Social Media ROI: Stop the Insanity!

I’ve taken a run at this before…but my assertion that the emperor has no clothes didn’t stick. Either that, or the dozens of people who read this blog simply agree with me in principle, but don’t really think it’s worth the effort to raise a stink.

Regardless, I’m not quite ready to let it go. And I do think this is important. Connie Bensen’s recent post (cross-posted on the Marketing 2.0 blog) on the subject had me cheering…and crying…at the same time!

Maybe it’s because I’ve had the good fortune to know and work with some incredibly sharp CFO-types in my day. Most notably, for my entire eight years at National Instruments, the CFO (not necessarily his official title the whole time, but that was his role) was Alex Davern — a diminutively statured, prematurely white-haired Irishman who arguably knows the company’s business and market as well or better than anyone else in the company. He is a numbers guy by training…who gets that numbers are a tool, a darn important tool, but not the be-all end-all.

I had to sit down with — or stand up in front of — Alex on several occasions and pushinitiatives that had a hefty price tag for which I was a champion or at least a key stakeholder — a web content management system, a web analytics tool, and a customer data integration initiative. I never had to pitch a social media initiative to Alex, and I don’t know exactly how I would have done it. But, I seriously doubt that I would have pitched that “ROI is Return on Influence when it comes to social media.” I can feel the pain in my legs as I write this, just imagining myself being taken down at the knees by his Irish brogue.

Here’s the deal. Let’s back up to ROI as return on investment. Return. On. Investment. It’s a formula:

Both numbers have the same unit of measure — let’s go with US dollars — so that the end result is a straight-up ratio. Measured as a percentage. This is a bit of an oversimplification, and there are scads of ways to actually calculate ROI. A pretty common one is to use “net income” as the Return, and “book value of assets” as the Investment. With me so far? You acquired the assets along the way, and they have some worth (let’s not go down the path of that you might have spent more…or less…to acquire them than their “book value”). The return is how much money they made for you.

Now, let’s look at ROI as “Return on Influence” (I’ll skip “Return on Interaction” here — I can get plenty verbose without a repetitive example):

Hmmm… The construct starts to break down on several fronts. First off, you’re going to have a hard time measuring both of these in like units. That’s sorta’ the point of all of the debate on ROI — “influence” is hard to quantify. But, that’s not actually the main beef I have on this front. At the end of the day, your return is still “what value did we garner from our social media efforts?” Maybe that isn’t measured in direct monetary terms. But, really, is this whole discussion about mapping the level of Influence to some Return, or, rather, is it about assessing the Influence that you garner from some Investment? A more appropriate (conceptual) formula would be:

But, IOI, as pleasantly symmetrical as it is, really doesn’t get us very far, does it? So, let’s go back to Alex as a proxy for the Finance-oriented decision-makers in your company. You have two options when making your case for social media investment:

• The Cutesy Option — waltz in with an opening that, frankly, is a bit patronizing: “What you have to understand about ROI when it comes to social media is that ROI is really Return on Influence rather than Return on Investment”
• The Value Option — know your business (chances are the Finance person does); know your company’s strategy; know the challenges your company is facing; frame your pitch in those terms

Obviously, I’m a proponent of the second. I don’t really have a problem with starting the discussion with, “Trying to do an ROI calculation on a social media investment is, at best, extremely difficult and, at worst, not possible. But, there is real value to the business, and that’s what I’m going to talk about with you. And, I’ll talk about how we can quantify that value and the results we think we can achieve.”

Connie’s post has a great list to work from for that case. But…more on that in my next post.

Oh, yeah. the picture at the beginning of this post. And the title. Susan Powter, people! Stop the insanity!!!