What follows is the entire version of my recent post on Mashable, “The Maturation of Social Media ROI“
Over the years, Social Media experts attempted to redefine ROI for a new era of influence. While some introduced alternative philosophies for measuring the nuances tied to social media, others wondered aloud whether ROI simply wasn’t necessary as the tools and methodologies for analyzing yields didn’t yet exist. And furthermore, by focusing on justification and metrics, we were distracted from the primary objective of building relationships and cultivating dialogue.
The debate over ROI inspired certain brands to cannonball into popular social networks to join the proverbial conversation without a plan or strategic objectives defined. At the same time, the lack of ROI standards and established authorities unnerved many executives, preventing any form of experimentation until their questions and concerns were addressed.
But that was then and this is now.
In 2010, we enter into a new era of social media marketing, one based on information, rationalization, and resolve.
Business leaders simply need clarity in a time of abundant options and scarcity of experience and answers. As many of us can attest, we report to executives who have no desire to measure intangible credos rooted in transparency and authenticity. In the end, they simply want to calculate the return on investment and associate Social Media programs with real world business performance metrics.
Over the years, we explored ideas, driven by a passionate desire to find new meaning and vindication in uncharted domains. These discussions and the innovation they sparked, redefined the framework for traditional metrics, creating hybrids that would and will prove critical to modernizing business practices, improving products and services, and effectively competing for the future.
ROI: The Return on Ignorance
Where the “I” in ROI represents return on investment, marketers have also explored ancillary elements to address the socialization of media, marketing, and the resulting dynamics of engagement.
Adaptations included:
Return on engagement – the duration of time spent either in conversation or interacting with social objects, and in turn, what transpired that’s worthy of measurement.
Return on participation – the metric tied to measuring and valuing the time spent participating in social media through conversations or the creation of, social objects.
Return on involvement – similar to participation, marketers explored touchpoints for documenting states of interaction and tying metrics and potential return of each.
Return on attention – In the attention economy, we assess the means to seize attention, hold it and as such measure the responses activities that we engender.
Return on trust – A variant on measuring customer loyalty and the likelihood for referrals, a trust barometer establishes the state of trust earned in social media engagement and the prospect of generating advocacy and how it impacts future business.
But as we learn through experience, our views and techniques mature into more sophisticated strategies as we progress through the Ten Stages of Social Media Evolution.
For many businesses, the case for new metrics cannot arise until we have an intrinsic understanding of how social media engagement affects us at every level. To be quite honest, it is not as simple as counting an increase of subscribers, followers, fans, conversation volume, reach, and traffic. While the size of the corporate social graph is a reflection of our participation behavior, it is not symbolic of brand stature, resonance, loyalty, advocacy, nor is it an indicator for business performance.
ROI: Return on Investment
Sometimes we simply need ROI to signify a meaningful return on investment.
In 2010, Social Media endeavors are still funded as pilot programs to steer the brand towards perceived relevance in the hopes that they demonstrate momentum and as such, rewards materialize. Budgets are for the most part, borrowed from other divisions to fund the teams and programs lead by the internal champions who effectively make the case for experimentation. Where that money goes and from where it’s borrowed varies by department and by company usually tied to where champions reside internally today.
In many cases however, new programs are introduced without an integrated strategy. Money is allocated from existing programs, and if we’re going to take it away from something, we should therefore determine whether or not we’re justified in doing so.
According to a 2009 study performed by Mzinga and Babson Executive Education, 84 percent of professionals representing a variety of industries reported that they do not measure ROI.
Source: eMarketer
In 2010, executives are demanding scrutiny, evaluation, and interpretation. Even though new media is transforming organizations from the inside out, what is constant nevertheless, is the need to apply performance indicators to our work.
The Business of Social Media
The CFO, CEO, and CMO of any organization would be remiss if they did not account for spending and resource allocation, regardless of the allure and seduction of social media.
MarketingProfs recently published a study performed by Bazaarvoice and the CMO Club that revealed the true expectation of chief marketing officers. Bottom line, they want measurable results from social media.
Elusiveness continues to prevail however. The study found that the exact impact of social media tactics evade the grasp of CMOs.
