Is Social Media right for your business?

A little over a year ago, the head of digital at a major cultural institution here in New York requested a presentation on the ROI of social media activities.  Based on that work, we went on to develop a free online social media ROI calculator.  Many users absolutely loved it while a few others snarked it as being irrelevant.  That particular calculator was developed from the work for a certain client, and was most certainly not usable by just anyone. What I’d hoped was that it would provide a framework for approaching the problem of determining whether the cost of social media would provide return to the organization.  Over time, I’ve considered the work from different angles including how the value of social media can play a part in Customer-based Corporate Valuation.  Here are some major points about determining ROI for Social Media:

Point 1.  Anyone can paint a pretty picture.  It is so easy to tweak numbers this way or that way, that the idea of using ROI calculations as the basis for decision making should be regarded with caution.  That doesn’t mean it can’t be a valuable tool. As Eisenhower said, “It’s not the plan but the planning that counts.”  The very act of determining what matters and how much helps us understand and communicate the value of our activities.

Point 2. Be real about costs.  If you’re going to coach employees to spend 15 minutes a day (on average… lots of averaging is needed in this exercise), you need to count that lost productivity.  Do you count the lost profit?  or the cost of the labor?  If you can make a reasonable argument that the activity comes out of time allocated for education or recreation, you would probably choose the latter.  It depends on your organization! (I’m going to repeat that phrase so many times that I might as well go ahead and coin an acronym: IDOYO).

Point 3. Good or bad?  When we calculate the benefits and return of social media, are we basing our calculations on social media done well?  Done poorly?  One could create a very realistic model of ROI for social media – with the most glowing outcomes in the world.  Then the activities are done poorly, and wham! It was all a lark.  If the organization is new to social media, perhaps the person calculating the value could develop a sliding scale of quality to cover the learning period.

Point 4.  Preexisting costs?  When the first calculator came out, a few people decried the fact that it calculated the value of, say, press stories.  Obviating those costs has value.  The detractors pointed out that that was not necessarily bringing real return to the organization.  True.  And as you work out the ROI for your organization, you’ll need to make that value judgement.  At the end of the day, if you’re making a presentation to a big-whig, I’m sure you’ll point out these details – and if the big cheese doesn’t object, then why not leave them in there. Perhaps you should have the model both ways -with preexisting expenditures, and one without.  As I said in point 1, above, anyone can paint a pretty picture.

Point 5. What about the intangible? You help bring your organization into the social age, and your customer service tweats leave a warm fuzzy feeling in some customer’s belly.  How can we measure that?  You can.  It may not be easy, but you can develop models for “positive inclination”, awareness, and other sentiments.  And for whatever scale you devise, you can get away from total guesswork.

Point 6. One size doesn’t fit all.  Each organization is going to have different criteria.

Its our hope to create a newer and better calculator soon. What I’d like to see included is the ability for the user to turn the knobs to see the effects of different activities on the outcome.  But that is an exercise for another day.

This entry was posted on Thursday, March 11, 2010 and is filed under Digital Advertising, Social Media in Marketing.

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