Leading Experts Discuss Social Media ROI

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This discussion of Social Media ROI is an extract of the interviews conducted for my master thesis on Social Media Business Usage with some of the world’s leading experts on social media.

You can find the first part of the interviews here: Are Your Marketing Efforts Really Aligned? World’s Leading Experts Answer.

The questions are preceded by my initials KCP, Kelli-Carolin Parkja, and the experts’ answers are indicated with their names. To contact me, write to me on Twitter @kellicarolin.

The interviewees:

The best measurement is that sales will increase. – David Meerman Scott

KCP: How do you measure the ROI of social media activities?

Andrea Colaianni: People are trying to find a way to measure the ROI of social media, but it is a big mistake. Because today, the economy is not the same as 50 years ago. At those times, when a person got a message, the company knew how much money they could have back from him. Today, communication means giving substantial importance to the engagement, to the corporate reputation, and to the brand reputation. Trying to measure the ROI is like thinking in a different kind of a funnel. Today the funnel is liquid, so the ROI is more like a ROE – return on engagement more than return on investment. We have to find the main elements to measure social media – what is engagement and what is really influencing the client-side behaviour. For example, estimating, how much an effort on Facebook costs is very important but one also needs to consider, how much he will lose, if he does not use Facebook. When the client is very engaged or a call-to-action works – these are the points that we really have to focus on.

David Meerman Scott: The best measurement is that sales will increase. But I am not a fan at all of measuring social media in the same way that people have measured other forms of marketing. I think that it gets marketers into trouble. In traditional marketing, people would measure the ROI, particularly in B2B companies, in terms of the number of sales leads. The problem is that when you are looking at a sales lead as a metrics then it requires that you have sales people to close those deals. It also requires that in some way those people will have to sign up to become a lead, they have to give their information to you. Too many people in their online channel insist on requiring email addresses for their content and other ways of registration in order to generate so-called sales leads in their online marketing. That is a terrible mistake, because it means that you are actively discouraging people. You are actively saying to them,”I don’t want you to download my stuff,“ because you are requiring their email address. The things you need to measure, are the places where you appear on the search engines. You can increase your appearance on search engines by creating great content. You can measure the amount of people that are interacting with your content. You can put an alternative secondary offer into the content, so people can sign up for something else after. All these are ways of calculating a return. But I think that using the same methods that we were using in the past is a very bad idea. The other thing that I would mention is that many of these social media tools are free, they don´t cost any money. So traditional forms of ROI calculation also don´t make sense because we are not talking about something that costs money. It is free to create a Youtube video, it is free to do a Twitter feed and it is free to create a blog. All the ROI tools that were created in the past, were created to measure the numbers and the amount of money that was spent. You do not have to spend any money in social media.

Jay Baer: People get really confused about this, but you measure it the same way that you measure the return on anything else. It requires you to have some sort of traceable action. The challenge is that a lot of companies want to measure ROI, but don´t actually have a behaviour that is traceable. Unless you are driving people to fill out a lead form, make them buy something or do some other action that you can actually track, then there is no way to measure ROI. You can measure other data points, without a traceable action, but not ROI.

The challenge is that a lot of companies want to measure ROI, but don´t actually have a behaviour that is traceable.  – Jay Baer.

A good example of a measurable behaviour is a company in the US called California Tortilla. They are a small chain of Mexican food restaurants. They do things on social media, they say on Facebook, for example, “Today´s secret password is “fresh”, come into any restaurant, say “fresh”, and we will give you a free side-order of chips with any burrito purchase.” Before they put that on Facebook, they tell all the store managers about that and the store managers tell the people who work at the counters that take the orders and the money, so they also know. Somebody walks in their restaurants, says “fresh”, and they give them the item and they put it in the cash register like a coupon, because it is an audio coupon, the same as you if had it on paper. Then they can report that – how many times somebody said “fresh” in each location and how many were redeemed on that specific day. Then they have a different password on Twitter. So they know, how many came from Facebook and from Twitter and they can then count, how many people walked in their stores and what they bought. It is very traceable as long as you have an action that you put a tracking mechanism against. Most people say that they don´t have anything – they are not tracking anything, they have no tracking url, they have no lead-form, they have no behaviour, they have no e-commerce. But what they want to do, is tweet all the time, and they want to know how much money they make with that and then it gets difficult. At Convince & Convert, we look at the time spent on social media activities, and then compare that to revenue generated via leads that come from social media directly or indirectly. It’s not a 100% perfect calculation, because we’re a professional services company and the “funnel” is non-linear, but we have a pretty good handle on what works.

