Why Social Media ROI Is A Compass And Not A Green Light

Posted February 9, 2009
22 Comments

When most organizations discuss new initiatives, an ROI (Return On Investment) analysis is often one of the very first steps. Investing in an ERP system? How will this new system streamline processes and add cash to the bottom line?

This makes a lot of sense. However, with social media initiatives, ROI shouldn’t be used to determine IF you should do social media.

Go west, young man!

Not to say that ROI is not important, because it is. It’s just that social media measurement is better utilized with as a compass rather than a green light.

If you head west from Boston and keep going, you will hit California. On the way, you’ll use a compass to stay on course, but determining the exact route in Colorado won’t help you if you’re still trying to get us maponto Mass Pike from Boston. Social Media is like this, only imagine new roads being built in each state as you drive – you kind of have to figure it out as you drive. But you will hit California – if that’s where you want to go.

Folks questioning the business value of social media might want to think about it differently:

Take social media out of the conversation

  • What’s the return on shaking hands with your best donors and giving them a sincere “Thank you!”?
  • What’s the return on getting to know what’s personally important to your fans (their families, dreams, favorite TV shows)?
  • What’s the return on supporting another small business or non-profit in their goals?
  • Would there be value in helping your best donors become fundraisers for your non-profit?
  • How about if people could find you much easier in a search on Google?
  • And what about consistently providing useful information for free?
  • How about the numbers game? Would a 4X increase in web traffic mean more money?

These are some of the things that just make plain business sense.

Over a year ago, Beth Kanter wrote:

“It’s Hard To Put A Dollar Amount On Priceless. It can be difficult to put an actual value on the intangibles of social media. Think about the Master Card commercial illustrated here. Some of this depends on the organization’s investment tolerance culture.”

What do you think? Given that ROI measurements are important, when and how should they be used with social media?

If you found this post useful, please leave a comment, subscribe, or find out how I can help your non-profit. Thanks.

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  • Great conversation starter, John! What I see most often is nonprofits in this situation: There is one or a handful of staff who feel prepared to champion new technologies; executive/leadership has given enough of a green light to at least try a few things out; something is in place (whether it's a page on facebook or a campaign with justgiving or a group on Flickr, etc.) - but now they want to measure it.

    The group can say how many people are in the Flickr group, but does that number really convey the value of the group? Maybe there are 50 people in the group (and millions using the tool) so the number seems small, but they are all posting pictures regularly, commenting, and creating community around the intersection of the nonprofit's work and their personal interests.

    That's where the Mastercard commercial comes in. It's just so hard to measure! I think there are a lot of smart people out there helping to shed light on this issue and charting the waters for nonprofits, like Beth and others. It's definitely one of those good problems to have: how to show your success!
  • Great post. You have a new fan and you could'nt be more right, your questions and comments simply make plain business sense. Thanks for sharing.
  • Your post is a good reminder to keep a balanced perspective when it comes to investing organizational resources and deciding on the measurements of those investments.

    We can measure things and use those measurements to help give us some indication on the value of what we've done in terms of input vs. output. But, I have found that it's the exceedingly small intangibles that make all the difference in fundraising: the extra time to write a handwritten thank you note, remembering how a prospective donor's spouse loves glassware, asking how a person's trip went, etc. These are things social media can help us do better.

    When it comes to measuring social media's return, I think we all have to factor into the equation that we're going thru a learning curve in determining how it integrates with existing activities. I have observed by coaching second-grade basketball that learning is very messy, non-linear, frustrating, and full of joy.

    What's the ROI on my team's efforts? Do I measure it by the standards metrics of Points per Game, Rebounds, Assists, team score, etc.? I think those are helpful indications of progress, but not definitive. The true measure of their efforts is the intangibles of confidence and personal growth.

    Now, this is not an attempt at a cop-out on ROI. I do believe showing hard statistics is important. But I believe we are still very early in the learning curve, figuring out mostly what we don't know. In short time, we can see the aggregate growth and progress we make. That's when we will know which measurements really matter and which were red herrings. Until then, let's embrace the messiness of this curve and keep bringing the intangibles.

    @scottyhendo
  • This post makes the more important point of all about social media. It's not only about numbers (friends, updates, clicks, ROI). It's about being you and helping others along the way. In the end it's the best ROI you can get.
  • Amy, Scott, Jeff and Dawn - thanks for the comments. You've really added to the discussion here - and I'm learning a few things in the process!

    I wonder if anyone's ever done an ROI on ROIs?

    John
  • The things you list after "Taking Social Media Out of the Equation" are the kinds of things you could identify as changes you can cause - why not make that part of the ROI equation?

