Wednesday, September 2, 2009

Social Media ROI

If you want to open up a can of worms, ask a group of internet marketers and CMO's how to measure the ROI on social media investment and participation.  There is and will continue to be a heated debate on this topic until we all realize one thing: Social Media is about branding, not advertising.

Traditional advertising defines a specific spend and generally has measurable results. A return on investment is easy to calculate.  Building a brand requires a significant investment, but does not generate track-able results.  The reason a person at the grocery store chooses Pepsi over Coke is a summation of a lifetime of branding messages (sometimes in overwhelming quantity).  How do you measure that?  It is very difficult, although there are many options for understanding the overall value of branding (referred to as goodwill for the accountant types).

We have the same problem with social media.  Social media is about building a brand, with the cumulative efforts assisting to generate sales.  But branding is less directly involved with the final transaction as traditional, measurable mediums.  How much did the direct mail piece I receive influence my decision to call the home security company in comparison to the branding I have been exposed to for the last five years at sporting events, parades, etc?  Hard to say, and even more difficult to quantify.

In its truest form, social media is a venue to add value to the the market in general in the form of free advice, expertise, networking, and communication.  All of this leads to relationship building with a more targeted market that gravitates towards your content and brand.  I am all for measuring ROI, but I also think there is often a lot more at play than a simple ROI calculation will capture.

Social media is here to stay (just watch this video), and businesses need to get involved.  A great example of this is the professional services industry.  The most effective methods for marketing in professional services have long been referrals and networking, but these survey results indicate that more of the networking efforts in the next 6-18 months will concentrate on social media (LinkedIn, FaceBook, etc.).

So, are you still itching to track the ROI of your social media?  Consider a change of perspective from ROI to the overall value of your brand. Then you'll be getting closer to overall value generation than transactionally-based (and often incorrect) attempts to attach an ROI to social media, or branding, activities.

The brand of a firm should have legitimate and palatable value, and that is what I care about.  Ultimately, the value of the brand becomes a long-term and often sustainable competitive advantage that commands premium pricing, better margins, and maximal cash flow!