Using "engagement" to calculate ROI is like using an oven mitt to take the temperature. Consider these alternative approaches.
Last week, I was reading yet another whitepaper claiming to discuss ROI for a social media program. Despite the claim of "showing verifiable ROI," the whitepaper focused on engagement. Great article, but the discussion about return on investment was nowhere to be found in the article except for the introduction.
The problem with using "engagement" when calculating ROI? It's a vague term. It can mean anything from "looked at" to "thought about" to "clicked on" to "sufficiently in love with a brand as to commit oneself exclusively." The general vagueness of "engagement" aside, the whitepaper included a great case for the use of metrics in tuning a campaign. No argument there. But, a key performance indicator (KPI) that includes "engagement," is not the same as ROI. To get at ROI, you've got to measure one of two things: increased revenue or reduced expenses given a specific dollar investment.
Admittedly, that's harder than it looks when social media activity is designed around branding. Unless your firm (and many do) has a defensible brand value for an increment impression, click, or other soft action leading to a purchase, for example, then determining ROI based on engagement is a little like trying to determine the temperature using an oven mitt. It doesn't work.
Connecting Social Media ROI to Customer Service
By comparison, I participated in a panel at a Public Relations Society of America's conference in San Antonio, TX, focusing on travel and hospitality. On the panel with me was: Brooke Hovey, SVP, digital and managing director at Cohn and Wolfe; Lionel Menchaca, chief blogger at Dell; Nick Goggans, director at Get Smart Content, and moderator Jim Eustace, founder and principal of VM Foundry. The panel, driven by audience comments, turned almost immediately to ROI and determining best practices in showing business value from a social media program. So, how did the panel respond?
The panel members said it's important to view social media programs in the larger context of the business, setting measurable goals early and integrating social media with customer service. Granted, the attendees - airlines, hotel operators, travel and visitor's bureaus - all understood the fundamental connection between social media, customer service, and ROI. And so did the panelists. The discussion focused on the importance of metrics that govern call center operations - costs per call, incremental revenue per call, customers saved, and similar hard measures - and then redefining these in the context of a social media program.
If that seems a stretch, consider social media as it impacts a brand: advertising leads to trial, trial to purchase, and purchase to actual use of your product. In the process, a conversation develops that very likely takes place on the social web. That conversation is discoverable by search, and so becomes a factor as a potential customer traverses the purchase funnel. That part is straightforward. What drives those conversations is less straightforward. From my point of view, it comes down to essentially two controllable factors: product design and interactions between customers and customer service agents.
Here's the connection to ROI: by linking your social media program with customer service - for example, by taking the time to understand the relationship between X million "fans" or Y thousand "likes" and the conversations you're following on Twitter, for example, between your customers and your service agents, you can create a holistic map of the real impact of your social media program. You can connect customer service actions with incremental "likes" by tracking the responses of your social care agents, and you can track incremental revenue, whether directly through your Facebook business page or similar social presence point.
How do you define "incremental revenue"? Think about subscription renewals, product up-sells, and customer saves associated with the specific actions of your social care agents. On the expense side, you can calculate the cost of a social interaction just as you can a phone interaction. Track the shift from one to the other (aka "call deflection") and you've got a measure of the change in expenses associated with your social effort and its specific cost. This connects your social program to real dollars and offers a way to calculate ROI.
As you continue to build your social media marketing program, think beyond marketing. Make the link to the other functional areas in your business that also participate in social media-based conversations. Customer service is a great place to start. Tie revenue and expense change into the picture. Establish your directional KPIs across your program, and then set starting ROI goals that are tied to your business objectives. By taking a more expansive view of social technology and its application to business, you'll be able to calculate a defensible ROI.
Dave is the VP of social strategy at Lithium. Based in Austin, Dave is also the author of best-selling "Social Media Marketing: An Hour a Day," as well as "Social Media Marketing: The Next Generation of Business Engagement." Dave is a regular columnist for ClickZ, a frequent keynoter, and leads social technology and measurement workshops with the American Marketing Association as well as Social Media Executive Seminars, a C-level business training provider.
Dave has worked in social technology consulting and development around the world: with India's Publicis|2020media and its clients including the Bengaluru International Airport, Intel, Dell, United Brands, and Pepsico and with Austin's FG SQUARED and GSD&M| IdeaCity and clients including PGi, Southwest Airlines, AARP, Wal-Mart, and the PGA TOUR. Dave serves on the advisory boards for social technology startups including Palo Alto-based Friend2Friend and Mountain View-based Netbase and iGoals.
Prior, Dave was a co-founder of social customer care technology provider Social Dynamx, a product manager with Progressive Insurance, and a systems analyst with NASA| Jet Propulsion Labs. Dave co-founded Digital Voodoo, a web technology consultancy, in 1994. Dave holds a BS in physics and mathematics from the State University of New York/ Brockport and has served on the Advisory Board for ad:tech and the Measurement and Metrics Council with WOMMA.
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