– 53% are unsure about their return on Twitter
-50% are unable to assess the value of LinkedIn or industry blogs
More specifically however, roughly 15% believe there is no ROI associated with Twitter and just over 10% cannot glean ROI from LinkedIn or Facebook.
I believe this is the direct result of not tying activity to an end game, the ability to know what it is we want to measure before we engage. Doing so, allows us to define a strategy and a tactical plan to support activity that helps us reach our goals and objectives.
We first answer,
What is it we want to change, improve, accomplish, incite, etc.?
Doing so will allow us to establish goals and objectives that specifically tie activity to:
– Sales
– Registrations
– Referrals
– Links (the currency of the social web)
– Votes
– Reduction in costs and processes
– Decrease in customer issues
– Lead generation
– Conversion
– Reduced sale cycles
– Inbound activity
Customer Insight
Among the responses received from CMOs, customer ratings and reviews rose to the top of marketing activities that deliver tangible ROI insight. In 2009, 80% of respondents reported that customer stories and product suggestions shape products and services. As a result, brands earn the trust and loyalty of their customers for listening and responding – as long as they are made aware of their role and rewarded for it.
In 2010, CMOs will review opportunities for user-generated content sources to involve customers and advocates with many reporting…
– a 400% increase in use of Twitter comments to inform decisions about products and services
– a 59% increase in the use of customer ratings and reviews
– a 24% increase in use of social media for pre-sales Q&A
The Socialization of Monetization
Social media metrics will increasingly tie to revenue in 2010. To what extent seems to vary according to CMOs.
– 80% predict upwards of 5%
– 15% optimistically hope for 5-10%
In 2009, those companies that aligned social media investments with revenue estimate:
– 5% or less revenue tied to social in 2009 foresee an increase of an additional 5% in 2010
– 6-10% of revenue stemming from social is expected to increase more than 10%
– Those with greater revenues resulting from social engagement expect an escalation of revenue derived from social at 20%
Companies such as Dell are not only tracking the impact of Social Media on revenue, but expanding lessons learned across the entire organization. According to Dell’s Lionel Menchaca:
Our @DellOutlet is now close to 1.5 million followers on Twitter, and back in June we indicated that @DellOutlet earned $3 million in revenue from Twitter. Today it’s not just Dell Outlet having success connecting with customers on Twitter. In total, Dell’s global reach on Twitter has resulted in more than $6.5 million in revenue. In fact our Brazilian and Canadian accounts are growing rapidly too – and it was Canadian tweeters who asked to make sure Dell Canada came online to Twitter. Dell Canada responded because the team heard our customers. In less than a year, @DellnoBrasil has already generated nearly $800,000 in product revenues. Similarly, @DellHomeSalesCA has surpassed $150,000 and is increasing at notable pace.
The Forecast for Metrics in 2010
Earlier we mentioned generic forms of Social Media metrics. The survey revealed that indeed, many CMOs, 89%, tracked the impact of social media by traffic, pageviews, and the size of their social graph or communities. However, 2010 is the year that social media graduates from experimentation to strategic implementation with direct ties to specific measurable performance indicators.
In 2010, CMOs will seek to establish a connection between social media and P&L business goals. The study documents the adoption of three metrics:
– 333% surge in tracking revenue
– 174% escalation in monitoring conversion
– 150% increase in measuring average order value
A Call To Action
Among the most effective forms of any marketing initiative is the integration of a call to action. It is how I define influence as it gives us the ability to inspire activity and measure it – as designed. As stated earlier, revenue is only one form of metrics we can introduce, but defining the “R” in ROI is where we need to focus as it relates to our business goals and performance indicators specifically. Even though much of social media is free, we do know the cost of engagement as it relates to employees, time, equipment, and opportunity cost (what they’re not focusing on or accomplishing while engaging in social media). Tying those costs to the results will reveal a formula for assessing the “I” as investment.
When we truly grasp the ability to define action and measure it, we can expand the impact of new media beyond the P&L. We can adapt business processes, inspire ingenuity, and more effectively compete for the future.
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This was a great post. Calculating the return on social media investment is critical for companies looking to turn the “strategic corner”. I wonder though if you think it is necessary or realistic to isolate and measure social media in a vacuum.
