ROI and Social Media: Here We Go Again

Ruler

Measurement has always been a thorn in the side of any emerging media category. In the early days of banner advertising, it took a while before there was anything resembling a consensus on CPM, even though banner advertising ultimately isn’t very different from any form of visual advertising. Then anyone who took the time to understand CPM immediately wanted to apply it to every form of interactive marketing, regardless of whether or not it ultimately made any sense. Luckily, or not for some marketers, search came around and all of a sudden ROI became easy to measure (and impress your boss with) so all of a sudden every interactive marketing manager wanted to know what his ROI would be on every program.

Valeria Maltoni on Conversation Agent examined the the topic of measuring social media a little more deeply this week, saying “It is essential to show tangible value beyond the creation of community and internal engagement.” She talks about how it’s less important what the “I” in ROI is, whether it’s investment, influence or involvement, but more a matter of finding out how to measure what that return actually is.

I would argue that the “I” is always, ultimately, “investment” since the real challenge for selling social media initiatives is to show the value over other forms of interactive marketing that are competing for the same budgets (my perspective is obviously skewed to the agency side). However, I feel the the model itself can be much simpler than most of the alternatives I’ve seen.

First off, you’re hopefully building your social media programs based on some key data that speaks to your key objectives. For example, a pre-launch consumer technology product may be engaging in social media to identify and build relationships with influencers and potential product evangelists that they eventually want to invite into a beta testing program. Mayeb you know from previous experience that an $80,000 online ad buy only really acquired 120 of the target consumers they were looking for. Essentially, their cost per acquisition was around $650 and they’d like to at least cut that in half. So once you know the value of this kind of interaction, say $300 per acquisition, you know that the ROI on your program that pulled in 200 of the target influencers is worth at least $60k.

You don’t need to stop there though. You can use CPM to your advantage without being deceptive. If the CPM for this desirable niche was $30 than what is the value per thousand for people that take a poll? Would your marketing team agree that this interaction is four times more valuable than a banner impression in your target’s periphery? Considering what they probably pay for a click, I would guess that you will reach that consensus easily.

This kind of formula can grow more and more complicated (can you put a $ value on each percentage increase in a brand awareness survey?) but you’ll probably find that you don’t need to pull too many metrics before you find that you’re generating a compelling ROI model that directly speaks to your objectives. In fact, the fewer metrics it takes for you to get there, the simpler and easier it will be to translate to everyone who you will need to convince.

Of course this is just one method, of many, that can speak to ROI, which in and of itself is a flawed justification for engaging in social media. Hopefully, after getting past the ROI hurdle, you will have an easier time convincing detractors that social media is important because you need to be wherever your stakeholders are in order to communicate with them organically, whether it’s at the grocery store, on their mobile device or on this strange directory where they spend over two hours per visit.

  • http://www.conversationagent.com Valeria Maltoni

    Good example! I won’t argue with you ;-) Every time I see that expression I’m reminded of the power lawyers have inside organizations, which is another challenge for those who wish to implement a social media strategy, particularly if that includes a blog.

    To me content, and valuable or topical content at that, almost always trumps advertising online… unless the rich media adverts manage to be wrapped around entertainment to allow a test drive of the offering. But, as you caution up front, we must be disciplined and match tactic to strategy. The most things change…

  • http://point-oh.com Peter Imbres

    Thanks for your comment, Valeria!

    Yeah, I guess I’m always just trying to get past the metric roadblocks so I can justify projects on my own terms. I tend to use advertising as counterpoint since that’s who we’re fighting for the bigger budgets to do really ambitious work in this space. But we’re in complete agreement over good content being more valuable than advertising and that certainly goes well beyond social media channels.

    Ed. note: I can’t believe I misspelled “social” in the headline of my original post…beginner’s mistake ;)

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