Return and Investment: Some thoughts on the "ROI and Social Media" discussion

by Kate Brodock on 12 November 2008

Posted in: Conferences & Events

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We’ve been discussing (beating to death) the topic of measurement and ROI in social media for a while now.  How do you measure ROI?  What elements go into that measurement?  How do you talk about the lack of a “traditional” ROI measurement to bosses or clients who want to see it?  Can you make a convincing argument or feel good about results without it?

Well, if you’re in the industry, hopefully the answer to the last question is clear.  As Anya said this morning:

“The answer is clear: You don’t need hard numbers and a specific percentage point ROI to know if your efforts in social media and marketing are worth your time and money.”

That’s part of the point that Professor Andrew McAfee made this morning at the Boston Social Media Breakfast.  And it’s what I’ve been wanting to hear from someone of authority for a while (he’s said it before, in his blog).

A few of his points (among many others):

  • Why can’t you look at the data, not have an ROI, and still feel ok with the results?
  • Business leaders should be able to think about a situation and whether it’s outcome is good or bad without a bold and highlighted ROI number in front of them.
  • Business leaders should also trust each other without being provided an ROI (Please note: I’m not saying trust anybody, this is in conjunction with the above point)
  • Really, what has ROI ever meant?

I’d like to add one thought or expansion  that I think McAfee was hinting at.

Playing with the elements of the ROI equation has always happened.  It’s as follows:

Once you’re past your core finance or marketing class in business school, where they ever-so-conveniently but ever-so-unrealistically give you the perfect numbers, you’re usually figuring out what specific elements are the best to put into the equation and sometimes it gets pretty creative.  What’s your gain?  What are your costs?

But more importantly, what are we talking about when we say return?

ROI has really never been straight forward.  It can be different in different companies.  In some cases, the inputs have been easier to recognize.  In most cases, the ROI measurement has been used long enough in a company or industry that it takes about 30 seconds to compute and either write out bonuses or work longer hours.

I found something to think about in a really quick search I did (not the best market research, but oh well):

  • Only 7% of senior-level financial executives say they are satisfied with their company’s ability to measure [traditional] marketing ROI.
  • In contrast to the low level of satisfaction among financial executives, an April 2006 survey of senior-level marketers by MMA and the Association of National Advertisers (ANA) found that nearly one-fourth (23%) were satisfied with their company’s ability to measure ROI.
  • Though one-third of marketers in the MMA-ANA survey agreed they could forecast the impact on sales of a 10% budget cut, only 16% of financial service executives expressed agreement with that statement.

Traditional ROI measurements have never instilled a large amount of confidence in marketers.  Yet people continue to rely very heavily and narrowly on this number.

Part of the “problem” of ROI in the social media space is that, in a sense, we’re back to square one in choosing the best inputs, figuring out what the best measurement for ROI is, for each company or campaign, without a heck of a lot of the above mentioned standards you find in traditional ROI measurements.

We’re uncomfortable because we’re stuck on the same old numbers.

As Brian Halligan of HubSpot stated in his talk at the breakfast, they do a full set of intangible measurements as well.  What’s your reach?  How many websites are linking to?  What are people saying about your brand? Etc.

The point is, people who are so strictly concerned with the numbers that go into ROI and have been looking at the same calculations for the last 10 years are missing the concept altogether.  It’s the return on your investment.  To Andrew’s point, if you can take one step back (and it’s really just one little step!) and think about the concept of ROI, you may get a little more comfortable with the input numbers that go into it.

He’s right: business people are smarter than they give themselves (and others) credit.  But any good businessman knows what it’s like to analyze something with less than perfect data, and decide whether it “looks good” or doesn’t.  If you find yourself consistently second-guessing in situations like this and looking around for numbers, frankly, I don’t think a perfect ROI calculation will make you any more comfortable….nothing probably will.

This is a bit of an extreme, but a while ago I did a post on Saul from Freshbooks.  I won’t forget what he answered when asked about ROI.  He said that he pays no attention to ROI.  He doesn’t care about it.  He works his magic and he recognizes that there are beneficial outcomes to his actions.  Now, he’s lucky and has a boss who “gets it” so he gets the go ahead for his initiatives.  But he couldn’t have gotten to that point without going with his gut a little more and thinking about the overall concept of ROI.

When the “Return” and/or “Investment” portion of this equation is different than what you’ve been measuring, don’t just say “the hell with this” and back away (in my humble opinion, I think this an absolutely horrible a pretty bad characteristic of any business person, the inability to think more broadly or creatively about these sorts of things, the answer is there with a little more work).

Rethink what returns means.  Rethink what investment means.  Then look at the results, and I’m pretty sure you’ll be able to figure out whether they’re good or bad.  That’s your ROI, right there.

Honestly, I feel the same way that Andrew and Saul feel about ROI, but kept thinking I needed to have the perfect answer for people, particularly potential clients, when they asked.  Well, maybe I’ll ask them everything I just asked you and see where that gets me instead.

For the record, Matt Cutler of Visible Measures also had a great talk this morning, but I remember that I pretty much listened and watched and said “that’s so cool!” for most of his talk, which isn’t a bad thing…. I was particularly pleased with his analysis of the DNC and RNC speeches by McCain, to which he applied a simple cloud map… I went to find it on their blog.  I didn’t find it, but in doing so I realized that the blog is really great (new information for my RSS feed!)

And one last, but not least, thank you to Bob Collins for putting SMB10 together.  :)

UPDATE: Please check out David Meerman Scott’s short answer from the New Marketing Summit a few weeks ago.  It’s up on his blog.  It’s a great addition to the conversation.

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    some cases, the inputs have been easier to recognize. In most cases, the ROI measurement has been used long enough in a company or industry that it takes about 30 seconds to compute and either write out bonuses or work longer hour

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    some cases, the inputs have been easier to recognize. In most cases, the ROI measurement has been used long enough in a company or industry that it takes about 30 seconds to compute and either write out bonuses or work longer hour

  • http://lgbusinesssolutions.typepad.com/solutions_to_grow_your_bu/ Lewis Green

    Kate,

    Excellent post. Thank you for fighting the good fight.

  • http://lgbusinesssolutions.typepad.com/solutions_to_grow_your_bu/ Lewis Green

    Kate,

    Excellent post. Thank you for fighting the good fight.

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