Can we measure ROI in social media? – Part 2

ROI in SM part 1-4193339222_b6c7e45098_bIn my last post Can we measure the ROI in social media? – Part 1 I argued that it’s pointless to try and calculate ROI in social media. If convinced you might ask, “In that case, how can I justify the allocation of resources towards social media marketing?”

Perhaps the following will help.

As I previously explained, the problem with applying classic ROI to SM marketing is we can’t quantify the Return monetarily. This is because we can’t tie increases in sales or profits directly to specific social media actions or programs. This inability blocks us from talking about ROI at all.

But wait—surely what we really want to do is to make decisions about allocating resources amongst different marketing channels? Since we need to market our products and services, the real question is how and where do we spend our marketing budget? Here’s David Meerman Scott again, emphasizing this point in his usual forthright fashion.

So why not use a slightly different metric, one that allows us to compare the effectiveness of different marketing channels in ways we can measure. Let’s call it the Relative Return On Investment (RROI). RROI sidesteps the problem of assigning a monetary value to Return. Instead it concentrates on providing a practical comparison between investments allocated to specific marketing channels and our desirable and measurable marketing outcomes. (For example: increasing traffic to websites, new product suggestions, time spent on sites, active memberships, or brand mentions.) In effect, we’re replacing Return with the changes in concrete metrics that we believe are important to our marketing objectives. The units of RROI are then [change in metric] per unit of currency invested, e.g. increase in daily page views per dollar, or decrease in weekly customer support calls per euro.

Using RROI we can do experiments and make decisions about where we want to allocate marketing resources. Our experiments won’t be as precise as those possible in the past, when only targeted audiences saw broadcast marketing. But by using tagged indicators of traffic origins and existing analytics we can probably get a good sense of the relative effectiveness of alternative marketing strategies. That’s useful.

Be aware that using RROI in this way won’t tell you how much you should invest in marketing. That can be answered by ROI analysis performed across potential profit opportunities available to a business. But if measuring ROI in social media is a fantasy, perhaps using RROI in its place is an honest reflection of what’s practically possible.

Is RROI a useful, relevant way to think about investments in social media? Or am I just blowing smoke? As always, your comments are welcome!

2 thoughts on “Can we measure ROI in social media? – Part 2

  1. Good stuff Adrian – but two comments:

    1. You can redefine “Return” by deciding what you’re looking to obtain from your investment – and that doesn’t make it “Relevant” but simply a good old-fashioned measurement of meeting objectives. Perhaps the return you seek is increased exposure for your new brand name…or maybe it’s increasing

    2. Investment doesn’t always mean strictly a financial investment. It can mean time, money or both. And while you might quantify time as a dollar value, that’s not always an accurate measurement.

    In reference to post #1, I would also add that many older forms of marketing are not necessarily measurable either. For example, word of mouth…this is a powerful form of marketing and largely relationship- and reputation-based, making it perhaps the oldest form of social media?

    With all this being said, I ultimately do agree with the RROI theory in that many of our business practices will largely be a subjective score based on our assessment of relevancy to business goals…a calculation that I have created for CSR measurement and ROI.

    For now, with gratitude for your insight,
    Midori Connolly, Chief AVGirl
    http://www.twitter.com/GreenA_V

    1. Hi Midori, thank you for your thoughtful comments on my ideas about ROI! I’m glad to see that, like me, you have a more relaxed idea of what “Return” can mean.

      I wrote the posts because I’m concerned about the people who are pushing a purely financial view of ROI in social media, and their followers who seem ready to believe that this approach is reasonable.

      I like your framing of RROI as a “subjective score based on our assessment of relevancy to business goals” – nice, thanks!

      Best wishes,

      -Adrian-

Leave a Reply

Your email address will not be published. Required fields are marked *