Can we measure ROI in social media? – Part 1

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Can we measure ROI in social media?

Last month Samuel J Smith moved back to the U.S. from Switzerland and, needing to buy some insurance, asked for a recommendation on Twitter. Having had car insurance with Progressive Insurance for a number of years, and liking the ease of accessing my policy and payments online as well as the competent Vermont representatives I worked with when dealing with several claims, I tweeted Sam this information.

Five minutes later, the following tweet from @Progressive appeared:

@ASegar Saw your tweet – we appreciate you spreading the word ; ) Glad you’ve had such a positive experience.

What can we say about the Return On Investment (ROI) for this little social media interaction?

Exploring ROI for social media

A quick Google search finds this article which explains how Progressive has monitored mentions on Twitter and other social media channels since 2008 and has a dedicated team in its call center that responds to reported customer service issues. Obviously this initiative costs Progressive money, and the company surely knows how much. So Progressive knows the  Investment part of ROI in cold, hard cash.

But what about the Return? Receiving the tweet tickled me! It increased my positive feelings about the company and the likelihood that I would recommend it to more friends and acquaintances. In addition, anyone looking at Progressive’s Twitter stream (which has ~5,000 followers) might see that I made a positive comment. But wait, there’s more! Now I’ve written a favorable blog post that will be read by more people (including you!), possibly influencing more purchases from the company in the future.

Clearly a small but classic social media success story for Progressive.

But can Progressive quantify the value of their tweet in dollars?

I don’t think so.

Why ROI for social media is suspect

ROI was originally a financial term. However, it’s become common to see it used in areas where there is no simple way to connect what happens with a financial value. We have no idea how much more likely I am to recommend Progressive because of their unexpected tweet. We don’t know how many other people will ever see or be influenced by the tweet, or how many people will be influenced by reading this blog post.

And yet, there are plenty of people writing about measuring ROI in social media.

For example, in February Brian Solis posted ROI: How to Measure Return on Investment in Social Media. This sounds like a how-to article, but Brian’s article just contains a lot of statistics that businesses have reported about their experiences, beliefs, and predictions about their use of social media, plus one (in my view, see below) weak example from Dell about its claims of increased sales through connecting with customers on Twitter. There’s no how-to, though Brian states that “2010 is the year that social media graduates from experimentation to strategic implementation with direct ties to specific measurable performance indicators.”

This doesn’t convince me. And I’ve got David Meerman Scott on my side. He once said “When someone asks me the ROI of social media, I respond with, ‘What’s the ROI of putting on your pants?'”

What is the Return?

The problem, as exemplified by Progressive story above, is that the monetary Return on social media marketing cannot be tied directly to the efforts that are made. Now this is not true for many older forms of marketing. For example, it’s possible to test the effectiveness of mail campaigns by sending different coded promotions to randomly chosen subsets of a mailing list and analyzing the response rate. But because social media is, well, social we can’t do this kind of segmented marketing experiment!

To buy a computer from Dell, I decide what I want, go online, and look for a good deal. And that includes checking Dell’s Twitter stream. I do not follow Dell which convinces me to buy; I buy from them when I’m ready. Dell counting a sale to me through a Twitter promo as a Return on their investment in Twitter is not a justification for their investment in social media, because I would have bought from them anyway after finding a satisfactory deal on their website or over the phone. So for Dell to say, as quoted in Brian’s article, that “Dell’s global reach on Twitter has resulted in more than $6.5 million in revenue” is disingenuous at best. There’s no way the company can claim that a sale would not have occurred if it hadn’t been featured on Twitter.

Conclusions

So should we throw out the idea of calculating ROI in social media? No, not entirely. I think there’s a better way to think about what we are trying to do when attempting to decide where and how we expend time, effort, and resources on social media marketing. I’ll explain further in my next post.

Do you think you can measure the ROI in social media? I’d love to hear what you think!

5 thoughts on “Can we measure ROI in social media? – Part 1

  1. I do think you can measure how you reach people on the web but it is not with the old methods we used in the past. I wrote a forward to a book by Jim Sterne that came out a few weeks ago called Social Media Metrics that does a great job explaining what we can measure and how. David

    1. Wow, I’m flattered to to hear from you David—New Rules is my favorite book on social media marketing! I’ll check out Jim Sterne’s book.

      I agree with your comment completely; yes we can measure how we reach people on the web. It’s the fixation with talking about ROI that trips people up. In my next post I’ll propose a slightly different metric that reflects the decisions we actually need to make about allocating resources to social media marketing.

  2. Adrian –

    Thank you for the post, I’m adding your blog to my blogroll because social media and conferences are two topics of daily conversation with my clients. Looking forward to exploring your book further and hopefully working together soon.

    Best!

    Saul

  3. Adrian,
    You ought to examine the metrics ability of the Facebook and Instagram ad platform. I don’t know but I can guess Twitter also has metrics for its ad platform.

    The social media metrics there and the ability to track Click thru rates (CTR), lead conversion rates, the expected life value of a customer, optimized by A/B split testing are far beyond traditional snail mail coded messages.

    Let’s suppose a conference wants to target their niche group of 2 million possible participants with an average CTR rate of 2% or 40k probable leads, and a conversion rate of 2% or 800 paid attendees. FB/IG can track that and calculate the conference organizers the cost of the conversion which is easy for a ROI calculation.

    I’d suggest that your example from Progressive is an example of an organic lead generation. Yes, hard to calculate ROI of just one of your tweets, although with statistics, not so hard after a data sampling of sufficient size is attained.

    1. Dutch, I wrote the above post almost eight years ago so, yes, the sophistication of today’s social media channels’ metrics has improved greatly. And I agree that for specific cases like the one you describe, where there’s a target behavior (“buy a ticket to attend XYZ on June 3”), a carefully orchestrated and monitored campaign, and a clear time-bound outcome (“bought ticket to attend XYZ on June 3”) it’s possible to calculate useful ROI.

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