KCP: What about making the social media ROI meaning it broader?

Jay Baer: There are other benefits of social media, beyond straight financial return. There are a lot of other success metrics that make sense. Social media has impact on customer service, on customer loyalty, that can be measured, that should be measured. You can use social media to generate tremendous amounts of customer insight in market research, there are dollars associated with that potentially as well. When people say that they do not need ROI and that the engagement that they have in social media makes it worthwhile, then that is not true at all. People who believe that, are not good at mathematics, they don´t know how to figure it out so they will just assume that it is not valuable.

KCP: How do you measure the ROI of social media activities?

Jen McClure: That changes depending on which function we are talking about. With regard to our externally facing marketing communications, we look at not only the growth in our following. That is one indicator, that people are continuing to follow us, what is great as it means that we are doing something right because those numbers are growing. But this is a very-very small piece of the story. We are also looking at engagement levels. For example, are people having conversations with us that we put out there, are they asking questions, are they responding to a poll on Facebook or joining a group so that they can engage in a discussion on LinkedIn, are they retweeting one of our tweets or commenting back to us or using these channels to communicate with us to have a relationship with us. Those are more important to us to understand. The Holy Grail is that how does that drive to the bottom line, to the results. It is great that we have improved the relationships with our customers, but is that leading to increased sales? I think that is still the Holy Grail, the missing piece of a lot of our ROI discussions. The tools to do that in a really automated fashion don’t exist yet. Sometimes there are really apparent ways, for example, when you have a conversation with someone that says, “thank you for answering that question, now I will buy your product”. Usually, by the time you get to that part of the conversation, they have pretty much made their decision, they are just looking for one missing piece of information. 60% of the buying decision has been made before customers ever really talk to you. So we can only enhance the number of ways that our prospects have to talk to us and by doing that, hopefully you are closing the sale more quickly or you are closing it more often. But creating that really distinctive link that you can report on, is still difficult.

Note: at the request of Jen McClure and Michael Hopps, the author points out that the answers by these two experts do not reflect the answers of their current employers but are based on their professional experience.

Michael Hopps:I would like to emphasize that most new companies who start engaging in social media activities, focus on numbers. They first focus on the quantitative data, like the number of “followers” or “likes” or “fans”. I believe that any sort of numeric value is only one piece of the puzzle, and I would definitely recommend companies to look at qualitative attributes when measuring ROI. Qualitative attributes mean for example looking at conversations and looking at social mentions. We can also gather from an eMarketer study below that among U.S. marketers regarding social media marketing ROI metrics, “social mentions” are a very popular way to derive customer feedback from the social web, and also an efficient way to analyse sentiment and other qualitative data. ROI can also be derived from future customer purchases as a result of successful social CRM practices.

Cisco takes social media engagement very seriously, we have a great PR team answering questions and addressing questions on the run. My role at Cisco involves the delivery of social media listening and monitoring intelligence and enabling these teams to address different issues quicker. This includes a mix of quantitative and qualitative measurement practices.

Note: at the request of Jen McClure and Michael Hopps, the author points out that the answers by these two experts do not reflect the answers of their current employers but are based on their professional experience.

Peter Kim: We measure the ROI of social media the same way that we measure the ROI of any marketing activity. There are both fixed and incremental costs that are involved, there are people that are involved from the client´s side in terms of who creates the campaign, who creates the strategy, who has to manage the roll out and execute the tactics. Things like salary and overhead, that are fixed costs, will be certainly calculated into social media ROI. Then there are incremental costs, for example, different forms of media, buying placement in channels or paying for placement or presence in particular platforms. All these investments always go to the costs’ side, then return is the traditional, it goes into one of the business results that are driven by these campaigns and by these investments. We started two questions ago with sales and results – how do those measure up against those expenses – that is ROI. It can sometimes be difficult to directly connect sales to social media. Then the question is, what is the outcome we are trying to get to with our social media campaign and how does this outcome lead at some point to a business return or a sales return. That is how you create your classic ROI equation.

KCP: How should we approach the ROI, should there be a new definition in social media’s case?

Peter Kim: Without trying to determine ROI, without focusing on ROI, there is not much point in doing social media, even for a non-profit company. As for any activity, when there is no measurement, then things are difficult to manage, there is no sense in business. There is no reason that a business wants to undertake an activity that can not be managed.

KCP:Is there one specific formula that you use and if yes, what is it and why do you use it?

