May 29, 2009

Social media success doesn’t start with ROI

David SparkThe advertising and public relations industries have to prove their worth. They have to show that what you bought delivered a return on investment (ROI). And the demand to create more accountability for social media increases every single day. Just last month, accountability was the basis for most of the discussion at ad:tech in San Francisco (watch my interview with Scott Milener, CEO of AdRocket, in which he talks about advertisers increasing demand for performance-based advertising).

Five years ago I remember making presentations to blue chip companies about a whole host of different social media projects such as a corporate social network for customers, a video demo site, a corporate blog, and a corporate podcast. While all the presentations went very well, and my audiences were always engaged, the last question always asked was, “How much is it going to cost, and how many people are we going to reach?” While I could offer different cost options, I couldn’t guarantee an audience. And it was at that point the pitch was often sunk.

You can’t make decisions on new media if you’re measuring it with old media metrics

Marketers have been taught that the building blocks for decision making are CPMs (cost per thousands). If you have a budget and know your CPMs, with a little spreadsheet work you can develop an entire media plan. Marketers and their clients are taught that a media plan will tell you how much it’s going to cost you to reach your audience.

A media plan’s building block is the CPM. It’s the metric that advertisers know, understand, and negotiate on. The problem is when you use an old media metric (CPM) to measure new media, you can’t measure it properly, and as a result, you miss out on fantastic opportunities. It’s the same reason why you don’t use a slide rule to measure the sky.

The people who have succeeded with social media probably didn’t even know what a CPM was. And more importantly, they made their decision to engage without determining an ROI. Do you know of one person who engaged in social media because they calculated a positive ROI first? If the evidence shows that everyone who succeeds in social media did it before calculating an ROI, then why do corporations still think they need to calculate ROI first before they engage?

“We’ve been trained that everything gets measured down to a sales lead. If that’s how you measure social media, then forget it,” said David Meerman Scott, author of The New Rules of Marketing and PR and World Wide Rave. Scott mentioned this during a panel session entitled, “The Conversational Corporation: How Social Media Has Changed the Enterprise” held at Dow Jones in Palo Alto, Calif. I joined Scott on the conference panel along with Shel Israel, co-author of Naked Conversations and the upcoming book, Twitterville.

Many decisions are made without calculating ROI

“What’s the ROI of your receptionist? What’s the ROI of your parking? What’s the ROI of the paint on the walls? What’s the ROI of the landscapers,” said Scott as he continued on his ‘I hate the ROI-obsessed business culture’ rant. “The idea that everything has to come back to a measurable ROI is ludicrous. ”

I thought Scott’s rant during the panel really summed it up. Nobody thinks about these things with ROI. But for some reason, because the word “media” is attached to “social media” we need to measure its ROI first before we do anything.

Although, don’t think that not measuring your ROI before you engage in social media precludes you from measuring your social media efforts. You should, and there are tons of ways to do it.

Ultimately, success in social media comes down to commitment, having something to say that will interest your audience, and ultimately, getting over your fear. “The person who has the least fear is the one who will be doing it first, and they will be the ones who succeed,” Scott said.

If not ROI, what’s it going to take?

Even with all this agreement that ROI shouldn’t be the deciding factor to engage in social media, what should be? What do large corporations need to feel comfortable about engaging in social media? And second, and this is the trick question, for those corporation you do persuade, knowing that social media’s costs are mostly in labor, how do you persuade clients to create larger social media budgets, possibly taking dollars away from traditional media budgets?

For more great coverage of the Dow Jones roundtable event, check out David Libby’s very detailed coverage and the post from Daniela Barberosa of Dow Jones, who organized the event. Plus, here are some more photos as well. You can see video of the event on both sites, but be warned, the audio is very poor.David Spark, a partner in Socialmedia.biz, helps businesses grow by developing thought leadership through storytelling and covering live events. Contact David by email, follow him on Twitter and Google Plus or leave a comment below.

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  • I saw David Meerman Scott speak as well at SO Cal Action Sports group and liked what he said about ROI. It makes sense. BUT I still think marketing and advertising world has changed and for the better. Now we have more effective ways of tracking our spend. Don;t you agree?

  • Thanks for this write-up David.

    Here's what we should measure:
    How many people are exposed to your ideas? (& how can you get more?)
    Where do you appear in the Google search results? (& how can you do better?)
    What are bloggers saying about you? (& can you work with them?)
    How many people are eager to do business with you? (& can you get more?)