Most companies deploy several communications or promotional initiatives along multiple channels simultaneously. In these instances, I wonder if measuring social media alone may not give you the entire picture.
It seems to me that quantifying the effect your social media performance might have on other communications channels (channels where ROI is much more direct) might be necessary to create an accurate understanding of social media's effectiveness. Curious to get your thoughts.
Hello! Yes…I think that measuring all forms of activities, whether it's ROI or performance helps us grow in a sector that requires learning.
Brian, great post. This will serve as a useful companion piece to a post I did today, “Three reasons why the “experts” are wrong about social media marketing” http://j.mp/8Xa5ZR
In this article I try to address those who say there is no need to measure at all. Many of my readers were looking for specific how-to's and I now have a thorough, well-written resource for them today thanks to you. Well done.
Mark, well done! I'll be sharing that post as well! There are many who believe that it's not worthy or capable of measurement, yet in the end, social media is among the richest for measuring ROI, BPMs, KPIs, etc.
Thanks for offfering to share my post, Brian. Keep up the great work.
Brian, great post. This will serve as a useful companion piece to a post I did today, “Three reasons why the “experts” are wrong about social media marketing” http://j.mp/8Xa5ZR
In this article I try to address those who say there is no need to measure at all. Many of my readers were looking for specific how-to's and I now have a thorough, well-written resource for them today thanks to you. Well done.
You discussed it clearly. Now, I had a better idea of the ROI with all those social media sites. And those are really amazing facts.
Gwen
Get $150,000 in Unsecured Biz Credit Lines
ROI for Social Media…hahaha…since when can you measure ROI for any marketing activities??
It's not a matter of whether or not we can or do, we should…and it's extremely rewarding to do so. We change programs almost on a weekly basis when we can see their effects in real-time.
Measuring and marketing are as old as fire. “Hey, who stole my mastodon ribs?” All measurement is important but strategy must be measured first and foremost. ROS (return on strategy) is the key measure. Tactical measures (return on engagement, attention, involvement, etc.) are exciting, yes, but shouldn't obscure or replace the main business goal. Tactics-palooza can be a problem for the unfocused marketer.
@robinong I agree, since when is tracking ROI for social media easy to do? I think when we finally find a good way to track the success of social media, it will really take of in a commercialized way. It still seems since no one can figure out exactly how much success they are having or even where that success comes from, they'll never really invest resources into it. I'm a fan of Twitter for getting information, but measuring ROI, seems like a nightmare.
In the end, most brand marketers and CMO's are interested in increased SALES. Phrases like Return on Engagement sounds like a bunch of marketing hoohaa to CMOs because engagement is a means to an end, not an end in itself.
Measuring the effect of any Marcom activity is difficult unless there is direct response component. Without DR, you need the ability to track the media consumption habits for a very large sample, which is extremely costly and raises privacy concerns. Also, if your product is sold primarily through retail (as most CPGs are) you need a mechanism that tracks real purchase behavior with a high degree of accuracy. Nielsen has tackled this with Homescan, but it isn't cheap, and far too expensive for many brands.
So we're left with four choices:
1. if you want accurate metrics and ROI accounting, be willing to spend A LOT.
2. seek relevant research, or conduct your own intensive research periodically, and extrapolate ROI based on your own formula
3. based on other, more measurable marcom, take an educated guess on how engagement translates into sales
4. take a “if I can't measurement it accurately I won't do it” approach (not the option I would choose)
Great post on a tough subject. Something like social media where you can't control distribution makes quantification extremely difficult. In a channel like direct mail, for instance, I can send 100 pieces to this group, 100 to that, know exactly who saw which, who they are and how they reacted. This is much more conducive to calculating ROI. Ultimately, it's all educated guesswork, though.
In the Dell example for instance, I wonder how they calculated how much twitter is costing them in terms of people who would have bought at full price, and just used the service as a quick coupon check. Not an easy thing to figure out.
Always well thought out posts. Thanks Brian!
I must have missed it…where was the how to?
It's funny that I just found your post on Twitter the minute I was starting to create a chart on relevant KPIs.
First I have to state that I generaly agree: The opportunities to measure in the online environment are far more sophisticated than they are offline. Hence specific tasks demand the deployment of specific measurement tactics.
