ROI is always a hot topic, but it’s especially front-and-center in these days of budget cuts and massive layoffs. And while social media has been exploding in the past 12 months, many companies are still sitting on the sidelines, and plenty of executives are asking, “What are we getting for our investment in social media?”
So I’ve been thinking about these two questions:
What’s the ROI of social media?
How can the value of social media be measured?
Let’s start with the basics: Plain and simple, return on investment is a financial ratio that can be stated thusly:
ROI = Net Benefit ÷ Cost of Achieving that Benefit
When it comes to ROI conversations with C-level execs, we’d better focus on inserting hard dollars into the equation above, or we’ll lose all credibility. But admittedly, hard-dollar justifications are difficult with social media.
“Productivity investments are notoriously difficult to justify. Social productivity investments are perhaps even more difficult,” says
Chuck Hollis, an EMC Corp. (NYSE: EMC)
VP and champion of EMCOne, a major social media effort inside EMC.
Social media practitioners are likely to find that they’re going to have to go with gut feelings and forget about traditional ROI justification. That means real ROI analysis will only be able to come about after investments in a project are sunk and learning occurs.
But that doesn’t mean we can’t introduce the notion of value in social media investment discussions; I’m saying just keep it out of ROI calculations. And despite the “fuzziness” of the ROI for many social-media investments, it doesn’t mean value can’t be measured and tracked.
In traditional media, we pay for the creation of content, and a buyer places that content in various media outlets. Once the content is distributed, that spend is gone. The return on investment is often very fuzzy. However, people have grown comfortable with traditional media over the years. I’ve seen multimillion-dollar print and television advertising initiatives get the green light because CXOs understood the media -- and I’ve seen $10,000 social-media efforts scratched because execs didn’t get it.
Value in social media can absolutely be measured; and in fact, with social media, it’s actually easier to measure value. The key is setting clear objectives that can be measured, getting buy-in for these goals, and tracking progress closely.
Social media is not necessarily inexpensive, but you also don’t need a big up-front investment, either. Your audience is helping you build the content, so you’re not paying directly for its development, and you’re also not paying for a media placement. The goal is to build relationships with your audience (internal or external). The content created by the audience becomes a “conversation” that creates advocacy for your brand and results in knowledge sharing or direct revenue, thereby creating value.
The measurement of this value depends on your objectives. Clearly, you can measure things like traffic, page views, sign-ups, content quality, conversions, page rank, etc. In the case of EMC, for instance, it’s all about productivity and employee participation.
The challenge to communicate value may be greatest for startup firms whose basic mission is to do something that parts with tradition. One such company, Wikinvest, a wiki site for investment information and tools, has made a goal to excel in at least one of the key measurements cited above in order to increase valuation.
“In many ways, we view ROI the same way as traditional firms. We look at near- and long-term revenue, costs, and risks. The difference is we’re presented with new and different opportunities that might not exist for traditional companies,” says Mike Sha, co-founder of Wikinvest.
In your firm too, communicating the value of social media might require different measurements based on different goals.
It comes down to value. Social media may not be part of traditional ROI calculations yet, but its worth can and should be measured. Perhaps one starting point might be to ask the question, “What’s the return on not participating?”
— David Vellante is a co-founder of ITCentrix, Barometrix, and The Wikibon Project
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Thanks Mike-- yes I did suspect this which underscores your earlier point. The initial costs of deploying scalable, collaborative software-- the same battle-tested software used by millions of people-- are virtually zero. Without a clear understanding of who is the audience, where you are going and some means of measuring success the chances are your ROI will be virtually zero as well.
The answers to the questions, as I sure you suspect, are:
1. The goals were clear. Little whole group face-to-face meeting time, the odd working hours and habits of an elite and eccentric team, and a very aggressive set of features being delivered iteratively. Collaboration and cross-collaboration between sub-teams was critical to success. The answer to any question could be found with any one of the team members at any given time. That translated to the goals being to check in early and often, post questions and blockages (don't save them for the daily stand-up con-call), answer honestly, and share everything possible.
2. Free software, free hardware, network already in place and leverageable meant no approvals, other than the two of us that needed to set up the servers being willing to put in the time to set it up and pour in the existing artifacts to kick things off.
If we hadn't had the server parts to build the box out of the boneyard, I'm very confident we could have articulated the value, need, and goals in enough of a way to purchase another server, though. The toughest sell wasn't the client (who ultimately controlled the hardware budget) but our own controller on the team. Showing him how to handle our expense reports on the wiki took care of that.
Hi Mike...thanks for sharing your experiences. Excellent points. I have two questions. 1) Were the goals clear prior to launching the first initiative? and 2) I presume there was no formal justification or approval required, is that correct?
