Social Media ROI – The Believers and Non-Believers

It appears the Social Media ROI conversation is heating up – and predictably it has split into two camps, the Believers and the Non-Belivers.

The non-belivers are adamant that you simply can’t value conversations. The believers say you can because relationships are valuable. They are both wrong (and right).

Let me try to clarify things – conversations have zero tangible hard value – you can’t put a specific dollar figure on the value of any conversation. In that respect the non-believers are correct. The believers tell you that conversations are valuable because they affect some other valuable thing – and they are correct (however they insist on pointing to the wrong affected things).

Here is a great example:

Shel Israel – who is very bright and who I have immense respect for – is one of the non-belivers. KD Paine – of whom I have no previous knowledge – is one of the believers (at least for the purposes of this post).

Ms. Paine wrote a post taking issue with Mr. Israel’s assertion from his blog that there is value in conversation that can not be measured.

The way to measure the value of conversations is to first measure the degree to which people trust you, and the degree to which your stakeholders are satisfied and committed to your relationships. Find out just how valuable people think those relationships are. Then start a conversation and measure how much MORE valuable people think the relationship after you’ve been talking with them awhile.

I think we would all agree that these statements are accurate – but do they assign hard value to conversations? No, in fact this is simply a list of other intangibles that conversations affect. Ms. Paine lists tangibles (i.e., lowered costs across several functions) but never comes out and says that conversations lower costs in functions x, y and z.

It isn’t that Ms. Paine is terribly far off – it is just that she refuses to make a well formed argument that translates to a hard dollar ROI. She simply refuses to connect the dots and commit to a hard dollar outcome from her “conversations”.

On the other hand, Mr. Israel posits this thought experiment via Tweet:

Screen shot 2009-12-17 at 9.00.19 AM.png

Screen shot 2009-12-17 at 9.00.42 AM.png

Mr. Israel makes the opposite mistake – he is essentially telling us that unless you can directly connect an action with it’s effect you can’t call it an ROI. If that were true about 85% of corporate spending would stop today.

So, just for fun, I’ll complete Mr. Israel’s thought experiment:

First let’s figure out the investment:

  • Assume you need 12 pair of pants that cost $125.00 each – total cost of pants: $1500.00
  • Pants maintenance (i.e., dry cleaning) costs of $18.00 per week – total cost of maintenance: $936.00
  • Total sunk cost for pants (for one year) is: $2436.00

Now, let’s talk about the return side of the equation:

  • Assume an average deal size of $25,000.00
  • You take 42 “business meetings” per year and you currently (wearing pants) convert 62%.
  • That means you win 26 deals per year @ 25k each – for a total of: 650k/year

Here is where the fun begins:

  • Let’s make the conservative (and if you disagree with this being conservative please speak up) estimate that not wearing pants to business meetings would lower your conversion rate by 8%.
  • Now you only convert 54% of your opportunities.
  • You now generate 22.5 deals per year at 25k each – for a total of: 562k

Net change in outcome metric: -88k

ROI on Pants – for an investment of $2436.00 you (conservatively) generate an additional $88,000.00 per year. That is a return of 3600%.

Then non-belivers will read this an suggest that there may be hundreds of reasons that you didn’t win those deals – and they’d be right. But that isn’t the point. The point is that the proximate cause of losing those deals was – with a very high degree of probability – the fact that you were sitting in the meeting with your junk hanging out.

ROIs are built on proximate causes the vast majority of the time – and that isn’t a scam, it simply reflects the reality that most of the things we do directly affect input metrics, not our hard dollar output metrics. In other words, we do things to improve important measures that have no direct tangible dollar value because those metrics have a proven affect on measures that do.

The takeaway here is that we should stop trying to assign hard dollar values to Social Media metrics/measures and get busy showing how they affect the hard dollar metrics for your business.

