Yes Virginia, You Do Need to Determine a Social Media ROI
Thursday, December 3, 2009 at 10:21AM
I just finished an interesting article by Steve Woodruff who asked the question “ROI in Social Media – Where Does it Belong?” He launched his article by writing:
“What’s the ROI of Social Media?” I hear that question all the time, and it drives me crazy.
Huh. What drives me crazy is wondering why anyone would fail to provide a social media valuation to their executive team (just as you would for any other corporate initiative).
Steve wrote,
Social Media/Networked Communications are a fact of life. And, there are some things we do because we know that, in the long run, they make business better….
[T]hat’s why we should instantly dismiss the question, “What’s the ROI of Social Media?” It’s exactly the wrong question. Should companies be involved in networked communications? In every way that makes sense, yes – because it’s smart, it’s right, it’s where the people are. Now – what specific strategies are best, and what measurable tactics should be employed? That’s when we move into ROI territory (and that’s when you start reading The Brand Builder on ROI…).
Yeah, okay I buy that social media will become as standard as having a call center in the near future. But speaking as a business owner and former senior manager working for other companies, I still want to know the value of any capital expenditure before I open up my checkbook.
Lead with objectives and strategy
There are a few points where I’m in wholehearted agreement with Steve.
Start by defining your corporate objective. Companies need to look at their holistic needs and opportunities. And really, social media should be part of a larger social business objective and set of strategies. Remember too, social business/media is about much more than marketing (which is the only focus Steve mentioned). It’s also valuable for sales, customer service, and internal collaboration (or with partners) to name but a few.
Then you dive into tactics and the infrastructure you’ll need to support social business (as well as your other initiatives).
Why you need social media valuation
It’s not free
Here’s the thing. If a company is small and their social media strategy involves some tweeting here and Facebook posting there, then maybe they don't need to dive into an ROI analysis. Most of their costs will be 1 part-time person so the cost won't be high.
For a company like this, social media is a modest expense.
However, for a medium- to larger company the story can be different. For a comprehensive social media activities to support a social business strategy, the price tag will be much higher.
Personnel still cost you
First there's the personnel costs. In a medium-sized to large company a social media team can consist of:
- Executive with strategic responsibility,
- Manager with tactical responsibility,
- People to participate or monitor social media activities,
- IT to support technical infrastructure.
Add it all together and you can be looking at looking at an annual loaded payroll cost (pro-rated salary + bonus + benefits) of $100k - $200k...or more.
And if these folks are doing social media-related activities to support a company initiative, then they aren't working on other projects. What's the opportunity cost of those resources?
Technology costs for an comprehensive social strategy
The technology infrastructure to support a comprehensive social media strategy (beyond just involvement in Facebook or Twitter) will include any or all of the following:
- Incremental CRM seats,
- Social business platform (e.g., Jive, Lithium, etc),
- SCRM add-ons (e.g., Helpstream),
- Premium analytics (e.g. Radian6).
Implementation costs will be capital expenditures for many companies and ongoing usage costs can climb well above $100k per year for medium to large companies.
Mind you, there are lower cost community solutions that a medium-sized company may choose that will keep the annual costs below $50k per year – but it’s all relative. That will still be a high enough cost to pay attention to.
Time to get real
Steve makes a comment towards the end of his blog post…
"Then again, you can always take comfort in the return on doing nothing…"
Not engaging in social media initiatives is a perfectly valid corporate decision...especially if your company execs deem they can gain more value from other initiatives.
However, the only way to know that possibility is to determine a social media value in the first place.
All this takes me back to my original question of why wouldn't you expect a company's executive team to want to know an ROI they can expect to gain from initiatives that will cost them >$200k per year?
It's an unrealistic expectation to think company executives wouldn't require valuation on any corporate initiative that will carry chunky price (whether you're talking about social media, an investment in a new call center phone system, or expanding a manufacturing plant or what have you).
Coming soon
Free webinar - How to Determine Social Media and SCRM Value and ROI
Find out how to determine social media and SCRM value and ROI at a complimentary webinar sponsored by Pathlight Solutions, a subsidiary of Intellicore Design Consulting.
Date: December 16, 2009
Time: 12 pm EST (USA)
Presenters: Kathy Herrmann, partner, Pathlight Solutions (and Intellicore Design Consulting).
Click here to learn more.
Update December 10, 2009 - ValueRight Social Media launched!
Through Pathlight Solutions, a sister company, we released ValueRight Social Media today, a comprehensive social media and SCRM valuation (and ROI) tool that will allow companies to determine the value and ROI on their social media initiatives. It will determine:
- Cash flows of gains and costs of social media initiative.
- Net Present Value of social media initiative.
- ROI.
Learn more about ValueRight Social Media here.
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Reader Comments (2)
Kathy, I don't think we're too far apart in perspective, particularly in light of these two paragraphs from my post:
That’s why it’s silly to ask, “What’s the ROI of Social Media?” Instead, we should ask, “what’s the potential ROI of this or that specific social media tactic or campaign?” Because you don’t measure the ROI of an assumed cost of doing business.
You don’t ask for the ROI of a medium. You determine if that medium/channel/approach is going to be a viable and potentially profitable place to be. Then you create a strategy. Then you look at the harder metrics of ROI over time on a tactical level, while also seeking to measure “softer” and, when possible, harder $$ returns on the use of that medium over the long haul.
There's plenty of room for ROI measurement. But there also long-term thinking that says, "we need to pay the baseline price to get engaged if using these means to reach people is likely to be advantageous in the long haul." Some of that can provide measurable returns, but much of the baseline investment is going to provide indirect, long-term, harder-to-measure advantages over time. That's why I think measurement should focus on the smaller-scale initiatives where a return is more likely to be "visible" against a specific effort with a specific target audience.
Steve,
Thanks for your comment. We may have some similar thoughts in the big picture, but my readout, we differ widely in the details.
I disagree that you don't ask for the ROI of a medium. An executive absolutely should, especially if investment in that medium going to involve a capex.
Even if you deem a medium absolutely necessary (e.g., a phone system) you still have choices for Medium Option A or B. Part of the valuation process will be to determine which is the most economically viable for you to implement relative to your available resources and expected return.
In the case of social media, there's a big price difference in tech solutions. For example, the cost of Jive versus GroupSwim communities. A company might find its economic forecast for a social media program can't support a Jive solution but could a GroupSwim one. That's pretty material information to know.
As to waiting to determine your ROI over time, that's doesn't make sense to me. You're proposing that a company invest large chunks of money for something that it hasn't placed a value on.
Imagine making that argument for investing in developing a new product or building a new manufacturing plant and it falls apart. Social media isn't a special brand of corporate initiative that is exempt from good business 101.
And "soft" measures like metrics are leading indicators for economic value but are not ROI. The latter is always, always about money.
Sure social media forecasts have uncertainty. So do all investment opportunities. The answer is to make defendable assumptions and assign appropriate risk to the cash flow forecast. Then an executive has context to evaluate the initiative and give it a thumbs up or down.