The quest for return on investment is an old problem. John Wanamaker once famously complained, “Half the money I spend on advertising is wasted; the trouble is, I don’t know which half.”

Social media marketing was supposed to fix the ROI problem by making interactions with brands easy to track. In practice, it has just given companies more data than they know what to do with. Don’t blame social media for what are essentially business problems. The confusion over social media ROI happens when we design faulty campaigns, ask the wrong questions and obsess over meaningless data points.

Social media can deliver business value, but you can’t create a social presence and then try to figure out its value after the fact. You have to build ROI into the core of everything you do online. The trouble is, there’s a lot of misinformation about ROI out there. Here are five big misconceptions you need to do away with if you’re going to get to the heart of the matter.

  1. ROI doesn’t matter. Some people will argue that because we don’t know what the exact ROI of a phone book ad is, that lets social media marketers off the hook. The problem with that reasoning is that once you decide ROI doesn’t matter, it opens the door to all kinds of magical thinking. That doesn’t mean you should ignore social media if you can’t generate ROI immediately. Even if you’re never able to establish a hard ROI ratio, the very act of pursuing ROI brings rigor to your marketing as you continually test, refine and retest your efforts based on solid benchmarks and clearly defined business goals.
  2. Social media is free. Social media is time intensive, and your time is valuable. As your presence grows you may need to pay for tools or additional staff, but at minimum you need to account for the value of the time you commit.
  3. ROI is all about sales. If you want to understand the full benefit of your social media efforts, you need to look at cost savings throughout the organization. If you lower your cost per lead, improve the efficiency of your customer service or attract qualified new hires using social tools, you’re generating ROI.
  4. ROI can be measured in something other than money. Fans aren’t ROI. Neither are retweets or blog comments or any form of social sharing or participation — if only for the simple reason that not all comments are equal. A single social media interaction with a client might create a sale or save you money — but many more will not. So it doesn’t make sense to measure all such interactions as equal indicators of success. ROI can only be measured in currency earned.
  5. Finding ROI just requires a little back-of-the-envelope math. You can’t just assign a dollar value to each fan and then add them all together. The process of calculating the costs and benefits of social media vary depending on your tactics and goals.

Want to dive deeper into the world of social media ROI? This post was adapted from the white paper “The SmartBrief Guide to Social Media Return on Investment.” Sign up for SmartBrief on Social Media and receive the entire guide to social media ROI for free!

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6 Responses to “The 5 big lies of social media ROI”

  1. Nick says:

    Thanks for mentioning that ROI is not always about sales. If social media helps you get more ideas at a faster rate, or helps customer service reps do their job more efficiently, it's ROI. It's essentially what we do at the company I work for – we help companies turn their fans into leads (and sometimes sales) using trackable coupons. Loyalty is often over-looked in the whiz-bang, polished world of sales.

    And no, social media is never free, unless your employees' time is free.

  2. ronmycholuk says:

    Agree. While I do think it's important for Social Media, Public Relations and Communications to show ROI, it's vital to remember that not all return needs are sales based. Loyalty, reputation and exposure are huge benefits of a successful social media strategy.

  3. Vincent N says:

    I think that there are ways to think about how ROI can be measured in terms of financial success and depending on the industry. I've ran into a lot of different people who say that they can't measure ROI, but that's because they haven't sat down and even tried. And that's just plain lazy.

    Personally my biggest beef is using engagement as a measurement. Engagement is like measuring the number of conversations that a restaurant server had that day. However if we do notice that more customers are returning, and that the average cheque is rising then we can contribute that the conversations did play a role.

    Businesses need to rethink the bigger picture of what they are trying to accomplish and think in terms of savings and earnings when it comes to social media.

  4. Peter Mesnik says:

    As a social marketing software vendor we are commonly hit with the question of ROI. Our answer is that ROI is something you will begin to see over time and step-by-step.

    We recommend that you start by pushing high quality social content to your email list – because for most businesses their followers on social sites pale in comparison to the size of the email list. This helps to get people engaged in the conversation and you can measure the conversion from email to social. That is the first ROI measure along the path.

  5. Steve says:

    Great points here. I always see that ROI doesn't matter…but surely the time and enegery you invest has to have some sort of concrete results. It is just silly to say that it absolutely doesn't matter when that time and money oculd be spent on other things if it does not achieve results.

  6. Sam_Ford says:

    Bravo on calling out the inherent problems with providing quantitative "weight" to customer actions. I think there's also a problem caused when crediting getting a fan on Facebook while not valuing, for instance, people talking about your company positively off your own branded space (where audience endorsements are harder to measure but, I'd argue, much more impactful). I also think it's important to distinguish between a return on your investment and ROI. I agree with you that measurement is important because it makes people think about how what they do in social media connects back to the business. But ROI often makes people skew what they do to what can be most easily measured versus what really makes the biggest difference for their audience. This is troubling to me in two aspects: first, because it starts to skew what people do by what can be most easily measured versus what is actually most strategic…This is the kind of logic that leads companies to locking down content and making people come to it, where they poke and prod, or what leads to people justifying their spam emails or other "bombardment marketing" because it has hard numbers "ROI" (while not taking into account reputational damage done through all the people angered or turned off in the process). And second because it causes companies to not prioritize situations where money isn't to be made. It leads people to not prioritize customers who have problems when they aren't "influential" enough, discount the concerns of community members or activist groups when they aren't potential customers, etc…In other words, when ROI is turned completely into quantitative metrics, for many it strips out the value of empathy, listening, and other issues that make long-term business sense but can't be boiled down to a number.