    Focusing only on ROI in terms of $$'s is shortsighted in my opinion. The "priceless stuff", things that are often related to as "intangibles" may not be measurable in terms of direct cause and effect with $$'s, but changes in conversation, behavior and relationship are observable and can be valuable indicators of long term success (or failure). Seems to me we need to get much better at defining, including and measuring key observable changes if we are to consider the whole picture of ROI.
  • @Susan - Great points.

    What I meant when I said "Take Social Media Out of the Conversation" was to focus on the value of particular business results instead of "social media or not".

    Social Media can impact all of these results - depending on how smart and hard you work social media. People don't analyze the ROI of exercise before joining a gym. But they could measure the results of their efforts along the way.
  • @john ... nice conversation going on here.

    @JeremiahOwyang has a bit to say on the subject.

    @JasonFalls chimes in on Social Media ROI.

    @BethKanter has a nonprofit slant.

    I think that ROI really matters from a business perspective even in the Nonprofit world. Without knowing why we are doing SM and what we want to get out of doing SM we have no way of knowing if we're accomplishing anything or being successful in any way.

    That said, as you stated in your post, what nonprofits measure may be different than what coorperations measure - in fact the measurements should be different.

    What are the correct things to be measuring though?

    ---
    http://twitter.com/franswaa
  • @Frank - Agreed - clear goals make the whole trip more valuable for everyone: "We're all going to California!"
    What should be measured? There are quantitative data points: traffic sources, search hits, bounce rates, conversion goals met, retweet quotient, conversation quotient, unique and repeat visitors and so forth. And then there are qualitative: Quality and depth of conversation, converting folks into fans (tribe), social capital, partership development, knowledge acquisition about community and industry.

    If you think about it, most of these measurements should be used to guide tactics and/or strategy rather than trying to answer: "Is social media worth our time."
  • It's interesting to see what I wrote a year ago and how my thinking has evolved since writing a chapter on traditional ROI processes and nonprofit technology investments like larger CRM systems or IT.

    I think in the early stages it doesn't make sense to subject a social media to the traditional ROI - but you still need to measure it in some way for improvement. Once mature .. you may reach the point where you can look at a traditional ROI process -- e.g. benefits - tangible/intangible, translated into a value with metrics, and then a financial equation (e.g. net gain, opportunity cost, etc)

    See:
    http://beth.typepad.com/beths_blog/2009/02/at-w...

    http://beth.typepad.com/beths_blog/2009/02/riff...
  • @Beth - Yay - thanks for the input here. Almost like a "3-Stage ROI Lifecycle":

    1 - "early stages it doesn’t make sense to subject a social media traditional ROI"
    2 - "but you still need to measure it in some way for improvement"
    3 - "Once mature... then a financial equation (e.g. net gain, opportunity cost, etc)"
  • This is a great conversation that is unfolding even as we speak. Check out my blog on getting sales using LinkedIn.

    www.captureprofits.com/blog
  • I like the 3 stage break down, but worry it could lead to under investment and then write off as non-productive. NFP's are starting to dabble in SM, but because they can't justify expenditure when they start they do it at practically no cost under the budget radar - that's fine if it works, but if it fails for lack of expert input then the result may set back the charity years. If you apply the compass model, it may be hard to get right budget support when starting out, unless you can argue the intangibles are worth taking a loss for.
  • @Charles - Totally agreed. My point here is that Social Media ROI is different than an ROI for enterprise systems. When some folks hear "ROI", they think: "Oh yeah, maybe we can use the same spreadsheet that we created for that CRM project..."
    But they are different:

    When purchasing a CRM system, one can use familiar metrics to calculate ROI (hours of labor saved, opportunity cost and so forth). With social media, you're dealing with a bunch of exponential and unfamiliar factors that will affect the result (a video spreading like fire on youtube, getting 1,000 people each month to donate $10 compared with getting 10 people each month to donate $10,000, the revenue impact of a deeper "connection" with your fans).

    You stated: "but if it fails for lack of expert input then the result may set back the charity years". It may be wiser for an organization thinking about social media to focus on developing specific goals and assess existing resources and expertise.
  • I couldn't agree more with that summary - thanks John and Beth for the highly sensible steer.

    And thanks, all, for an interesting debate.

    A few people have touched on it here, and I think it's an important point: to consider what you are going to measure and why (which are likely to be different for every organisation), rather than necessarily trying to shoehorn social media activity into the same models for evaluation your organisation has been using to monitor and measure 'traditional' activity.

