms doesn’t convey cutting edge marketing savvy as much as it does pointless obsession.
If you want corporate buy-in and investment, you’ve got to demonstrate how your social media strategy will generate positive returns for the company. In real dollars, with real timelines.
The ROI opponents claim that there’s simply no way to really measure ROI. After all, they claim, How can you put a dollar value on a blog post, a blog comment, or a single tweet? As if that level of granularity is the measure that anyone is looking for.
Or they simply attempt to redefine a financial metric that has been commonly defined and routinely accepted for decades.
Reading just a few recent posts by legacy ROI opponents, I’ve seen ROI redefined as:
- Return on Impact
- Return on Impressions
- Return on Importance
- Return on Influence
And, my personal favorite for its absurd complexity and impenetrable formula: ROI should really be referred to as Return on Conversation whose formula is:
(B • I) (m+s • r)/d] / [O/(b + t + e)]
Brand Equity times the Intent of Communication times (Message plus Suitability times Reach) divided by Sustainability OVER Outcomes divided by the Cost times (the Budget plus Time to Produce plus Experience)
I believe the result is actually measured in Schrute Bucks.
The reality is that ROI is much simpler than that. You only need to know two numbers: how much you gained from your investment, and the total cost of the investment itself. That’s it.
ROI = (Gain – Cost) / Cost
If you spent $1000 and saw an increase in sales of $1500, then your ROI was:
ROI = (1500-1000)/1000 = 50%
I think I know where the disconnect is. Social media engagement typically generates an action that is non-financial in nature. You collect Twitter followers, generate retweets, get comments on your blog, add new Facebook fans, attract YouTube viewers or generate click-throughs to your website.
However, These aren’t ROI. How do I know? Because my banker won’t take Twitter followers in lieu of a check. Clear enough for you?
I don’t want to diminish the importance of engagement with your clients and your prospects. I’m a huge adherent of social media and I recognize its transformative potential, but only if it’s used strategically, with specific objectives that you can track and measure.
ROI doesn’t become ROI until it does one of two things: increases revenue or reduces costs. Those are financial impacts that are real, measurable and put a grin on your CEO’s face.
Determining ROI isn’t a laughing stock metric in the corporate world. Calculating potential ROI demands that you create a strategic plan, consider alternatives and project likely actions and returns from your program. It compels you to define precisely your plan’s objectives, put them down on paper and support them when challenged.
Simply saying that we need a social media program because our competitor has a social media program is absurd. What if their program is drains their marketing budget without any noticeable effect? Do you want to copy that?
If you want funding, you need to justify your program with more than intemperate claims that we’ve just gotta do something. What’s your goal? To increase revenue or decrease costs? How will you do it? Who will be involved? How much time is necessary to invest? What technology platforms will you support? How will your program fit into your current operational structure? What do you want your conversational partners to do? How will your success be tracked and measured?
If you don’t know the answers, you don’t deserve the funding. Social media marketing is no different from any other marketing, it just uses new channels and has interactivity built-in. If you can’t tell me how you intend to leverage the medium and generate a positive return you can always try again next quarter after you learn.

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