Social Media ROI, Again

Via Stuart Bruce, I found this funny clip in which social media mar­keting guru David Meerman Scott lambasts client-​​side mar­keting managers for con­tinu­ally asking about the ROI of social media projects.

His point is that mar­keters don’t know the ROI of tra­di­tional forms of advert­ising like bill­boards and 30-​​second TV slots, so why is it such a stum­bling block when it comes to social? It’s nonsense, he says. Often, the objec­tion is really that people don’t like doing new things.

Bruce rightly points out that social media people have been guilty of muddying the waters by equating ROI with an increase in page views, twitter fol­lowers and whatnot. While those things might be the object­ives of a par­tic­ular campaign, they’re not the same as return on invest­ment. ROI is just about money:

In finance, rate of return (ROR), also known as return on invest­ment (ROI), rate of profit or some­times just return, is the ratio of money gained or lost (whether realized or unreal­ized) on an invest­ment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/​loss, gain/​loss, or net income/​loss. The money invested may be referred to as the asset, capital, prin­cipal, or the cost basis of the invest­ment. ROI is usually expressed as a per­centage rather than a fraction. (wiki­pedia)

I’m sym­path­etic to these argu­ments. The object­ives of social media cam­paigns can be as broad as increased aware­ness, employee reten­tion, customer sat­is­fac­tion and R&D. They are rarely just about flogging more stuff. It’s not like some coupon campaign where you can add up the number of coupons redeemed to see how much it was worth.

But there’s a problem. And that problem’s name is The Grumpy FD. Because he turns round and says:

Hang on, sunbeam. If you can’t cal­cu­late a monetary value for all these social shenanigans, then why am I going to sign-​​off your invoices? Furthermore, I note that you’re charging me £150 an hour. So you have already put a value on these activ­ities, not to mention all the other costs you’re incur­ring in terms of my staff’s time. Where is my £300 an hour that I should get from employing you?

If you stick to your guns and insist that ‘it’s all about the love, man’, then the con­ver­sa­tion could end quite briskly.

I’m not terribly exper­i­enced in these things, but there are cer­tainly better solutions.

I think you need to unpick what you’re doing a little more care­fully. Everything you’re doing has to result in increased prof­it­ab­ility, oth­er­wise the Grumpy FD isn’t going to pay your invoices. The dif­fi­culty is in obtaining the proof and putting a precise value on it.

Ultimately, a lot of the time, the inform­a­tion that you’d need to cal­cu­late the Rate of Return is too dif­fi­cult to obtain — or won’t be avail­able within a sensible time period. I think the main thing to do is to get the GFD to agree to some con­ser­vative estimates.

Let’s say you agree with a client to look into a new project. You’re planning to set up an online, but private, staff ideas forum, with the aims of improving the firm’s service offering. Something like Dell Ideastorm but internal (you can buy solu­tions off the shelf for this).

To work out how much that’s worth, you’re going to need to guess­timate some things:

• How much time people will spend on the forum and the value of that time.
• Likelihood of anyone having a good idea over an agreed period of time.
• Likelihood of that idea being workable.
• Value of that improve­ment to your service.
• How much you’re going to charge for imple­ment­a­tion and training.
• Potential reduced R&D costs.

The added benefit of improved staff morale, recruit­ment and reten­tion probably exists and has value, but I think it should be left out of your sums. It’s a gift, rather than the objective the GFD is paying for. Also, although the product ought to have lasting value, stick to an agreed time frame for meas­ure­ment. A set period is part of the defin­i­tion of what con­sti­tutes a project. If things get sticky, you might remind the GFD, however, that his ROI is going to recur long after you’ve dis­ap­peared on your micro-​​scooter.

My point is that every invest­ment in anything is an educated guess. You don’t know whether the price of gold will boom or bust, but before you invest, you’re going to do some research and some sums and arrive at a prob­ab­ility of each of those two outcomes. If your chances look good, then, depending on your level of risk aversion, you’ll take a punt.

What people won’t do — least of all the GFD — is invest in ‘this thing’ you’ve just found on the Internet that may or may not be suc­cessful and you haven’t got any more inform­a­tion to inform a decision.

photo credit: Iscan

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