  • Espree:

    Yes, you're right, and both David Meerman Scott and I agree with you. Of course you should measure your success. In fact, you should always be testing and refining based on test results.

    But what I and Scott argue is that waiting for ROI results shouldn't be a measurement to determine your engagement in social media.

  • David, you wrote, "do you know of one person who engaged in social media because they calculated a positive ROI first?"

    While it may be true that the early adopters of social media didn't embrace it with a comprehensive understanding of ROI, I would be surprised if many, if not most, of them didn't anticipate that it (creating closer, more positive relationships with their customers/potential customers) would have a positive effect on their sales.

    Notice I said "sales" not "sales leads" – I don't think CPM is a particularly good way of measuring ROI anyway. For me and for most areas of a business (and, indeed, according the original definition of ROI), "Return" refers to cash – either revenue gained or cost saved. If we start measuring a Return in terms of CPM or page views or eyeballs or feel good factors then we have an imbalanced equation. On one side we have Investment, which is a real cash (systems paid for, person hours spent, etc) outlay and on the other side we have non-cash "events" to which we can attempt to assign monetary value but those assignments will be at best arbitrary and imprecise and at worst misleading and very wrong.

    I suppose I'm not actually disagreeing with you or David Meerman Scott. None of us is happy with the current landscape when it comes to social media ROI measurement. We need to either tie social media efforts to real numbers or avoid attempts to measure SM ROI altogether. Maybe PRSaraEvans measures it better as Return on Engagement.

  • Hi David

    You're touching on one of the key issue discussed in SMM: ROI, Metrics. About 1% of the overall conversations taking place in the +1000 SMM bloggers I follow is about exactly that (1% doesn't seem much but believe me, it is ;-)). And from what I see, the issue is yet to be resolved
    The issue exists because social media often requires qualitative measurement rather than the quantitative metrics that online marketers have become accustomed to. And, surveys have shown recently most marketers are just starting to embrace SM (according to the March 2009 survey by Michael Stelzner).
    On the other hand, smart marketing execs know where their best leads have come from in the past. Typically this is not from advertising, nor from direct mail, or events, but where leads have been referred from those movers and shakers in a particular marketplace.
    These are the people listened to by prospective customers because they’re respected, trusted and usually pretty independent.
    These leads enter the pipeline in the first place because the sales or business exec has a relationship with one of these influencers, or is in some way networked to them.
    So here's a qualitative metric that would help measure success in social media: How many and how strong are the connections (linkedin, facebook, twitter…other social network) between a company sales/marketing/exec team with those influencers?
    By the way, eCairn helps company figure that out, amongst other things ;-)

  • Great write up, David.

    The ROI question used to scare people away or keep people from acting or from building their social media practices into the bigger plans — they just did it.

    Those like you who dove into using social media, thankfully they kept moving ahead. I'd say that the work done to date has proven ROI, otherwise you wouldn't see so many more conferences, so many Social Media experts being sought after and so many ROI "tools" and "services" building momentum and interest from companies and organizations.

    Where I work inside Intel, our culture is evolving from an overruling engineering approach to a more collective, approach. To succeed in this new disspersed approach, those early adopters are saying "yes, we need to show ROI." But it takes lots of work, time and expertise to show ROI.

    My take: those who are participating online ought to focus on participating and putting their lessons learned, best known methods and desires for improvement into every new plan or project, Then the person who asks "what's the ROI" can take at least some responsibiity to resource or do the work needed to measure selected ROI.

    Only once the questioners are participating in the process will these social, online efforts integrate, strengthen and grow. That's ROI! That's what I see today.

  • David Toth

    Measuring results on Social Media is defined differently for each organization, hence the nature of ambiguity right now in marketing with such mediums. Social media acts as a component to the marketing strategy as a whole, online or off. Factoring in the potential success factors should be more focused around ROE – return on engagement, more than anything else. Calculating the corresponding results to the other tactics in your strategy can be more tied to ROI directly.

    There is a big picture element missing in many of this eMarketing campaigns. The importance of being where your customers are is foundational, but how often was direct campaigns measurable based upon performance in the first place. Tying these elements together can and will generate tremendous profitable results.

  • Are you serious? Not to be mean… but did anyone at the ad:Tech conference actually have a clear understanding of what R.O.I. stands for? Has anyone ever taken an economics class? Business 101? Anything like that?

