That’s what I hear from far too many experts these days and I was especially disappointed when I saw yet another notable authority tweet the following today:
“Asking “ROI of social media” is the lazy way to look smart re: social media. Pls educate them on the nuance!”
Why, my friends, would we not want to understand the investment we are about to make? Even with my light weight 2010 Social Media Plan you will need to hire a new employee, invest in tools and time, probably spending upwards of 200,000 in year one. Is this so little money that your executive team should not care about ROI?
I do realize, as Scott Allen noted while we were discussing this topic, that “similarly you must ask about the CONI of competing initiatives too”. In other words, there is a cost/risk/benefit to implementing a social strategy and there is also a cost/risk/benefit to not implementing a social strategy. Companies must be able to make judgements, even if they are not 100% accurate, to assist them in deciding if they should start a social media strategy and should be able to use the insights from this analysis to determine if they are on the right track. Yes, in my 2010 Social Media Plan I am telling you the cost of not doing anything outweighs the cost of doing something but that will only get you started, it doesn’t help guide you in your decision-making as your efforts get underway.
While some may disagree, here are a few of my thoughts on factors you should put into your ROI analysis. It’s not a complete list but it should assist you in thinking about the factors that apply to your business:
- Reduced expenses on customer support. As Forrester has clearly demonstrated, Social Support Communities deliver a measurable ROI, reducing support costs, increasing customer satisfaction.
- Dell has been reporting multi-million dollar revenue gains based solely upon their use of social media. You should be able to determine if leads are coming from social channels, shouldn’t you?
- Customer churn, especially in the customer base that participates in your social activities. If you are engaging with them through formal social channels, is it paying off?
- Even travelling food vendors, moving throughout a city at lunchtime, tweeting their location ahead of their arrival, are on the band-wagon. They seem able to determine, roughly, the return on that investment, can’t you?
What do you think? Can you come up with a rough ROI and CONI for social media for your company or government agency?
John
December 20, 2009 at 6:28 am
[...] Even with my light weight 2010 Social Media Plan you will need to hire a new employee, invest in tools and time, probably spending upwards of 200000 in year one. Is this so little money that your executive team should not care about ROI …This Post [...]
December 17, 2009 at 11:35 pm
[...] Like learning to love Klingon cuisine, social media has an ROI 2009 December 17 by Bruce Wilson Here’s a long-ish comment I posted this afternoon in response to a interesting blog post by John Moore, CTO and SVP of Boston’s Swimfish, entitled More crazy talk, Social media, no measurable value but you have to have it? [...]
December 17, 2009 at 11:25 pm
John,
Thanks, this post is a solid contribution to the ongoing discussion about social media ROI. I flat out agree with much of what you and other commenters say, particularly the insight that people who don’t know how to derive ROI (or don’t want to try) declare it irrelevant. Here are four more thoughts for your consideration:
First, by way of analogy, what’s the ROI for public relations (PR)? So you get some good press. And oh, sales go up. To what extent are those sales causally connected to that PR event? Even when some click-track data can be obtained it’s impossible to know for certain how much revenue to attribute to certain real world occurrences, much of social media included. But there’s no denying that PR can generate revenue, and thus companies above a certain size generally invest in it without having a deterministic ROI requirement. How are one-off social media experiments any different?
Second, what’s the opportunity cost? Sure, social media channels can generate massive revenue (your Dell example). But what if the same resources were put into different channels? While this doesn’t moot the issue of ROI, the added complexity of comparative ROI seems to confound many people trying to make simplistic balancing-the-scales decisions.
Third, I have the strong impression that for many (most?) decision makers in many (most?) roles and companies, ROI literacy and business intelligence (data + computational resources) are too weak to cope with the question. (Perhaps someone working for a vendor in the BI field already knows if this is the case.)
Finally, I think the social media ROI question is a bit of a smokescreen. The biggest reason the question is so hot right now is because so many business people (C-level, marketing, operations, engineers – across the board) find social media at least partly alien and fear it’s inedible. I imagine it’s like being invited to a Klingon banquet. People who don’t have a clear understanding of social media mechanics and don’t want to take the time to figure it out are looking for an excuse to stay home.
As a social media consultant when entering into a client relationship I almost always begin by working though some strong negative emotions surrounding social media (particularly Twitter) which kick up “business” excuses for foot dragging. As more and more people develop a taste for it, social media campaigns should be treated like any other marketing campaigns: first they are experiments, then they become known quantities.
- Bruce
December 18, 2009 at 12:16 am
Great comments all the way around. Bruce raises a great point that many businesses do not know the value of PR and invest in it anyway knowing, that above a certain size, the value is there. While you are right, I disagree with those that argue that social media is something that should be done without regard to common sense business principles.
ROI, and other metrics, will guide your investment decisions as you move forward with your social conversations, without it you do not know if you are on the optimal path. I would argue the same thing regarding PR too, for that matter.
Today, I had a really good conversation with the head of community at HP and I’ll share it in a post coming tonight. One of the great things she talked about was the importance of understanding basic metrics, understanding the investment return, in order to ensure that you focused on strategies and tactics that were in line with your objectives. If you don’t measure you’ll never know if you’re on the right track.