Yet, I think there is a comparably easy approach to define some key indicators which I'd like to share and discuss here. They do not directly link to the “R” (return) but rather to the “I” (investment, to be sure) in ROI.
The first is the cost of communication per recipient (or contact) and can be measured as simple as that:
costs of communication / ammount of contacts (should be calculated for each used channel separately)
The next KPI is cost of engagement that is calculated as follows:
costs of communication / ammount of reactions (again: calculate channel-specific)
The latter indicator can actualy be understood as an expression of “return” – in case you want to achieve a 'simple' objective such as word-of-mouth communications about your brand, product or something similar.
I am aware of the fact that these indicators are quite basic, but they are a starting point for every measurement approach. If you have specific communications objectives, you usualy have to come up with specific measures.
Still, both KPIs are a bit tricky: for calculating them you have to define what is “costs of communications”. In theory, it's possible to calculate the cost of f.i. each individual tweet or status update (time spent on this update converted into salary). However, in most cases this is neither practical nor useful. Instead, I usualy suggest to define both KPIs as a weekly indicator. Usualy, the variation of the amount of contacts whithin one week is not large enough to be significant. Otherwise it's possible to work with the mean value between “number of contacts at the beginning of the week” and the end of the week. So the cost is the time spent on a specific channel during the week, translated in monetary costs.
The other critical point in terms of relevancy in case of the “cost of communication per recipient” indicator is how to discount irrelevant. My solution: at the beginning of one's social media acticities it's possible to discount
spam followers et. al. manually and thereby get to an average figure of non-relevant contacts.
Thanks for the graphs and analysis. If you can not anticipate an estimated ROI of social media, you either do not understand the media or your market. Some people like to ride in the front of of the train, some in the rear. This is like the beginning of any other form of marketing. If you do not understand it; hire someone that does.
Great insight on how to measure how effective a company's social media tools are. Do you know of any websites that offer free metric tools? That would be really helpful!
PS and btw: Way do so many people ignore traditional market research as a means to measure social media effectiveness? Integrating the item “social media” in the monthly or biannual survey on brand awareness and brand perception is related to almost no extra cost.
Dynamite, as always.
My experience is that most clients are more than happy to keep spending money under the guise of 'brandbuilding', so hearing not just a great argument but the sort of facts that I can use to batter clients with is brilliant!
Thanks
Thanks Brian! Excellent timing. I was discussing the effect of social media apllied on businesses earlier today – and will forward this link. What exactly are your 2010 estimates based on? Are they empirically deducted, are they themselves based on metrics that are extrapolated or perhaps on interviews? Anyways, always interesting to read your articles!
“defining the “R” in ROI is where we need to focus”
This is the kind of thinking that drives me crazy. “R” stands for Return. Unless you're working for a non-profit, our clients hire us to sell stuff. Impressions, interactions, activity, engagement, participation…these are means to an end, not an end in itself. They are also extremely easy to measure.
Tom, yes, hopefully everyone here is aware that the “R” stands for return…but let's back up a moment. If you want to measure the return on investment, we know a couple of things right off the bat…1) there's an investment in time, resources, and capital that we must analyze and measure in order to determine whether we eliminate, reduce, run as is, or increase our commitment with a given program. 2) What are the dividends or loss that result from that activity.
When I make such a literal and commonsensical statement like that, it's designed to get people thinking about the obvious and also the not so obvious. We can't measure the return if we haven't decided where to apply the “return.” What are measuring against? Is the return based on our involvement on Twitter and Facebook? If so, what's the return that we're hoping to capture? Are we looking to shift sentiment? Are we hoping to generate leads? Are we striving to increase the share of voice? Are we hoping to reduce the number of inbound service requests and also increase the number of visible and influential advocates? Do we have that not only defined but also implemented in a way that is measurable?
Typically these questions are not yet defined nor considered before many brands create profiles and engage. Nor are these questions considered at the departmental level…how do we apply resources based on the department with opportunity costs factored in…if x spends y time on social networks, what do we gain/lose from that time vs. attention focused on z.
