Operationalizing Social Media and the End of Analysis Paralysis



Art Hall
05/03/2010

"Social Media is like teen sex. Everyone wants to do it. No one knows how. When it’s finally done there is surprise it’s not better" -Avinash Kaushik, Analytics Evangelist, Google

Social Media ROI has a reputation for being difficult to measure because the benefits extolled by advocates is social media marketing is qualitative in nature.

Return on Investment (ROI) is a financial metric. ROI is one measurement that tells the financial return a company generated for a given investment level. There is some discussion among the IT community about the right metric to use relative to a project: Total Cost of Ownership (TCO), ROI or Payback Period. In some circles, Economic Value Added (EVA) is another financial metric that stakeholders are paying attention to as they think about a go forward strategy in social media/networking.

The Root of Social Business Analysis Paralysis

Companies are looking to develop a measurable business case to support investment in social media/networking. Why? With the economic downturn executives are focusing more on the health of their financial statements specifically their balance sheet and income statement. A company’s income statement looks at revenue or sales, gross margin (expressed in dollars and percent), Cost of Goods Sold (COGS), Selling, General and Administrative expenses (SG&A) with an ultimate eye towards Earnings Before Interest Taxes Depreciation and Amortization (EBIDTA).

Rightly or wrongly, these categories are the current language of CFO’s and controllers and with marketing becoming more accountable to the financial organization to demonstrate a positive return on the dollars allocated to them by Finance, it is critical for marketing to demonstrate a tangible ROI in social media/networking.

In the social media space, there has been some discussion around ROI. In the past we have changed or renamed it to mean "return on influence" or "return on engagement." These metrics are valid in social media because the measurements look at the success of a social media campaign. The metrics look at the success of the initiative against the level of customer/prospect influence or engagement resulting from the project/initiative. The problem is return on influence and return on engagement do not address the money question.

The Time Factor on ROI of Social Business

ROI in social media has a time dimension. Value may be created in the short and long term—this is extremely important because most executives jump into social media and networking for the wrong reasons. For example, one company is averaging $700 per customer acquisition. The marketing team has decided to leverage social media and social networking to acquire customers at a lower cost.

While it may be true that social media offers an opportunity to reduce customer acquisition costs, a company jumping into social media may be disappointed if customer creation is the primary motive. Lowering customer acquisition costs through social media/networking does not always show an immediate return.

Engagement in social media is a long-term commitment for companies to engage, participate and learn from customers on the social web. A company can’t dip their toe into the social media space and pull out six months later. The perception or audience sentiment towards the brand may be negatively impacted. Audiences will view the company as disingenuous.

To demonstrate ROI in social media, it is important for those who own social media to link the results with the relevant business focus areas or processes being addressed. This linkage is the "operationalizing" of social media.

Dell's ROI on Social Business and Growing Top-Line Revenue

Dell generated $6.5 million in revenue (a key category that shows up on a company’s income statement) from their Twitter presence. While Dell genenerated a total of $60 billion dollars in revenue in 2008, the $6.5 million is still significant for a company looking to generate revenue in social media.

Dell’s strategy is to grow top-line revenue. Dell leverages Twitter as a platform to give deals to followers. Dell measures the tactic against an important income statement category (revenue). Dell's growth proves social networking is a revenue generator for the company. Correlations are very important—social media brand engagement or audience influence could be linked to likelihood to recommend or a new metric Customer Referral Value (CRV).

Sexy indeed (like we need another metric to track) but unless there is a direct linkage to the income statement, I am afraid socializing an investment in social media will be a hard sell for some companies that are bullish developing and proving a business case for their investment.

Last but not least, I think all ROI studies are custom. There is no one size fits all. ROI is only relative to how well a company defines requirements and objectives. In addition the brand must tie the social media investment to the objectives. It’s like the cost per call argument in call centers—it is a great directional benchmark measurement. However the focus of the company’s cost structure is very different than the focus of the call center.

It is not fruitful for a call center director or executive to hang their hat on a generalized cost per call metric across all industries as the goal or standard for their call center. Social media ROI is relative.

First published on Customer Management IQ