This thread overlaps with some of what I have been trying to make clear on the Microsoft layoff thread: we have to be better at asking why as we start to drive technology forward. That is the essence I take from your posts so far--the goals are the important part.
For some of the social media implementations, cost to deploy could be a very low barrier--at least in terms of direct costs. The real costs can come in the amount of effort to guide, grow, and harvest the intended purposes; the end goals or answer to the question why.
We put up a source control system, wiki and set of forums on a boneyard servers for a group of us to use to ease some of the burden of having a remoted participants from California, Colorado, New York, and Scotland--and even for a while one from New Zealand and another in the Cook Islands keep up on the team developments remotely. The cost was virtually nill at our end in the States, although I think the net access from the Cook Islands did cost a fair bit. Since we were building software, the source/autobuild system was invaluable and heavily used--we moved it to another boneyard server of its own. The forums only seemed to be used by a few of the team. The wiki was a big hit--enough so that we set up another for the client to use, and a third hosting a development project the client was running. Overall--a success. Our goal of sharing information and building on each other's ideas took off.
That third wiki we put up was really to help three competitiors "collaborate" on the shared infrastructure piece of a three-way dep[loyment. I think it was very telling that when we shut it down, nobody noticed. Not enough answers to the why questions--no goals that were meaningful to the participants.
The whys and why-nots are the key to the ROI for social media. The costs can be quantified either way, and the benefits are quantifiable if the goals are properly constructed.
Well, if a brand manager sponsored it, there's probably a correlation to other media. If there are conversions, absolutely it's easier to measure, but harder, perhaps, to get the data to prove the conversion came about as a result of the activity.
I think there are lot of persons who convinced their companies that they should start a blog or a podcast because that's what others are doing. I started an election update podcast for our office a few years ago because I wanted to be in front of others in terms of learnings, particularly as they came with iTunes and with RSS. We learned we could send pdf files as podcasts, so persons would always have the latest voter registration form or advance voting form on their computer.
That's a government application, but equally hard if someone asked what ROI we got for our effort. It didn't cost much, though, and in our case another reason was to generate overall election awareness. It gave us something to talk with media members about. It won awards (we did this 3 years ago, not just for 2008) and the awards created more election awareness. So, there definitely was an ROI there.
I think my rambling point here is that activities with purpose are easier to quantify rather than social media expeditions. But, if you can turn the expedition into a purpose that links to your business objectives, you can still quantify that, too. The ROI puzzle gets much harder if you can't even explain why you are doing something, other than "because everyone else is."
Very good point Brian regarding the early Web. Everyone was asking "will anyone make money on the Internet?" Of course by the late '90's, it seemed anything dotcom with a business plan received a multimillion dollar valuation so everyone put up a site without much ROI scrutiny.
ROI of creating vs. participating. Interesting question. I guess it depends on your goals. What your saying vis a vis creating is I can compare goal results and costs with traditional media and it's pretty straightforward. On the other hand participating might be harder to justify. hmmm. Maybe - I'm thinking of an example where that's not entirely true. For example. A brand manager sponsors (participates in) a group on a social media site for baby boomers and can easily track impressions, comments, traffic to an offering and conversions. Is that harder?
It seems like this was the same question asked when websites were just starting to pop up. I don't know that social media has the same eventual impact or payback (or maybe it does) but the evolution from a company not having a website to having one to specific divisions having specific sites or domains seemed to drive the same questions.
In many ways, websites were little experiments or one-offs but nothing a company would actually invest in. Some invested too much in that they attempted almost to create a social desitnation when, back in the mid-1990s, websites were for the few. So, not many visitors came, little revenue was created, and the website investment was reduced.
With social media, I think one question pertains to social media and then there is an ROI question for participating in social networks. Participation is a big deal because many companies block social networking websites, so the mere act of looking or participating in these sites costs companies money. Using Twitter, something already established, would also fall under participation not creating.
If a person builds up a professional relationship that is enhanced by social networking, so much so that the relationship building becomes one of 10 things that contributed to a deal, it would seem that the value was priceless. The true value would be elusive when really trying to quantify.
In such a context, wouldn't this question almost be as impossible to answer if asked what the ROI was on email, or electricity or the parking lot? (The argument being that participating in social media requires extra bandwidth, but calling or email prospects has a cost, running a p.c. and a printer has costs, etc.).
From a pure element of creating social media, it seems like ROI is less the question than actual persons reached and then the overall cost of those impressions compared with other methods. I think quantifying value for "creating" rather than "paticipating" is much more stright-forward (he said with a question mark).
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