Andrea Colaianni: The value, especially for our clients, is on effect, on real effect. That means that we merge qualitative and quantitative data. For example, we merge the data of a number of breakdowns of conversations, quality of these kind of conversations and which kind of engagement people have with a specific message. So more specifically we find out, how many shares, how many comments, how many likes there are, and also who are the people involved in the conversation, who is already an influencer and who is a customer. We try to define, what the universal customers are doing, whether they interacting with the brand and what kind of conversations there are. When an enterprise gains specific results and data – qualitative and quantitative – then it can reply and help its customers.

David Meerman Scott: There are metrics to define how many people are interacting with your content and where you appear in the search results, and those are very important metrics to look at. Ultimately, the most important metric is how well your company is doing. That means to look at whether you are making sales and whether your market share is growing compared to the competition, and you can measure that too.

Jay Baer: ROI is return on investment, there is not a question what that is, it is not open to interpretation. Return on investment has been defined for decades, it is a mathematical formula of how you actually calculate return as a percentage. It is not what you want to call it, it does not work like that. ROI is always return minus investment divided by investment expressed as a percentage. Every business school textbook in the world will tell you the same thing, because it is a formula. Like the Pythagorum theorem, for example, its not what you want the formula to be, it just is.

It is not what you want to call it, it does not work like that. ROI is always return minus investment divided by investment expressed as a percentage. – Jay Baer

KCP: Why do you think we have gone wrong with this, in terms of marketing and in social media?

Jay Baer: This is going to sound really basic, but I believe it to be true – the problem is that a lot of people, when they say ROI or return on investment, they don´t mean that specific mathematical formula. What they mean, is success metrics, and those two things get interchanged all the time. You see it every day in blog posts, in magazine articles. People talk about ROI, but what they really mean, is success metrics. Because ROI is a particular metric, it is one thing and that creates a lot of confusion in the marketplace. There are other ways to measure success, other than ROI. ROI is one metric, like temperature is a metric. There are other ways to determine what the weather is beyond temperature, but temperature is one of the ways to determine what the weather is.

KCP: Is there one specific formula that you use and if yes, what is it and why do you use it?

Jen McClure: I don´t think we have the tools yet in our disposal to do that well. ROI is still being looked at with mostly the tools within social media platforms. In order to pull together a report that we do, we will look to Google Analytics, we will look to the tools within Twitter, in LinkedIn, within our blog, to see what our growth numbers are, what our engagement numbers are. We pull multiple threads together and then we also use a tool called Radian6, which is a social media monitoring tool. That is where we get the qualitative, where we can really look at the conversations and over time we can see, whether there are more conversations around our brand, what is the sentiment around our conversations, around our brand, how are we trending, are people talking about things that we do and seeing that Thomson Reuters is an important participant in their conversations. So we do measure that way, we measure ROI as investment in conversational marketing and those tools. But true ROI, meaning is it affecting our sales figures, this is still something that we don´t have the means to do.

Michael Hopps: Once again I have to specify, that I am not speaking on behalf of Cisco. I believe that these 3 metrics, provided by Sudha Jamthe at eBay, champion the ROI formula very well:

  1. Social media revenue conversion measures how many people become customers through social media referral channels.
  2. Facebook engagement measures a brand’s ability to communicate successfully with their customers on the social network.
  3. Social customer support metrics measure the impact of customer support on brand health and the cost of staffing a social support program.

Source Gigaom: 3 accurate metrics for ROI on social media campaigns

I would place additional weight on item #3 pertaining to “social customer support metrics”, that includes pulling in qualitative insights, addressing the customer, looking at and analysing sentiment and looking at positive and negative conversations across the social web. As a baseline ROI framework, I would focus on these three methods in terms of good ROI metrics and branch out to others customized to your company’s needs and desires.

Peter Kim: Any specific formula depends on each particular platform. When you are looking at what is the ROI on Twitter for example, then we know that the influence in paid products like promoted tweets or promoted accounts or paid hashtags. There can be a very definite formula in terms of inputs and results that you expect. The results, that someone would look on Twitter, would be exposure and clicks, that then need to be tied into sales or other activities. On Facebook, the activity of a fan or a friend, a click on a timeline story, that sort of things. Those equations can be very specific, they should be, because platforms each have individual dynamics. We take out ROI from there and that is when it starts to get more generalized and we would look at this depending on whatever sort of model your business traditionally uses to measure ROI. Whether it is a different kind of a cash-flow model or a simple model to calculate ROR or a some other simple revenue-expense spreadsheet, that is when you have the same sort of technique that you would use to measure ROI of any marketing campaign.

Next extract of the interviews will cover the most efficient metrics and most common mistakes of measuring ROI/ future perspective of social media. Don´t miss it… Sign up for our social media news and we’ll let you know when it’s ready!