10 thoughts on “Social Media ROI – The Believers and Non-Believers

  1. Brian – Shel appears to be trying to measure the wrong thing, and maybe KD is as well. The outcome (measurable and otherwise) of social media can be a number of things – a conversation only being one of them.I think the people at ComcastCares show a measurable return by using social media to decrease support calls and Dell has stats suggesting they have sold something like $6M in hardware from their social media efforts – one is a cost saving, the other is lead generation, connected to sales revenue. If anyone thinks Gary Vaynerchuks company would have grown from $4M to $50M withOUT social media marketing tactics, just ask him if HE thinks so.I most often see the ROI conversation brought up as a red herring, deployed to keep an investment in place or to tear one down, depending which side of the discussion you are on. I have a much better time positioning ROI in a much more positive light, as a business person / marketer interested in helping people make a good decision on what and where to make a social media investment – and in that discussion it's always about how to show income and cost data related to the effort.

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    1. As you point out (and as I did a previous post) you have got to know what outcome you are trying to achieve. Social Media is extremely measurable – and ROI shouldn't be a problem at all. What I'm reacting to is the “well, it isn't really important that we are able to ROI this… you should just do it because it worked for…”

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    2. You are a 1000% correct Steve. People who say “there's no ROI in social media” are essentially looking for an excuse not to do it. To which my response is GREAT! that's one less company that doesn't get it. They'll all be out of business soon anyway, eaten by their more nimble and flexible competitors.

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      1. I actually believe it is more complex. Most companies (in my experience) are looking for guidance and help with ROI. It is the Social Media practitioners (i.e., experts) who suggest that social media activities need not be held to an ROI that trouble me. My take is that there are two things involved:1) They don't want to be held accountable for specific measures of success.2) They want Social Media to “fundamentally change how companies do business” – which, for them, impies that they should do it regardless of ROI.

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  2. How can you say that Sodexo's saving of $300K in recruitment costs as a result of joining the conversation on Twitter isn't a hard dollar ROI. Or that @DellOutlet sales aren't a hard number. Or that Humane Society's cute puppy contest on Flickr that generated $650K in revenue isn't a hard ROI? I've measured increased market share, sales, cost savings and revenue raised via social media, so to imply that I “refuse to connect the dots and commit to a hard dollar outcome from her “conversations” is flat out wrong.

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    1. KD – I was very careful in my post to call out that I have no in depth knowledge of your position “KD Paine – of whom I have no previous knowledge – is one of the believers (at least for the purposes of this post).”This post was a response to those who throw up their hands and say either we shouldn't have to ROI Social Media or that it can't be done.I certainly was not suggesting you fell into that category.

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  3. How can you say that Sodexo's saving of $300K in recruitment costs as a result of joining the conversation on Twitter isn't a hard dollar ROI. Or that @DellOutlet sales aren't a hard number. Or that Humane Society's cute puppy contest on Flickr that generated $650K in revenue isn't a hard ROI? I've measured increased market share, sales, cost savings and revenue raised via social media, so to imply that I “refuse to connect the dots and commit to a hard dollar outcome from her “conversations” is flat out wrong.

    Like

  4. You are a 1000% correct Steve. People who say “there's no ROI in social media” are essentially looking for an excuse not to do it. To which my response is GREAT! that's one less company that doesn't get it. They'll all be out of business soon anyway, eaten by their more nimble and flexible competitors.

    Like

  5. KD – I was very careful in my post to call out that I have no in depth knowledge of your position “KD Paine – of whom I have no previous knowledge – is one of the believers (at least for the purposes of this post).”This post was a response to those who throw up their hands and say either we shouldn't have to ROI Social Media or that it can't be done.I certainly was not suggesting you fell into that category.

    Like

  6. I actually believe it is more complex. Most companies (in my experience) are looking for guidance and help with ROI. It is the Social Media practitioners (i.e., experts) who suggest that social media activities need not be held to an ROI that trouble me. My take is that there are two things involved:1) They don't want to be held accountable for specific measures of success.2) They want Social Media to “fundamentally change how companies do business” – which, for them, impies that they should do it regardless of ROI.

    Like

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