John
December 18, 2009 at 12:33 am
Looking forward to your HP post John – thanks for rolling up your sleeves and digging into this for us.
December 17, 2009 at 10:25 pm
I think an overall “CRM” strategy needs to account for extending lifecycles and customer value with ways to measure it. I think that’s where the bang is, not simply operational efficiencies. Sure you’ll get those when you automate processes that support the value plan, and you’ll get it when you identify specific “social” channels to support it.
In the end, we need some high level measures that are fed by a number of different “things” all of which combine to do what we want them to do…make our customers happy so they’ll stay longer, buy more and thus improve our margins and competitiveness — blah blah blah
Look at metrics or ROI for one piece of the puzzle is like saying CRM is SFA
December 17, 2009 at 10:54 pm
Mike,
A big part of what I mean by determining value of a social media initiative refers to what you’re talking about. Yes, you need to understand the cost of the channel (the medium) but that’s only half the equation. The other equally important half is gains…revenues and cost savings.
December 16, 2009 at 4:15 pm
John,
I’m equally shocked by the individual, an experienced independent analyst, who made the comment, “Asking “ROI of social media” is the lazy way to look smart re: social media. Pls educate them on the nuance!”
It’s an absurd statement. With due respect to the analyst, what she should have said was failing to *provide* an ROI on a social media initiative is bad business.
While I’m pro social media, it is not a special brand of corporate initiative that exempts it from Business 101 fundamentals.
If you allocate even one person part-time to managing social media, a pro-rated (and fully loaded payroll cost) would be on the order of $20k. In the event you have an integrated social media program, the personnel and technology costs can run $100, $200k or more.
It astonishes me that anyone would question why an exec would want some idea of both the cost and expected value of running *any* corporate initiative with those dollar investments.
What’s more, it’s fiscally irresponsible of an executive not to ask the tough money questions.
And it’s naive of anyone proposing a corporate initiative not to expect those questions and be prepared with a valuation.
ROI is a straightforward financial formula:
ROI = (Gains from investment) – (Costs from investment)
————————————————-
(Costs from investment)
Depending on the extent of your social media program, Gains can come from revenues (New and After-market sales) and cost savings (Call Center and Cost of Sales come to mind). Costs most typically will derive from personnel and technology.
From there, you can get fancier like cost savings from lower travel costs.
The problem, as I see it, is that many folks don’t know how to determine the ROI so they take the stand it’s not relevant.
Admittedly, valuation can get complicated, especially when you throw in cash flow analysis and determining Net Present Value of the corporate initiative. So it’s understandable that some folks lack the experience to perform the valuation.
The answer then is to get help from folks who do understand valuation methodologies. That might involving tapping into friendly folks within the finance department or via a third-party tool like my company’s ValueRight Social Media tool.
http://pathlightsolutions.com/WorkshopsTools/ValueRightSocialMedia/tabid/70/Default.aspx
Bottom line, one way or another social media initiatives can and should be valued.
December 16, 2009 at 4:19 pm
Great coments Kathy. Nothing should be exempt from business 101, business fundamentals. I’m looking forward to seeing how the work you are doing will help companies understand this simple fact.
John
December 16, 2009 at 5:54 am
Social comments and analytics for this post…
This post was mentioned on Twitter by JohnFMoore: My latest, More crazy talk, #Social media, no measurable value but you have to have it? http://bit.ly/4T7E3Y #cmo #roi #gov20…
December 16, 2009 at 12:07 am
John, some additional thoughts based upon some work we did at Intuit (as told by Business Week)
Unlike many other companies, however, Intuit (INTU) seems to have figured out a way to benefit from social media. Its insight: Rather than inviting the whole world, the accounting software maker funnels only diehard users of QuickBooks to a site where they can exchange truly helpful information. For customers, that means quicker answers to problems. For the company, this volunteer army means less need for paid technicians. “What Intuit is doing is cutting-edge,” says Mikolaj J. Piskorski, a strategy professor at Harvard Business School.
Intuit’s QuickBooks Live Community is accessible automatically to anyone who opens QuickBooks 2009 on a PC or Mac. The site is similar to macrumors.com or macfixit.com—independent forums where Apple (AAPL) fans can trade tips—except that it’s owned and monitored by the company.
Intuit chose this “narrowcast” approach after Chief Executive Brad Smith heard what was going on at the Web site of Intuit’s popular TurboTax product. Customers were not only asking technical questions, they were often outshining Intuit’s own tech support staff by answering 40% of the queries themselves.
Since the latest edition of QuickBooks went on sale last October, traffic on its channel has tripled. At any time, 70% of customer service questions are answered by other QuickBooks owners.
December 16, 2009 at 1:24 am
JP, this is great informtion. Thank you for stopping by and sharing this, I know people will benefit from the information. -John
December 15, 2009 at 11:55 pm
[...] This post was mentioned on Twitter by John Moore, Merrill Hansen. Merrill Hansen said: @JohnFMoore http://bit.ly/4T7E3Y <Agreed! Jump in AND don't give up if not perfect on the first day. Now is the time to 'tune' the channel. [...]