Perspectives on the ROI of Social Media

We’ve seen this movie before.  A hot, exciting new technology comes along and it gets furiously snapped up because it’s cool, shiny and the thing to do.  Business enterprises are far from immune.  This phenomena certainly predates the 1980s, but let’s start there.  Prior to the early 80s, a few small microcomputers had been on the market.  Introduction of the IBM PC, however, was a game changer.  We were just coming out of the 1970s when “no one ever got fired for buying IBM”.  So, the IBM logo made the device relatively immune from corporate scrutiny.  Companies were snapping up the over $4000 device (for those too young to remember it had no hard drive and little memory) with relatively little thought to specific applications, let alone the financial return on that investment.  Often it was explicitly for experimentation.  After a decade, the technology had improved significantly, the applications were well developed and calculating a quantified return on investment was required.

Fast forward to today.  Social media in some form has been around for almost a decade.  Again, most of the early versions are becoming distant memories (MySpace) and the technology has improved significantly.  Unlike the PC however, virtually all of the early adopters were consumers and in almost all cases were teenagers and young adults.  In fact, that was the target audience.  The applications allowed an asynchronous way to stay in touch, share pictures, update statuses etc.  Adults joined the fray in many cases simply to keep tabs on their children.  So, social media was introduced to the denizens of the corporate world.

At that point we’ve entered the shiny object stage.  Eventually corporate marketing types were being told that social media was table stakes.  They had to have a Facebook page-all their competitors did.  Some were skeptical, but many succumbed.  As time moves forward again, the applications became more sophisticated, more targeted to specific corporate objectives and gradually became an integral part of most organization’s marketing mix.  Other applications of social media developed as well.  Companies began using social media techniques to improve customer self-service and knowledge sharing.  Communities that could influence and inform product development were formed using social media techniques.

As budgets grew, CEOs, CFOs and others began to question (appropriately so) the return on those growing investments.  This is where we are today.  Marketers especially love to track measures such as Facebook or Twitter followers, webpage hits, SEO rankings and other commonly available metrics.  Having more Facebook followers than your competition may give you bragging rights of sorts but doesn’t tell you much about the effectiveness of your presence or how it affects corporate results.  There are many intervening factors that need to be considered.  For example, having more web page hits on an ineffective webpage doesn’t really do you any good.  Having many more followers on a Facebook page that has an ineffective message doesn’t help.

So, to get an effective handle on the value and return on investment in social media, several steps are critical.

  1.  Each program needs to have quantifiable corporate objectives: increased revenue for a specific product, decreased support costs, decreased product development lifecycle, improved customer satisfaction metrics etc.
  2. All components of the program need to be identified and quality assured: effective landing pages, clear and effective messaging etc.
  3. Appropriate metrics need to be identified, quantified and collected: Facebook followers, landing page hits, community sign-ups, support solutions posted etc.
  4. These metrics need to be tied specifically to the objectives in number one.
  5. Traditional ROI can then be calculated.
  6. It doesn’t stop there.  Identified weak points in the system can then be improved.

The process is well-known in general in the corporate world, but is only now just beginning to be applied to social media investments.  New tools are being developed and new metrics are being made available.  As was the case with the PC, I have little doubt that tracking returns on the investment in social media will become well understood and commonplace.