The Best Thing About Social Media Marketing ROI

Although I’m skeptical that social media is having a “revolutionary” impact on marketing, I believe that it can improve marketing effectiveness and efficiency. There’s a lot of good stuff packaged up in this thing we call social media.

But I didn’t realize what the best thing about social media was until I read a recent post in the Social Media Examiner. In an article about social media return on investment, the author wrote:

“The peculiar feature of social media return is that you can define it to be essentially anything you want it to be!”

And there you have it. The best thing about social media marketing: We get to make it up as we go along and change the rules to whatever we want them to be!

Seriously, it’s getting a little tiresome reading these cockamamie ideas from social media experts about how to measure return on social media investments. 

ROI is a metric. It’s one of an infinite number of metrics that you could dream up in order to measure what’s going on in the world of social media. 

Roughly speaking, there are three types of metrics: 1) Input; 2) Output; and 3) Impact. (There are some interesting discussions about this typology as it applies to climate control and naval research, but not so much to marketing).

Input metrics capture how much of something you put in the investment. It could be things like hours per week, dollars spent per customer, raw materials used by item. 

Output metrics capture what you get out from that input. Units produced per week, page hits per day, etc.

Many of the metrics that some folks want us to believe capture social media ROI — like brand awareness, brand affinity, engagement, etc. — are output metrics. In and of themselves, the have no financial return. 

Impact metrics are those with financial return. They capture the amount or increase in sales per some unit of measurement, or they capture the reduction in cost of doing something per some unit of measurement. 

There is an infinite number of input and output metrics that you could come up with. Not so with impact metrics. 

Some of the social media gurus out there need to understand that there is a return on investment chain. You put things in, you get things out, and there is an impact — or maybe not, and possibly it takes a combination of the things that come out to achieve an impact.

The only way ROI can be measured is at the END of the chain. Most of your new metrics — engagement, likes, fans, etc. — are either input or output metrics, and do NOT (I repeat, do NOT) capture ROI in any way, shape, or form. There are a number of people in socialmediaville who disagree with me on this point. They redefine ROI, or come up with catchy alternatives like Return On Influence. They’re simply being Really Obnoxious & Ignorant.

If your social media efforts improve brand awareness, and you don’t — or can’t — track how that brand awareness translates into increased sales, you haven’t measured the ROI of your social media efforts, and you can NOT claim that your social media efforts had a positive ROI. The definition of ROI is not open to interpretation or redefinition.

———-

There’s another issue lurking under the covers of the “what’s the ROI of social media” question: The fallacy of trying to measure the ROI of infrastructure.

Q: What’s the return on the servers, routers, and computers your organization uses? A: Zero. In and of themselves, they produce no ROI.

Could your company achieve an ROI on many of its initiatives if it didn’t have these servers, routers, and computers? No. As a result, we consider those things to be infrastructure. And by definition, there is ZERO return on infrastructure investment. There is only an ROI on the actions you take, and the investments you make, that utilize that infrastructure.

There’s a pretty good argument to be made that social media is infrastructure. Part of a marketing, or better yet, customer relationship infrastructure, that organizations need to have.

ROI doesn’t come from having a Facebook page that’s liked by a million people. ROI comes from the sales and behavioral changes that are influenced by a Facebook page that’s liked by a million people.

In other words: It’s what you do with your Facebook page that produces an ROI. The messages and actions you take on Facebook that produces an ROI would likely produce an ROI in other channels, as well. Maybe not as high an ROI, but maybe higher. You won’t know until you test it.

This is why the whole “ROI of channels” discussion is so stupid. There are multiple factors that influence the ROI of an action. The channel in which the action is taken is just one. Attributing (or blaming) the result on the channel is simply wrong, wrong, wrong. 

Bottom line: Feel free to spout off silly ideas about what social media ROI is, like Social Media Examiner does. It’s sure to get you thousands of page views on your blog, and tons of tweets. But please don’t relay those concepts to the CEO and CFO (and hopefully, CMO) of your company. You’ll sound stupid. I guarantee it.

p.s. For a really good discussion on social media ROI, see this post on the {grow} blog, and this one on The Harte of Marketing.

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10 thoughts on “The Best Thing About Social Media Marketing ROI

  1. Ron,

    We can always count on you to have great insight. Thanks for sharing your thoughts on social media ROI. It is a major struggle for most. I like this quote from Brian Solis, author of Engage, “How can we measure ROI if the ‘I’ stands for ignorance?” While we’re trying to figure out the return on investment on social media, ask what is the ROI of ANYTHING we do. What’s the ROI of PR? What’s the ROI of branding? What’s the ROI of HR? What’s the meaning of life? I like how Gary Vaynerchuk answered the social media ROI question in a recent speech, “What’s the ROI of your mother?”

    As with any other marketing tool, the best measurement to social media ROI is company sales and revenues. Is social media leading to increased performance for your organization? If done correctly, it certainly can. If done incorrectly, all you’ll have are a bunch of numbers that mean absolutely nothing.

  2. Good, good, good. Nice post.

    What drives me most nuts is that ROI is a defined term. You can’t redefine it ’cause you think its helpful to your case. It is what it is.

    I happen to think your infrastructure argument/analogy is quite on point as well.

    That’s two this month… you don’t have to work until July!

  3. There are two sides to the ROI issue. The return, and the investment — neither of which has to involve money. The ROI question is “What do you expect in return for your investment?” Most social media initiatives don’t bother defining or quantifying either variable.

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  7. Ron! Thanks for the amazing post. I’m a MBA with a very no-nonsense personality and I get quite frustrated when I read posts like the one you linked to on SM Examiner. ROI is a defined metric. Social media marketers should start with the basic definition as you outlined. If there’s a need to move to input metrics because they are more leading indicators, that’s OK too, but the basic (revenue-investment)/investment should always be the baseline.

    I work for a software company that spends much of its time thinking about social media ROI. The tough part of the problem in this channel, as opposed to CPC, CPA, organic, or whatever other e-commerce channels, is that the purchase pathway is different and it requires different methods of revenue attribution. More here:

    http://argylesocial.com/blog/2011/02/16/social-media-roi-whitepaper.html

    Anyway, good stuff. I spend much of my day trying to educate folks on exactly the points you make. Nice to see someone else cares about the same topic =D

    • Tristan: Thanks for the comment. Good to know that not everyone in the social media space is drinking the kool-aid. p.s. The humor in the white paper is great. Love the reference to Al Gore.

  8. Nice post. I remember I read somewhere a marketing person answering the question “what’s the ROI of social media” with a question: “What’s the ROI of your phone?”
    The problem is companies are used to measure their wellness with numbers (some use profits, some others use revenues only, some other use bookings, some use any of the 3 depending of what is more conveniente to share to the board). So now execs want numbers out of social media too. Do click matter? Do facebook pages fan matter? what is a good number? 100? 1000?
    I rote a post today about this. You may want to have a look at it: http://bit.ly/jDN18A

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