ROI stands for Return on Investment. Period. If we talk about Social Media ROI in this post, we mean the return on investment of the business (predominantly marketing) investments in social channels, networks, strategies and tactics made to achieve predefined goals. The micro-level, the macro-level, the integrated level, the campaign level, the program level, the whatnot level: anything goes.

Let’s talk about social media ROI from the Marketing ROI perspective. Because, in fact Marketing ROI or ROMI (Return on Marketing Investment), is not something new.

It might be new to you soon because it’s increasingly used as execs want to know what is the output of your input. Return. And Investment, right?

We see more and more execs – finally – asking about the return of all these social media investments. We’ll talk a lot about marketing ROI (including social media ROI), social media metrics & measurement, customer intelligence and data on this blog this year. And, no, we won’t forget branding.

This post is partially based on the work of Jim Lenskold, who was a speaker at one of our events. In the picture below you see Jim, author of the book ‘Marketing ROI‘, and Olivier Blanchard, author of the book ‘Social Media ROI‘ (do buy their books).

A third person mentioned in this blog post is Jim Sterne, among many other things author of the book ‘Social Media Metrics‘ (buy it too).

Social media ROI becomes more important once the experimental phase is over (or when we stop undervaluing social?)

Now, let’s start with some serious questions and kick off with a few findings from the “Marketing ROI & Measurement Study” by Jim’s Lenskold Group. It shows that the need for social media measurement is lower in organizations that conduct social media experiments and are basically testing the waters on a relatively small scale, than among marketers who want to increase the efficiency of their social media programs and improve integration.

This might seem insignificant, but it’s not. It indicates that measurement – and, yes, ROI – of ‘social’ becomes more important once the experimental phase is over. Moreover, it gets to be more significant when integration comes into play. And integration is exactly what customer-focused marketing is all about: no marketing activity is an island, and this is where many social media experts fail: they can’t think beyond the social silos they created.

As long as social media marketing is conducted on a small and experimental scale, it’s often left out of the marketing ROI context. This has to do with a lack of metrics, priorities, practical aspects, risk, immaturity, ignorance and the lack of a broader use of marketing ROI, among many others. When implementing marketing ROI, it’s important not to focus solely on marketing projects with proven ROI. It’s also meaningful to include programs with less certainty from the ROI viewpoint. When done on a relatively small scale, these kinds of investments will not impact the overall marketing ROI too much. However, when they succeed, they can boost marketing ROI significantly.

By the way: note that marketing ROI is not (only) about measuring, improving and reporting. It’s first of all about forecasting and getting programs approved.

The need to measure social media ROI: more than yes or no

The reality is that the need to measure ROI comes down to more than just a simple yes/no question,” Jim Lenskold writes in the blog post this is based upon (and on Jim’s book ‘Marketing ROI which you should have by now), and he offers 10 questions you should answer about social media ROI. Below are some of them.

1. Should an investment in social media marketing be expected to generate a positive ROI?

Can social media marketing (note the word marketing) be expected to generate a positive ROI? In other words: can you generate incremental profits in excess of the marketing expense which of course also includes expenses regarding resources such as labor?

Jim Lenskold is amazed many marketers still ask such questions. I think Jim is a very polite man to be just amazed. The very least thing you need is an ROI projection that is based on your “best” data and assumptions to express the expected financial contribution.

2. Should we exempt some forms of social media from expectations in terms of ROI?

Social media is a huge umbrella term. Jim reminds us of that as well. Of course, the different functions and goals social media can be used for (we’re talking business, including marketing) has practical consequences in terms of ROI projections and calculations. Branding is not lead generation, which is not customer service or reducing costs while improving efficiency of your call center.

Also take into account the different levels (campaigns, programs, etc.) and timeframes (with relatively new tactics and strategies such as social media the long term can matter more) you are going to work with. Nevertheless, in general most forms of social media marketing and business can be measured and ROI calculated.

