We’ve been talking about the ROI of Social Media, or its return on investment, almost as long as we’ve been talking about social media itself. My first deep dive into the discussion was in 2008 when it became the biggest topic of conversation at a PRSA International convention. At that point, I made an interesting argument:

The problem with trying to determine ROI for social media is you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable.

Rooted in the “relationship” focus of the social media purist days, my argument was both informed and inspirational, but wasn’t altogether accurate. In the online space, you can certainly quantify human interactions and conversations. You can count words. You can score sentiment. You can identify numbers of participants or witnesses. You can measure clicks to and from.

In my interview then with public relations measurement guru Katie Paine (below for your viewing pleasure), we discussed the quantifiable, unquantifiable and challenges with both. Not surprising (to me), the conversation is as valid in 2014 as it was six years ago. Companies are still futzing around with the ROI of social media and not getting it right. This interview is worth the time for them, and you:

Where We Are With The ROI of Social Media?

Brands have gotten smart and savvy about social over the last five years. Part of that has been the early adopters driving the ROI conversation. Part of that has been because the social media purists have lost the argument that social cannot or must not be used for profit or sales. Another part of that is because social networks like Facebook have been forced to develop business models, ad platforms and ways for brands to drive sales through their activities there.

But many companies are still in the dark about the ROI of social media. To this day, almost every speaker or presenter on the topic is asked the question, “Well? How do I measure my ROI here?” So, we still have a ways to go.

Unfortunately, we don’t just have to answer the question, though. We also have to educate those asking it to understand they’re asking the wrong question.

Why ROI Is The Wrong Question To Ask

In No Bullshit Social Media: The All-Business, No-Hype Guide To Social Media Marketing, Erik Deckers and I laid out seven business drivers of social marketing. These are the big bucket business reasons for using social media as a company. Those are:

  • Branding and Awareness
  • Protecting Your Reputation
  • Building Community
  • Enhancing Public Relations
  • Facilitating Customer Service
  • Driving Research and Development
  • Driving Sales and Leads

These are the areas your company can create business goals for social marketing (and, frankly, for most all other methods of communications). Your strategic purpose for leveraging social may be to increase awareness of your product or brand. It might be to serve the online customers turning to you on Facebook and Twitter. It could be to drive leads through white papers and webinars offered up on your blog and social feeds.

Whatever the strategic reason for leveraging social marketing, your goals and objectives will have certain outputs.

But not all of them are money.

How foolish would you look if your boss asked you how the Awareness campaign was going and you said, “$57,000?” The goal of awareness is to make more people aware. So you measure to that goal and report how many more people are aware than were before. That’s your return.

  • If you’re measuring to the goal of protecting your reputation, you report online sentiment, Q-scores, positive vs. negative articles ranking in search and the like. That’s your return.
  • If you’re measuring to the goal of building community, you report on size and scope of the community. You can also report on how much the community spends vs. those not in the community, so there can be some revenue discussion. But you report community metrics.
  • If you’re measuring public relations, you report on public relations measures like successful messaging resonance, media relations hits, community partners engaged and so on. That’s your return.
  • If you’re measuring to the goal of facilitating customer service, you report on things like cases handled, solved, customer satisfaction and the like.
  • If you’re measuring to the goal of research and development, you look at new products or features created. You can also then track and measure revenue derived from those new products or features. Or even cost savings from conducting research and development in the online space vs. outsourcing to a market research firm.
  • And if you’re measuring to the goal of sales or leads, you look at revenue in, conversions, sales, etc.

Looking at those business drivers, dollars and cents are only outputs of two (R&D and sales/leads) but can vaguely be connected in a couple others. Therefore, you can only derive ROI from certain goals leverage in social media. The rest are not good fits for the ROI conversation.

Understanding What ROI Really Is

Business people with a fascination for numbers will argue that you have to measure the ROI of everything. Unfortunately, they spend too much time counting and not enough time thinking. What’s the value of your shoes? What’s the value of your phone? Toothpaste? (You get the point?)

While from a broad perspective as business, yes, you can calculate the ROI of everything. Money in, money out … do the math. But doing the math shows you how ROI beyond the META level is impossible to calculate.

Return on Investment is a mathematical equation, most often used in accounting. It does not change. There are not multiple versions of it. ROI is the amount of money you made, minus the amount of money you spent, divided by the amount of money you spent. The result is typically expressed as a percentage.

ROI is — (Revenue-Cost)/Cost

So if you made $500, but only spent $100 to do so, your formula is ($500-$100)/$100. Then answer is 4. Move the decimal places over two in order to calculate the percentage and you have 400 percent. In general, an ROI of 250-300 percent is considered worth the investment. Anything lower and the cost of doing business eats up your margin. (This is a broad statement that may not necessarily apply to your business or industry. But even in a service industry like the ad business, an hourly rate for an employee is typically preferred to be billed at 2.5 times — or 250 percent — their salary.)

Now let’s apply the ROI formula to the various business goals of social marketing. In order to determine the ROI of an awareness campaign, you need to know how much money you spent on it. You also need to know how much money you made from it. See the problem? Money wasn’t the goal.

Certainly, you can use correlation and modeling to attempt to answer the question of revenue derived from an awareness effort. But unless your social marketing happens in a vacuum with no other efforts made toward sales and marketing during that awareness campaign, there is no definitive way to use correlation or modeling to definitively record a number for revenue. So you either have to be happy guessing or you have to ask better questions.

What We Should Ask Instead

The inherent problem explained above renders the question, “What is the ROI of Social Media?” quite ridiculous. It’s asking for financial metrics to explain efforts that were not focused on driving financial metrics. So what’s the better question?

There are still plenty of awesome business goals you can accomplish using social, right? So instead of asking about money, ask a more broad question:

What do I get in return?

By asking what you get in return, rather than what’s your ROI, you get the full picture of what social marketing is doing for your business. You may very well get a 550 percent return on investment overall, but that’s ignoring the fact that you improved the sentiment in conversations around your brand online by 15 percent. It overlooks the fact you gained 17,000 new email subscribers or saw a 25 percent increase in viral shares of your Facebook content. There’s more to social media, communications, marketing and even sales than raw revenue numbers. So let’s recognize that.

Don’t be mistaken. My argument is not that we shouldn’t talk about ROI and money.

When you add the word “marketing” to the phrase “social media,” you’re talking about business. So you’d better be talking about revenue, sales and return on investment.

But let’s not forget that there’s more to the pizza than the cheese.

How To Measure The ROI of Social Media

The “how” of measuring the ROI of social media thus becomes simple. You measure holistically but resist ignoring the soft metrics and benefits of a social media marketing program. For those efforts that have the goal of driving revenue, you measure that and calculate an ROI, but know that ROI is not for social marketing overall, but rather for that singular effort. You focus on the “return” of social media and not just the “ROI.”

To go a step further, I would recommend never trying to calculate the ROI of a singular subset of your marketing efforts. How can you responsibility calculate the ROI of social media when you supplement that effort with paid online media? How can you measure the ROI of your public relations efforts when social compliments it and advertising is used to amplify that message? ROI should be a term we only use for overall marketing to calculate all we spent on anything that has to do with marketing and selling the organization, then comparing that to all the sales and revenue we deviated from it.

To divide ROI into sub-units that inherently cross-pollinate and help one another is to admit you are just looking for a reason to be biased against one or more of those sub-units.

At the end of the day, it’s best to remember¬†measuring your success is not a matter of ROI or not. It’s a matter of ROI … AND.

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