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Get Serious About Return on Investment

  |  March 6, 2013   |  Comments

To get serious about ROI, articulate clearly your fundamental business objectives, the ones that talk about growing market share, boosting sales, or improving margins.

It's 2013, and we've been talking about social media as it relates to business for almost 10 years. So, you'll understand my slack-jawed response when I heard yet another social media "expert" proclaim, "You can't really measure social, so ROI can't be precisely determined." Never mind where or who said it. It is simply wrong. As a discipline, we can adopt a higher standard. It's time to get serious.

First, what is ROI? We all know it means "return on investment," but what constitutes "return?" I see so many definitions that seek to relate intangibles - direction, likelihood, engagement, and more - that it's no wonder people get confused and conclude, wrongly, that this can't be measured in a social context. So let's first establish that ROI is a financial (aka "numbers") measure that relates dollar cost and economic return through a precise formula. Sure, there are lots of other KPIs and raw measures that are important, but none of these are ROI.

ROI relates the dollars invested in a specific effort to the measurable economic outcome of that effort: more precisely, it is the ratio of an expenditure to the associated change in margin, generally as a result of a change in costs or sales. Social technology can certainly impact both, so with care the contribution of social can be expressed quantitatively and hence in terms of ROI. Don't let anyone tell you otherwise.

What are the sources of the core components of ROI? The dollar expense part is pretty easy, but be sure you're accounting for all of it. There are the obvious costs: if a technology deployment has a software cost of $100,000, that's part of it. But, as we say, "Wait, there's more!" Be sure to consider retraining, changeover costs, and internal deployment-related expenses. In other words, the costs that your organization would not incur if you were not considering this project. On that point, it's acceptable to cite a "direct ROI" that presumes part of your "job" is evaluating options and continuously improving. In that sense, you and your team are "sunk cost" and you can use that reasoning to simplify the calculation by eliminating the need to assess costs other than the direct cost of the technology. Whichever method you choose, just be sure to choose one and apply it consistently.

What about the benefits - the return? If your social program is limited to collecting "likes" on Facebook, good luck with this next part. Not that there is anything wrong with collecting "likes" or amassing "followers." The fact is that your customers are engaged with each other on the social web and you need to be there. "Likes" and "followers" are important KPIs and you should be tracking them. But by themselves they are not ROI.

To get to ROI, you need to venture further: why are you collecting "likes"? What is the connection between an incremental "like" and your fundamental business objectives? For example, if gathering "likes" provides a measurable or well-understood way to generate leads, then you're on your way to ROI. Leads have a value, and your organization knows what that value is. Your organization also knows what it costs you to generate each new lead. That means you can relate your Facebook investment to the value of leads through a KPI such as "likes" by tracking incremental "likes" and resulting incremental leads. It's not a moon launch, but you do have to be passionate about wanting to get there.

The "return" part of ROI can come in several forms. One of those is increased sales. Another is reduced expenses, for example, as a result of a project that makes your company more efficient. When you invest in a social engagement platform there are multiple potential sources of core economic value: as noted above, pre-sales engagement relates to leads converted. Post-sales engagement - aka "customer support" - can produce economic benefits through call deflection, early problem detection, and higher rates of purchase. That means peer-to-peer support communities, agent-based social customer care programs, and ideation platforms can all be tied back solidly to economic value. Hello ROI.

To get serious about ROI, articulate clearly your fundamental business objectives, the ones that talk about growing market share, boosting sales, or improving margins. If you start by connecting what you are doing with what the C-suite is doing you're on really solid ground. Think back to the point about "likes" and other KPIs. Relate them to sales or to the economic value of a lead and you've got a KPI that you can use to guide your efforts; one that can connect your efforts directly to the fundamental success measures of your organization. Then extend that to every measurable element in your social program. As good career moves go, learning to think and report in true ROI terms is among the best.

Confused image on home page via Shutterstock.

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ABOUT THE AUTHOR

Dave Evans

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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