Brian, I think we're mixing apples and oranges a bit. Return on investment is a financial performance measure, not a marketing objective or KPI. When we write briefs, we include specific marketing objectives: generate leads, increase awareness, etc. We may also suggest methods to measure whether or not those objectives are being met. In circumstances where an internal department is doing the work, management should be determining objectives, metrics, and budgets.
Return on Investment is a completely different beast. I could design an activity that's wildly successful in generating leads through Twitter and Facebook, but the ROI could be terrible. Ideally the marketing objectives are consistent with the budget and the ROI projections are positive before the heavy lifting gets underway.
I second Tom's argument. But I also want to underline the disconnect that he is addressing. ROI is a financial measurement; currency on both sides of the equation. Money spent (any resource is ultimately money) in order to gain revenue (or reduce expenditure). I'm not really sure at what point (years ago it seems) we in the marketing industry decided to co-opt the term and redefine “Return” as click throughs, eyeballs, impressions, followers, or any of the other non-financial measurements we want to make but it really isn't helpful. As Tom says, our clients hire us to sell stuff – that's what they are interested in, and that's what they mean when they talk about ROI.
There seems to be room to measure both “I's”, Investment and Involvement/Engagement. 2010 looks like the year we realize that both sides are of the same coin or high-level goal, even though they should be gauged with very different metrics. Each has its own value, but a wholistic strategy is required.
Great reading.
Brian, as always great post.
What are your thoughts about using a net promoter score (nps) as a possible metric?
Excellent read and information Brian. Especially the section on “Return on…”. Can we put a $ value on trust?
We are certainly in uncharted territory in a most exciting revolution. Thank you for your perspective; well done!
Susan
Excellent read and information Brian. Especially the section on “Return on…”. Can we put a $ value on trust?
We are certainly in uncharted territory in a most exciting revolution. Thank you for your perspective; well done!
Susan
Noticeable ROI from Twitter I think depends largely on the industry involved as well as the effort and strategy being used. As for my target industry (dentistry), perhaps my own evaluation will offer insights. Please see the linked post.
John Barremore
Houston, TX
This was a much needed post. Right now companies are looking at leveraging social networks as a marketing tool, but have had little guidance on how to judge the success and benefits of using the social networks.
WOW… nice article and good insights.
Measuring ROI on social media, or any other activity within the internet is one of the easiest. Clearly it can't be measured the same way as a traditional marketing campaign (cost of campaing, and increase in sales), but there are great ways of doing so.
Brian –
Great post. I think the reason this seems so far beyond grasp sometimes is that, with any new sea change, it will be awhile before everybody adopts some sort of formula as the status quo. Do think that will eventually happen? Will there be one all-encompassing standard? No, because there can't be one all-encompassing standard. This article gives great insight into how companies can grasp these big concepts and figure that out for themselves. Thanks!
Eric Melin
@SceneStealrEric
@Spiral16
Great post Brian. I agree, not only that companies are acting tactically (“we need a Facebook page and Twitter account”), but that they are happy to simply join / enable conversation. That is not enough. Create a set of KPIs, understand your audience's online needs, behaviors, attitudes, and habits, then devise a sound strategy that links behaviors to KPI achievement. And be prepared to do a lot of testing and experimenting to see what works (which will enable better business case development going forward).
Jeff Rosenberg (http://www.twitter.com/RosenbergATL) – see you at the tweetup in Atlanta tonight.
Good article, but I was expecting more of a “how to” article, based on the title. With the expectation of an answer, I guess I was a bit let down. But I can appreciate good statistics.
I don't know that measuring the ROI of social media is possible. It is like trying to measure the ROI of being involved in your local chamber of commerce or business association. For decades and beyond, businesses have attended these meetings without searching for an unending metric. I think the elusiveness you're pointing out will always be elusive. Social media is like a digital, always on, chamber of commerce… where we go to meet others and cultivate relationships. And while we're at it, we share our business pursuits from time to time.
I'm not trying to be all “we are the world” here, but the only ROI I see in social media is relationship, and I just don't believe that is something you can measure. I think traditional website analytics are the closest we'll get.
I measure social media success from not only the number of valuable and influential relationships I have built with others, but also by how often our company or one of our clients pulls up in the news. This shows us how many people are talking about a particular topic of conversation around a client and enables us to continue marketing and promoting the same way we currently are, or make a change.
