Final word on Social media ROI

Key take-away: Forrester’s recent report (16th July 2010) on Social Media ROI, I believe, puts an end to this endless debate. If you want to refer to just one definitive source on Social Media ROI, look no further and get the report from here (if you are not a Forrester client, it’s going to cost you a fortune…see a summary of the report at the end of this post to get an overall idea!!)

Around a year back, I was looking for a challenging social media issue to complete an academic project. I reached out to many well known social media experts to get their suggestions on what people in social media industry were struggling with - to my delight, I received many suggestions such as..

Jason Falls (Founder of Social Media Explorer):
I'm keenly interested in a couple of things right now. Perhaps one of these will work for you:
           -           The biggest fear most companies have is talking to customers who are mad/dissatisfied/detractors in a public forum. I'd love to catalog several examples of people who have done it successfully and not so successfully and see if there are some best practices/insights we could glean from that.
           -           Building community is a big push with companies right now. I'd love to do a retrospective on how communities form, going back to Rome, Greece, etc., to talk about the common bonds that bring people together - geography, common need, religion, etc. - then move into modern times and see where communities of consumers (Harley Davidson riders, etc.) gravitate and why and if there are commonalities we can pull from those. This is going to be the basis of "social business" for years to come but no one has adequately plunged into the topic yet.

Erik Qualman (Author of Socialnomics)
3 options that may be interesting - you decide..I hope this helps.
           -           How does male vs female behavior differ in social media. Do the sites and portions of the sites they use differ?
           -           Has social media started to change people's offline behavior do they need to live as if there mother is watching
           -           How are companies measuring ROI differently than traditional market. What seems to be the formula for a successful ROI
           -           What types of transactions - activities are people willing to share? What do they want to keep private. Does this view differ from generation to generation?

Saurabh Gupta (Founder & CEO of Phonethics Mobile Media)
           -           I'm glad you picked social media measurement, I've spent some time with a few UK agencies recently and everyone is struggling.

Social media ROI looked like a hot issue and appeared a harmless topic to me then (ignorant me!!). I thought I would be able to do some original work in 5-6 weeks. Little did I know that I was choosing a roller coaster ride! I ended up spending over 100 hours investigating how people dealt with social media ROI issue.  Here’s a brief summary of my report. If social media ROI is something that interests you and you want to read an in-depth report on various approaches, you may want to take a look at my 25-page report. Please drop me a line – tali62 at gmail dot com or leave a comment below and I’ll share my report with you.

Report summary - Social Media engagement can be viewed in many ways.  My report contains a list of 5 popular engagement models. Depending on which model you use and to which extent client objectives are aligned with the various stages of a chosen model, a specific set of metrics can be arrived at and these metrics along with baseline data can be used to calculate social media ROI. Budget constraints and business goals may require social media programs to operate at any of the various levels of an engagement model (for e.g. in the 4C model, it could be - Content, Collaboration, Community and Collective Intelligence) where each layer has a corresponding set of metrics, which need to be measured using a mix of onsite/ offsite web analytics, network/ influence analysis and semantic/ content analysis.

The first attempt to calculate social Media ROI dates back to 2006, when Charlene Li (then a Forrester analyst and now founder of Altimeter; also author of Groundswell) built a quantitative model to calculate social Media ROI of blogging. Charlene’s approach relied on proxy marketing metrics, i.e., she focused on what would be the corresponding cost of a conventional marketing campaign to achieve the same level of reach or awareness. For example, when calculating the ROI of an executive blog, she measured value by calculating the cost of advertising, PR, SEO and word-of-mouth equivalents. This proxy approach is called AVE (Advertising Value Equivalent) and its accuracy has been questioned by experts; not many people are using this approach for calculating social media ROI’s anymore…

Social Media ROI calculation or for that matter any kind of ROI calculation often involves three types of inputs:
·         1. Quantitative metrics that can be obtained directly from the system data and log files
·         2. Qualitative metrics that are determined using surveys, questionnaires and polls
·         3. Dollar multipliers that attribute arbitrary monetary value to hard to assess items such as a blog comment or an extra contact in your social network

I think these inputs combined with the balanced scorecard approach can produce very accurate social media ROI values.

Forrester’s Balanced Scorecard approach to Social Media ROI
Executive summary: The demand has never been greater for marketers to validate and measure the benefits delivered by their increasing investment in social media. Marketers often frame this question as, “What is the ROI (return on investment) of social media?” but financial metrics are just one way of evaluating social media marketing programs. Social media marketing delivers a wide range of benefits to organizations that are beneficial in the short term and long term in ways both quantitative and qualitative. To properly value the impact of their social media marketing investments, interactive marketers must align their objectives, metrics, targets, and strategies across four perspectives — the financial perspective, the digital perspective, the brand perspective, and the risk management perspective.

A Balanced Social Media Marketing Scorecard Delivers the Entire Picture: The best way to measure the impact of social media, as with other diverse efforts in the organization, is through a wide range of metrics that are both directly and indirectly financial. In their 1996 book, The Balanced Scorecard: Translating Strategy into Action, Dr. Robert S. Kaplan and Dr. David P. Norton offered an approach for avoiding narrow ROI-based performance management and instead presented a means to capture all of the benefits of corporate initiatives. The Balanced Scorecard they prescribed monitors business impact from four perspectives: financial, customer, internal processes, and learning and growth. Because social media delivers a broad range of advantages to marketers, a similar approach is necessary to fully capture the value delivered by social media programs and tools. A balanced social media marketing scorecard will consider and monitor effects across four perspectives that balance the short term and long term and the directly financial with indirectly financial outcomes:

1.        Financial. Has revenue or profit increased or costs decreased?
2.        Digital. Has the company enhanced its owned and earned digital assets?
3.        Brand. Have consumer attitudes about the brand improved?
4.        Risk Management. Is the organization better prepared to note and respond to attacks or problems that affect reputation?

The Forrester report suggests business should follow a combination of following approaches to validate their social media efforts:
·         Develop a social media marketing Balanced Scorecard as part of the POST process.
·         Eliminate financial measures that are not direct and attributable.
·         Do not rely on just one or two perspectives.
·         Don’t use the term “ROI” unless you are referencing financial returns.

What we can expect with respect to social media marketing metrics:
·         Metrics will gauge not just activity but outcome.
·         Social media focus will shift from short term to long term
·         Not every social media program needs ROI to deliver business benefit

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