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:
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.
Let me make one thing perfectly clear – I belive that Social Media provides the best opportunity for opt-in targeted marketing. But when the Signal is so clogged with marketing and/or spam that adds zero value the only effect will be user apathy.
Brian Roy 