Great article as always. Thanks!
At MashedIn, we haven't hammered out the best way to measure ROI but qualitative results are really exciting. There is a tremendous value that can be found in just uncovering latent semantic social information to improve trust and really, drive conversion. For us, that means discovering and displaying common social connections across different social graphs. To me this is passively using social media networks. Actively using social media networks to drive direct conversion can be tracked more easily. One example I think that's hitting ball out of the park in this regard is Groupon.
Brian, an astute commentary on the corporate transition into the social space. It reminds me of a similar performance based PR analogy I experienced in the 90's workign with one of the few performance based boutiques at that time. Embracing parameters of ROI in that case was contingent on what objectives were sought, (ala branding or raw exposure) and where value was attached to returns! Suffice it to say the variables were significant at that time but nothing like the diversity in engagement available today! The next logical extension of your post is how the parameters are weighed against objective and what vehicles attain those objectives and unfortunately few decision maker thought processes have evolved to that degree yet and until their understanding of those principles are ubiquitous to a high degree the true potential or ROI in the social space may only be partially realized. Nice job again on encapsulating the new frontier of the social marketing space.
Your article brings home the point. I worked on the Yahoo European Finance Management team for years and never did we bring up ROI. So I ask the question is ROI invented by the sales people? I am not sure if Social Media should be viewed in terms as ROI as the return will vary depending on company to company. Does this makes sense?
Hallelujah! I grow weary of the “social media has changed EVERYTHING!” talk. It hasn't changed the need to be strategic in choosing the channels we use to have a 2-way communication with our publics and it hasn't changed the need to do research first, then setting research-based, measurable objectives. Ask a lot of our colleagues why they have a Facebook page (fill in the social media of your choice) and the answers are pretty vague (everyone does, I was told to make one, if you don't have one you aren't doing PR 2.0, etc). They have no clue or expectations of what they want it to accomplish. Thank you so much for helping to temper and frame the dialogue.
Brian:
This is an excellent article. I'm the first to measure ever since I read (25 years ago) Tested Advertising Methods by Caples and Scientific Advertising by Hopkins (both published in 1932).
I even came up with a system to pretty reliably track print ads. It helped me cut half of a $20 million budget one year and increase qualified leads and sales. I usually won't spend a dime unless I can measure for my clients.
But it seems that social media is a huge extension of PR – only on steroids. PR has even been a bit elusive to measure since the web went live in 1995. It will take a while to devise system ideas to measure social media. And I'll bet Google will be one of the first to do it.
In the meantime, creating buzz and traffic will have to do until there is a more scientific way to quantify the expense.
Thanks for providing an overview of the state-of-the-art. Very helpful.
Mike
Brian, I'm just beginning to read your articles – they're very interesting. It seems that you're writing to an audience that works within larger companies. My coaching practice focuses almost exclusively on small to mi-dized companies, aka $1 to $100 million. For the smaller ones, any thoughts on uses for smaller companies with more limited numbers of people to tap for involvement? For example, any suggestions for prioritizing their SMO?
Interesting! I always like your point of views. I think ROI on social media is something that most companies doesn´t take into consideration cause being so social and not having accurate points of references to measure it.
Incorporating tools (technology) is essential and of course, learning which are the key points to do so.
I´ve seen interesting related questions posted by online business owners on Startups.com. Readers should take a look and possibly place their own questions there too!
Hope it helps!
Stats are great, everyone’s got them. Unfortunately most are complete BS. Everyone knows they want ROI and many have no idea how to measure it, or at least they don’t want to take the time to figure it out. Sure, I would have loved more “meat & potatoes” in this blog, but delivering that is much more difficult than you would expect. ROI is measured differently by everyone. It all depends on the objective, the specific behaviors you choose to measure, and how you plan to measure them. Follow those steps and put a simple measurement plan in place to start. As you get accustomed to your process you’ll naturally begin to refine it and establish better standards.
Knowledge is the key, but only action gets you through the door.
@BrettRelander
Great stuff, but in my book, “you’re never wrong, you’re just early” — I’d do a search for 2010 and replace it with “by the end of 2011” — maybe.. but then, I’m a bit of a pessimist when it comes to measurement adoption 🙂
Really great