What Are Alternatives to Social Media ROI Metrics?

We're excited to welcome guest blogger, Chris Treadaway, today who wanted to respond to our blog post from last week about the Value of a Facebook Fan.

Measuring social media success has been a hot button issue since the first business spent the first hour on social media engagement. Often times, pundits will point to return on investment (ROI) as the #1 thing to measure and for good reason. Most companies have their fair share of zealots and skeptics. Zealots are looking for more reasons to innovate and spend more time on social media, while the skeptics are looking for reasons to stick with what has worked. ROI is a universal language of business performance, but a bar that may very well be too high and arguably too simplistic for the value of social media marketing in 2010 and beyond. Fortunately for marketers, social media provides a wealth of statistics and metrics that can help people assess their progress.

Organizations of all types (corporations, non-profits, government agencies, etc.) can better assess the value they can derive from social media by breaking down the components of ROI to focus on goals that are more directly attributable, achievable, and objectively measurable. Let’s break down the individual elements of ROI to see where we can show the impact of our efforts.

For me, ROI all starts with a simple equation – does the value of what I’m getting exceed costs?

If Total costs < Total value, Positive ROI

If Total costs > Total value, Negative ROI

Simple, right? Not so fast. It’s all about how your business defines a few key terms – total, costs, and value. Let’s dive in to help you create a report out of the metrics that truly matter to your business so you have an ongoing framework for measuring social media success in your organization.

Cost

- Salaries – % of time spent by salaried employees involved in management, maintenance, reporting, and upkeep of your social media presence.

- Agency fees – costs associated with outsourcing parts or all of your social media work (strategy, maintenance, manpower to execute tactics, etc.)

- In-house content, creative, and maintenance costs – personnel and equipment necessary to keep your social media presence interesting and fresh for visitors.

- Direct demand generation spend – money spent directly on social media advertising and demand generation campaigns that point to social media assets.

- Other indirect and unexpected costs – money, time, and resources devoted to other operational details and/or custom software necessary for social media execution.

Now there are certain variables that can affect the cost part of the equation. Do certain sunk expenses “not count” when determining your ROI? For example, you may have a marketing manager who needs something to do 15 hours per week. You aren’t going to fire that person, so he/she needs something to do anyhow so you’ll assign him/her to 15 hours a week of work on your social media presence. Those of you in large organizations may find yourself at the end of a fiscal year, but having a few extra dollars that you can spend because other initiatives didn’t happen as/when you expected. Other sunk costs are content that you’re creating for another purpose, agency or consultant fees that you’ve already committed to spend, brand assets, product documentation, or content that may never otherwise see the light of day. Some organizations want an airtight accounting of costs, while others are more willing to look past sunk costs.

Value

- Measurable & incremental sales – revenue directly attributable to social media execution via coupon code, cookie, or other objective statistical measurement.

- Customer Insight – knowledge gained by interacting with individual customers who have the ability to communicate with and/or about your brand.

- Customer Satisfaction – improvements in metrics that tell how happy customers are with your brand, product, or service.

- Current & future engagements – growth in number of fans/followers; lifetime value of a fan, follower, consumer, or other entity that agrees to receive ongoing social communications from you.

- Social recommendations and other viral benefits – willingness of people to say good things about a product or service that other people can read and/or act upon.

- Market segment execution – improvement in operations that affects certain demographic, cultural, geographic market segments.

- Domain expertise – your organization’s ability to efficiently launch new campaigns in the future or keep from launching bad ones.

- Accrual to other marketing efforts – willingness of people to engage with your organization via other marketing efforts (e-mail, web site, mobile, etc.)

- Goodwill – the long-term value to your brand of effectively using social media to reach customers and doing it better than your competition.

The challenging thing about assessing social media value is that many of these simply can’t be measured with available tools and information. For example, what is the lifetime value of a Facebook fan? Well, that depends on a lot of things that we don’t know yet. Is Facebook going to grow to 1 billion users or will it be usurped by a competitor? Will people continue to spend 55 minutes per day on Facebook in the future or will that number diminish over time? Depending on your assumptions and your line of business, I could make the case that the value of a Fan is $0 or $1,000. In other areas like demand generation, hard metrics are available and an ROI for that specific activity is available. But it is at best a piece of the puzzle for most marketers active on social media.

Another complicating factor in assessing success is how overall success can be attributed to other external criteria – how products and larger ad campaigns perform can have an impact on social media as a byproduct. Often times, the value gained through successful social media execution is all too subjective but we’re expected to produce objective numbers. Beauty is in “the eye of the beholder” – and that beholder may have an agenda that is favorable or unfavorable to social media marketing. That beholder may be simply looking for that bottom line ROI metric that more often than not calls into question assumptions and guesswork.

The good news is that the wealth of metrics in and around social media gives marketers an opportunity to frame the conversation in a variety of ways when reporting to executive management. If you can’t (or don’t want to) discuss the comprehensive ROI for your social media program, odds are you can talk about other benefits that help your organization. Select from the metrics above that truly matter to your business to show your progress. Many people focus on ROI because they want to show that social media is valuable. But success comes in many different forms – direct revenue, customer satisfaction, knowledge, customer engagements, and goodwill. Take control of how you tell that story and focus on the things you can control. Odds are your executives will appreciate the education and will share their expectations for the future in the process.

Chris Treadaway is founder and CEO of Lasso, a hyper-local advertising platform for media outlets and small businesses. He is also the author of the book Facebook Marketing: An Hour a Day. He is on Twitter @ctreada.