Social Media ROI and ROMI
Social Media ROI is one of those “oh God will it never die?!?” subjects that engenders endless debate across the blog and twitterspheres, very often with seriously suspect results. It’s just a damn hard question to answer – how do you determine the financial impact of all that time, energy, and budget your organization is investing in tweets, posts, comments, podcasts, and so on?
In doing some client research on the subject last month, I found it useful to consider the subject in terms of Return on Marketing Investment (ROMI).* That helped me break down my understanding of potential Social Media ROI (smROI**) into two parts:
Short- and long-term smROI
Short-term smROI is loosely defined as when you use social media right alongside traditional demand generation elements within the marketing mix (think direct mail, email campaigns, etc). Companies like Dell use Twitter to drive direct, trackable sales through accounts like @DellHomeOffers and @DellSmBizOffers that offer up targeted product discounts and specials. Thousands of brands use blog posts in a similar manner, and you can see the same across pretty much every social media channel there is.
Calculating short-term smROI is the (relatively) easy part – you can make a pretty clear, compelling, and defensible ROI argument for these kinds of activities (X tweet generated Y sales). Unfortunately for us, that’s not really the kind of smROI that’s the subject of so much debate. That pain-in-the-ass kind is what I’ll call long-term smROI, which is really a fancy way of asking what all that “engaging in conversations” brouhaha is really worth.
Long-term smROI is akin to long-term ROMI – it’s all about brand awareness, loyalty, and other very difficult to quantify – in terms of bottom-line financial impact – activities. In traditional marketing these are the brand-building 30 second TV spots and conference sponsorships, among countless other activities. To create impact metrics many brands use survey-driven scoring such as Net Promoter, satisfaction, and so on. The same applies for social media activities that fall outside the definition of short-term smROI – they’re just hard to really measure, and as such marketers, consultants, community managers, and so on are constantly working to justify and defend them.
So what’s the solution to determining long-term smROI? Run NetP or CSAT surveys all the time? Maybe – I won’t pretend to have a firm answer, though I obviously have an opinion (a later post). One line of research I am fascinated by however is found in the ENGAGEMENTdb report from Altimeter Group/Wetpaint (PDF), released in July 2009. They paint an interesting picture to claim there is a direct correlation between brands that are deeply and broadly engaged in social media and financial success (more or less – read the report). That’s still a hell of a leap to take to management: lots of SM engagement —> analyst report! —> ROI, done! But they have some great data in there and filled an important gap in the debate.
A debate which I’m sure will continue for many years to come…
As a side note, some of the best thinking I’ve seen on the subject in a long while is by Oliver Blanchard. You can find just his smROI videos up at http://smroi.net/. Well worth the time invested.
*This isn’t to deny other ways to realize ROI from social media, such as through decreases support costs. My focus, for now, was on marketing.
**Using “smROI” based on the Twitter hashtag in use of #smROI. Seemed handy enough.
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