3. What results should you measure/predict to determine ROI?

This question obviously also depends on your goals. I guess I don’t have to say you need metrics and KPIs. By the way: there are no such things as cold and warm metrics. An inch is an inch, a mile is a mile, a click-through is a click-through and a ‘like’ is a ‘like’. Metrics are simply metrics. A metric can be used as a KPI although typically you combine different metrics to have a KPI that is relevant for your business (and customers). Nothing cold, nothing hard, just analytics.

What you do have, however, are metrics that are related to specific goals, stages in the buying journey, to certain channels, the individual customer lifecycle and social or other touchpoints, to name just a few. Also note that, in order to know Marketing ROI in a more holistic way, you obviously need to speak a ‘common language’ regarding the metrics that are used across the business. With social that can sometimes prove to be a bit harder.

As I just wrote, there is a difference between branding and lead generation Thus, the results you are looking for and by definition ways of measuring them, differ. There is also a difference between a campaign to sell more and one to create awareness. Complete the list.

Now, how do you move towards ROI of social media marketing using marketing – and obviously, sales, business and financial – metrics and KPIs.

Jim lists some examples of ways to measure social media ROI:

  • Incremental sales that can be directly linked to a social media effort or campaign.
  • The number of newly acquired leads that convert into sales.
  • The incremental customer value through retention and relationship or loyalty efforts
  • An increased awareness and interest, leading to more potential buyers in the early steps of the traditional funnel.
  • A higher brand preference that leads to more sales conversions.
  • Etc.

Obviously, the precise KPIs and metrics you use to gauge social media ROI ‘de facto’ thrive better on an integrated view. Marketing ROI can be calculated at the level of channels and micro-campaigns but ideally also occurs at a higher level. And don’t forget the challenges regarding attribution and the shortcomings of the traditional funnel model in a cross-channel reality.

4. Should you measure ROI for every social media initiative?

The answer is no. Sometimes you cannot immediately do it or better, want to do it. There are various reasons for this. It reminds me of what Jim Sterne once told me: you can’t measure the business impact of a blogger mentioning you. Yes, you should look at the micro-level but there is also the matter of setting priorities and the aim and scope of the ‘project’.

This does not mean you shouldn’t measure and watch the metrics you have though, also in rather small and rather social media marketing initiatives and even if no real ROI exercise is done. And obviously not everything can be measured – read “Social Media and ROI: Some clarity. (Again.)”.

Note that the question of what you can measure is not by definition related to a distinction between what we traditionally define as more measurable or ‘tangible’ activities (e.g. direct marketing) and less measurable and seemingly tangible activities (e.g. branding in the broadest sense). At least if you know what the branding impact of various activities is (preferably also in a channel-agnostic way), and if you know the impact several brand attributes (not just awareness) have on purchasing decisions.

Is measuring social media ROI easy/necessary? Stay tuned

I know you keep wondering if you can measure Social Media ROI the same way you measure the ROI of other forms of marketing. The answer is ‘no’. Well, it depends. For starters: there is a difference between a complex B2B buying journey and group buying decision process that involves many channels and partners, and the purchase of a pizza.

Simply said: if you tweet coupons for your local pizza restaurant and properly tag and track and do Twitter-only promotional codes (and coupons for Facebook, etc.) measurement life is easier than when you want to know the role of social in how informing and influencing the group of managers and other advisors that consult the CFO on a new security system, resulted in sales (and you can bet that the CEO will have done his homework too.

On top of that: we still have to explain the social media crowd that the outcome of engagement is actually also conversion, be it often another kind. And then there are phenomena such as attribution, micro- and macro-levels, different metrics (and that sucks if you have an integrated approach to Marketing ROI), different formulas (the basic formula of ROI is simple, that of marketing ROI varies a bit) and control groups. But that’s for later.

So, that’s it for now, time to get ROI – and social media ROI – back where it belongs. Let me know what you think and read Jim Lenskold’s full post here.