    This makes the assumption that the ways ROI has been measured traditionally are the best, and most meaningful ways, and that these are useful models to apply elsewhere - when my experience tells me that many organisations did not take a broad enough view, integrate sufficiently well, or necessarily even measure the right things, before social media were in the picture.

    It also implies to many a financial cost to income ratio model, which I find too simplistic a measure for social media engagement. I do understand, however, that this will be the kind of evaluation many organisations will want to make when deciding whether to invest in social media activity. I think that makes it all the more important to push the 3-stage ROI lifecycle point, and to understand and explain that it probably won't ever be that meaningful to measure ROI for social media activity as a simple financial equation, in the same way we traditionally have for customer/ supporter relationship marketing.

    I often think social media are acting as a catalyst, challenging organisations to better evaluate - in the round - the impact and value of their efforts and think about how they measure the true ROI of any activity in terms of its contribution towards achieving their missions, rather than be hung up on the somewhat shallow measures such as volume and income - since these are often so misleading anyway.
  • @Rachel - I love this: "consider what you are going to measure and why (which are likely to be different for every organisation), rather than necessarily trying to shoehorn social media activity into the same models for evaluation your organisation has been using to monitor and measure ‘traditional’ activity."
    And this:
    "It also implies to many a financial cost to income ratio model, which I find too simplistic a measure for social media engagement."
    Thank you!
  • I blog largely on the impact of social media on direct sales from a corporate point of view, and the need for direct selling companies to begin to engage their distributors on the use of this media. I think your post makes such a good case for how standard metrics fail to take into account the necessity of social media. It's hard to quantify the value of relationships and networking, yet this is the foundation of direct sales. It will be interesting to see how the case will finally be made for executives that are largely torn on the value of social media for their sales force. I think, sadly, that it will take the extinction of the traditional sales model before some executives actually get it, and that's because of the issue you bring up...traditional ROI measurements cannot be used to fully express the value of social media for any company.
  • Good dialog about ROI. We are getting started with these tools at Coastal Community Foundation. We’re building relationship by finding friends and fans on Facebook. I’m learning a lot professionally by using Twitter and try to put out helpful info along the way. We’ve started blogging on issues we care about. Will we see a huge surge in donations immediately? Maybe not, but I think we’re off to a good start in building awareness in our community and I’m okay with that measure, as subjective as it may be.

    @TinaArnoldi
  • This is a great discussion, reminding me of one I had with a foundation president about 10 years ago. He asked, "So, do you think fundraising on the internet will catch on?" My response was, "Do you think calling donors on the phone caught on?" The telephone was once a new twechnology that few possessed or understood. But we don't think of the phone as a tool that raises money independently. It's just one of the ways we connect with people who share our convictions/concerns/interests.

    When I first work with a client, I ask, "what is the best way to communicate with you?" and am often surprised by the answer. Some people are online-holics, some say fax (go figgur!), some only respond to phone calls, etc. The immediate ROI might be, "How many donors (which?) would you lose if you aren't using social networking regularly?" I actually think that's pretty quanitfiable, as most non-profits have to describe their donor/constituent profiles in foundation proposals. Similarly, "How many/which donor circles from your constituent profile will respond if you do cultivate them in this way?" Again, in fundraising at least, we assume that each donor can, when motivated, leverage another 4-5 to the cause.

    The other ROI I think could be useful is regular benchmarking. If we know what similar mission/size/operating budget non-profits are achieving with social networks, we can see whether we are ahead/behind/beside... with some numbers. Fundraising is quanitfiable and measurable, certainly, but it is a measure of the harvest, not what was planted 9 months ago and nurtured every day since. I am a big fan of starting small, as then you can make your mistakes, develop your style, in a small arena, and make wiser decisions when you expand.
  • @Val - Thanks for your thoughtful comments. I can't wait until we are at the point where we can do meaningful benchmarking with social media results. Imagine the value in being able to slice and dice by industry and social media site?
  • Hi John,

    Great post - I absolutely loved it.

    Our organization is just getting its feet wet with social networking and we have primed our leadership for establishing 90-day strategies because of exactly what you wrote about above. And our first 90-day strategy is listening - how do you put an ROI metric on listening?

    For us, we haven't been "listening" so far, so the ROI will simply be the fact that we hope to have people engaged with us who are in an "OMG, so surprised that they're listening to us" mode. Hopefully, we can be successful at this.

    I hope in the near future, to have applicable metrics, but it is really tough to come up with what they might be at this early stage of the game.

    My mantra these days is that it is tough to be a pioneer:). I really appreciate your pointers along the way though. Keep 'em coming.
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