Why Measure ROI Of Social Media?

When people talk about social media and corporations, ROI is eventually mentioned. This stems from the fact that people see social media as another form of marketing or advertising. Marketing and advertising always have ROI linked to them because there is a lot of money spent. For example, if you spend $10 million on TV commercials, you want to know if that money was worth spending. Those commercials will typically run for a “campaign”, which will have a finite duration, like a month. You can then measure ROI based on the change in revenue during and after the advertising campaign.

For many companies, social media is supposed to use the same ideas. If a company has someone dedicated to social media, like a community manager, they want to see their revenue change because of these efforts. As many people state, this is generally the wrong thing to do, but it continues to be talked about. I think the continuing discussion has to do with the initial assumptions about social media. If you start with the assumption that social media is purely marketing and advertising, then you are starting with the wrong assumptions.

First, social media is about communication in its many forms. So, if you just assume that it is a communications medium, then you are in a better position than those who assume it is yet another marketing channel. As a communications medium, it may not directly lead to revenue either. So, measuring tradition ROI could be problematic. Of course, corporations will ask what they are supposed to do with social media if they are not using it for marketing.

If you are a corporation and you sell digital or concrete products, there are multiple parts to your corporation that are cost centers. By definition, these cost centers are parts of the business that generate no revenue directly. However, if you did not have these functions, your business would fail. Social media may have a marketing element to it, but parts of it are like “pre sales” or the early parts of the sales cycle. That is the time where you are having coffee with a potential customer, just in the hopes that they will consider your product. Technical corporations have a significant portion of their technical staff devoted to “pre sales support”. These people are available to help with trial product installations, pre-sales technical issues and anything else that happens on the technical side before the contract is signed.

Another interesting segment of social media is its use for customer service. There are plenty of companies that are building a reputation with their social media customer service, like Dell, Comcast and Zappos. Customer service generally generates no revenue directly. If anything, customer service is the mainstay of those customers that do not like something about your product. However, if you have no customer service available, customers will leave in droves. What good customer service can do is keep your customers loyal. A loyal customer is one of those people that will tell other people about your products. You love those customers, and your business needs those customers. By helping customers through social media, you tend to help those people who are talking to a lot of people on various social sites. By helping these vocal customers, you are potentially making them a loyal customer. Customer service may be a cost center, but anything that helps build loyal customers is good business.

So, do you still want to measure ROI? If so, stay away from social media as you are likely going to do it wrong. Put down your MBA and think about what you are doing. You do not have to listen to me, but you could listen to people like Chris Brogan or Valeria Maltoni. They have been saying the same types of things for a while.

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13 thoughts on “Why Measure ROI Of Social Media?”

  2. Rob, your point about social media being more than a marketing tool is well-taken, but I don’t think that means that proving ROI can’t or shouldn’t be done. Even if a company is forward-looking enough to view it as core, underlying communications infrastructure, they need to know that making that investment (technology, processes and people) is going to pay off in a meaningful way. The fact that it might be a cost center investment doesn’t change that need. Using a cost center example – A manufacturer might be considering a purchase of a new robotic device for their manufacturing floor…definitely not a sales/marketing expense, but it’s still going to be evaluated against financial metrics. I.e., the ROI has to come from either lower costs or increased revenue (e.g., ability to produce higher quality product leads to higher price points, fewer returns, etc). Social media needs to be able to pass the same test…it’s worth noting that other communication channels faced the same challenge when they were introduced, and they made it into the mainstream by doing this well (e.g., webex’ ROI was all about being able to sell more effectively without having to increase travel costs).

    Often when I see the argument made that you shouldn’t try to measure ROI for social media, what I think people are really saying is “it’s too hard to measure.” There’s no question that measuring ROI is difficult, but it’s far from impossible and, in my opinion, it’s necessary in order to get early/late majority type of customers to really commit to it (right now most companies are just dipping their toe in the water). This is particularly important in this economic environment, where every spending proposal is scrutinized. The key is understanding the specific pain points of the customer and building a proposal that shows how social media can address that need.

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  3. Michele

    Thanks for the kind words. I know people in business are always looking at ROI for new “methods”, but sometimes these new methods may just be something like another way for customer service. One thing I did not mention was that a lot of companies now have “live chat” on their website. I highly doubt ROI was a big consideration, but providing more customer support was probably critical.

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  4. Paul

    Admittedly, I took a hard stance specifically to force the idea that people need to look at it differently. You do bring up a good point though, ROI can be measured indirectly and that is often done with things like customer service. Is ROI hard to measure for social media? Sure, but it is hard to measure for plenty of other things as well, so that is not a good enough excuse. I love the last part of your comment though:

    “The key is understanding the specific pain points of the customer and building a proposal that shows how social media can address that need.”

    Amen to that!

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  5. Yes I agree we should not be thinking of ROI, but I personally have seen great benift from SMM. For example our blog has become a huge hit only because we promted it through SMM. We had 1000 hits in 1 week as appose to 10-20 usually when we did not use SMM. It makes great sense to be in Social Media and dont calculate the ROI.

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  6. Customer service has an ROI, even if nobody calculates it. At some point, you can provide more customer service than is necessary to retain customers. So too with social media. The trick is to invest enough, but not too much.

    Amazon.com provides almost no customer service because they don’t have to. Their investment is the operational systems that make sure every order is processed perfectly. Rare do I have to call them as I place an order and that order just comes. They don’t call me to verify I received it, I liked it, etc. I don’t want them to; I want them to be there when I want to buy something.

    Same with training. Same with communications systems. Same with…..

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  8. […] Why Measure ROI Of Social Media? | Regular Geek For many companies, social media is supposed to use the same ideas. If a company has someone dedicated to social media, like a community manager, they want to see their revenue change because of these efforts. As many people state, this is generally the wrong thing to do, but it continues to be talked about. I think the continuing discussion has to do with the initial assumptions about social media. If you start with the assumption that social media is purely marketing and advertising, then you are starting with the wrong assumptions. (tags: socialmedia roi i2comm) Posted by George Misc Subscribe to RSS feed […]

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  10. It’s very interesting to read these discussions about ROI when it comes to social media. They are very similar to the discussions from 10 years ago when it was also ‘impossible’ to measure ROI from a website. Now Internet ROI is measured everyday and generally very accurately. ROI needs to be thought of as a tool to not necessarily get approval, but as a method to do better. We may not know how much incremental revenue social media marketing is going to deliver, but we know that it is worth the risk.

    Companies that have never done TV advertising before, set up their first spots so they can test to see if they worked. If they do, they invest more. If they don’t they tweak their plan to make it work. We need to think of social media in the same way.

    1) Take the risk and take the plunge
    2) Measure results to see where we can improve
    3) Determine whether it’s making a difference and keep measuring.

    No one disagrees with the fact that social media is the place to be and that it will be a major place to be for a very long time.

    Our company has been measuring the impact of social communities for a few years now. It isn’t that hard. You just need to want to do it and have the measurement know-how. Please reach out to me on twitter at @GuyPowell or go to my book site at http://www.marketing-calculator.com

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