    You guys are talking about old media metrics and “cost per thousand…” What is that? That’s B.S. None of it has anything to do with ROI. ROI doesn’t measure media. ROI measures financial impact. As in: I invested $10,000 in this campaign, and I got $100,000 in net new sales out of it. THAT’s ROI. ROI is financial. Always. It isn’t eyeballs or clickthroughs of unique visitors. It isn’t social mention deltas either. It’s money. Either money in or money out. “Leads” are not R.O.I. “Leads” are hot air. “Leads” are names on a list. There is no “return” on “investment” in a list unless those names are attached to bodies who pull out their wallets and start buying stuff.

    I completely agree that trying to measure SM using old media tools is ineffective and ridiculous… but media measurement has NOTHING to do with ROI, brother. Nada.

    What the Ad and PR world really need to do is get off the short bus and actually go learn what R.O.I. is, then go figure out how to connect the dots between what they sell and how companies who hire them make money. (Which actually isn’t very difficult.)

    Hint: R.O.I. will be calculated either in net new revenue or net cost reductions. That’s it. Period. Any other measurement is not R.O.I.

    Seriously, David. I can’t believe we’re still having these ridiculous discussions about what R.O.I. is? Google it, guys! Crack a business book. Something! How can an entire industry not understand what something as basic as R.O.I. is? Don’t you guys have investments? Don’t you guys run businesses?

    I am blown away. Blown AWAY.

    This might help: http://thebrandbuilder.wordpress.com/2009/05/27/r

  • Good post that highlights a recurring challenge in the social media industry. There are a variety of factors to consider when discussing ROI at the corporate level. Obviously you and others in the thread here hit on leads and sales. However, as Eric mentioned in his comment, ROI is bigger than just revenue. Corporations have a variety of costs that can be reduced by using Social Media.

    Customer care/service is a huge cost area for companies. Social media provides a cheaper and faster way to address customer concerns vs. having them call an 800 number, especially with the various sentiment monitoring tools available… you could suggest Google Alerts to get them started and it’s free! You may not be able to get rid of their entire call center but if you could show a method to reduce 10% of their care costs you will get noticed. Don’t forget about customer retention “save” possibilities too…keeping existing revenue is just as important as generating new revenue, especially if you have a company who is being pressured to maintain their customer base. The cost associated to getting a new customer is high so keep that in mind when discussing retention dollar benefits. Be sure to highlight the fact that with social media you can have one resource who can support sales, care and retention all at the same time. Again, this is a much lower cost than the 3 individual resources that they more than likely are paying today in the individual business units.

    Research and Development (R&D) is another cost area that can be supplemented using social media. Market research, product research, strategy considerations, and user groups are just some examples of information that can be gathered through social media. A smart company knows that R&D is important to long term health and growth but during tough economic times R&D becomes vulnerable to cuts. Your social media plan not only provides a cost effective method to supporting R&D but it can help save a very important part of their business.

    One more cost area to consider is internal communications. Big companies typically have an entire organization focused on nothing but employee oriented communications. By leveraging social media and online communities specifically they can lower their costs in this area.

    At the end of the day remember to under promise and over deliver, especially when discussing money matters. Be honest about worst/best case scenarios and forthright that there is still a lot to be learned in this area. Cheers! Lisa

  • cjlambert

    Great article. ROI is far to shortsighted -even in trad media. Research lies and is biased to whoever is selling the media to you at the time.
    RE David Meerman-Scott measures YES but not across the board. You still need to look at the business case.
    Google search is OK for some industries and geographic locations, not all jobs. eg events that time out and have a short lead time work really well in SM buty don't work well on Google or toolbar searches. Google is getting too cluttered and overrun with SEO junk that doesn't reflect user experience and engagement online.

    Courtney Lambert
    twitter.com/@cjlambert
    http://thunderclap.co.nz
    cjlambertlive.blogspot.com

  • cjlambert

    Great article. ROI is far to shortsighted -even in trad media. Research lies and is biased to whoever is selling the media to you at the time.
    RE David Meerman-Scott measures YES but not across the board. You still need to look at the business case.
    Google search is OK for some industries and geographic locations, not all jobs. eg events that time out and have a short lead time work really well in SM buty don't work well on Google or toolbar searches. Google is getting too cluttered and overrun with SEO junk that doesn't reflect user experience and engagement online.

    Courtney Lambert
    twitter.com/@cjlambert
    http://thunderclap.co.nz
    cjlambertlive.blogspot.com