Why Social Media ROI Doesn’t Matter (Yet)

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Social Media ROI (return on investment) is a topic I find I’m discussing more and more these days. But unless I’m talking to an online business, my perspective is always the same: “It doesn’t matter.” Here’s why.

1. Most Businesses Aren’t Prepared to Measure Social Media ROI

In a recent talk at Social Media Camp in Victoria, BC, I asked a room full of people to raise their hands if they had recently made an off-line purchase that was influenced by social media. Nearly all raised their hands.

Next I asked them to raise their hands if they had been asked, at the time of purchase, if they were referred through social media? Not a single hand.

So, hundreds of people in the audience had recently made offline purchases influenced by social media, but not a single one was measurable. If you multiply this audience by a few million, you’ll start to see how significantly social media is influencing commerce, and that the volume that can’t be measured.

Sure you can measure quarter over quarter or year over year revenue and extrapolate some ROI – and you should, but what are the chances the gap will be attributed to social media? Zero.

Some other businesses may be capturing social media purchases at the register, through coupons, or simply by asking. But here’s the rub: Half the time we don’t even realize our purchases were influenced by social media!

For example, you discover a new realtor in your area from a blog post he tweeted out on Twitter. Eventually, you buy a house from that realtor. What role did social media play in your purchase decision and what return on investment in social media should the realtor attribute to that purchase? Should he attribute the ROI to his blog, Twitter, or both?

2. The technology isn’t there yet

Closing the loop between social media efforts and in-store sales is (currently) impossible, at least in any accurate fashion. Coupons help, Foursquare check-ins are the closest we’ve seen – but the technology to accurately measure ROI does not exist yet.

Note: If your business is transacted online, then this particular bullet doesn’t apply – there are ways to accurately measure returns which we can cover another time.

3. Mindshare isn’t measurable

social media is about winning mindshareSocial media is not about transacting commerce. It’s about raising awareness and capturing mindshare so that when purchases are made (or about to be made), you’ll be chosen more than you otherwise would.

For example, you see some of your friends ‘checking-in’ via Foursquare to a new restaurant in town. The next time you’re hungry, you browse Yelp and the name of that restaurant stands out because you remember your friends mentioning it online. Finally, you visit the restaurant and then post a review on Yelp – and the process repeats itself.

In this case, the restaurant has benefited greatly from social media mindshare – but how does that restaurant measure the connection from mindshare to sales?

Right now, that’s just not how social media works. Using the above example, instead of trying to measure mindshare, the restaurant would be better off trying to generate it – by giving customers and an amazing product, service and experience that they can’t help but share and spread to others.

4. What’s the cost of not being involved?

Social media is the lowest cost medium for attracting and retaining customers that has ever existed. Today, maybe a handful of your competitors aren’t using social channels (or not using them well), but that won’t last.

If you spend all your time trying to measure returns, in a year’s time you’ll be trying to figure out how to catch up – and that’s going to cost a lot more!

For now, let’s stop worrying about how to measure ROI and make hay while the sun is shining.

Treat your customers exceptionally well, deliver a great product and make it easy for people to share your awesomeness. Your return on investment is that they will!

[Image credit: epSos .de]

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Olin Hyde
Olin Hyde

I love the comment from @ Nanaimo Chiropractor. That is the perspective of an business owner -- matching value to effort.

The arguments by Justyn mimic the reasons broadcast advertisers gave to justify the inability to measure results (until about 1970 or so). Then came (very inaccurate) ratings that could be used against (very inaccurate) measurements of retail sales... until technology eventually got to the point where you could almost make correlations between spending and sales using really fancy math (in about 1985 or so). I recall a meeting in 1990 when a marketing executive was content to get data on ROI on a broadcast ad that was 6 months old to make a decision about what he was currently spending.

The problem with social media is that there is no measurable ROI. Rather, it is the most recent shiny object that everyone must have. As a result there is a lot of "feel good" qualitative speculation on how wonderful social media is -- most notably from people who feel good about offering advice that does not withstand the scrutiny of ROI analysis.

The problem of social media ROI is a problem of unstructured data. The chiropractor uses social media because they can see results. I challenge Coke or any major brand to do the same.

Mindshare has no value unless it corresponds to a sale. Thinking otherwise is a good indication that someone is about to waste a lot of money on a new shiny toy.

That said, there are bunch of companies working hard at solving the data problem with ROI analysis. An overview would make a fantastic blog posting.

Justyn Howard
Justyn Howard

I agree that we'll get there in terms of the ability to measure, my company is one who's working on it. The more problematic part of the puzzle I think for most businesses is that they are not prepared/able to put the resources/time/effort into measuring it.The Chiropractor is doing it well. Naked Pizza does it well. I can't point to many more that are capturing the absolute value of Social Media (unless they transact business online).I'll share another of my own experiences which may help clarify.1) I'd heard about Sonos (home audio player) on Twitter for the past 6 months or so. I saw a tweet from a friends about how much he loved his. I went to the website and bought one. Sonos has no way of knowing that social media influenced my purchase. They didn't ask me at checkout, I didn't click a link, etc.One could argue that they'll see the aggregate of their social media efforts in the monthly/quarterly sales numbers, but Sonos is a growing company. They spend money on ads all over the place, in differing amounts in addition to organic growth, etc.- and it wasn't even their effort that lured me in. There's no company I know of where social media is the only variable by which to compare sales during a given period. In theory it's easy to say it's measurable, in practice it just can't be done accurately. Most businesses can't isolate one reason they're numbers have changed, let alone all of them in order to pinpoint the ROI of social media activity.The most sophisticated companies on the planet haven't shown the ability to measure the results yet, so my argument is simply that's in the best interest of the ordinary business to not get caught up trying.

Derek L. Harris
Derek L. Harris

I can agree with most of your comments here, however, would not the same argument apply toward most tradition forms of marketing/advertisements--let's say a billboard ads, yellow pages.. If you are using multiple tools in an overall campaign, can we truly identify and measure which marketing vehicle drew what client, when? Most ad campaigns aren't really effective until they are seen at least 14-18 times. This can be a combination of TV, Radio, Print, Billboards...

You did an interesting thing at the beginning of your post. You said that "hundreds of people made offline purchases, but not a single one was measurable." But what did you do when you asked the question if anyone made a purchase that was influenced by social media? You measured it. --by a show of hands.

My point is that your ROI will greatly depend on what and how well you measure. (In your example, you measured on the back end--directly from the consumer--by a show of hands)

And maybe we'll never be able to grasp the total ROI from social media, but we can understand social media ROI just enough to justify a future purchase or decision.

Social Media ROI is more qualitative, than quantitative.

SproutSocial Blog
SproutSocial Blog

Hi Derek! Thanks for your comment. I think we all agree with your final point - Social media ROI is more qualitative than quantitative.We firmly believe there is a vital role to be played for social media in business. And that it's also okay if you can't immediately and definitively link a purchase with a particular social media tweet or status update - in most cases this is just not possible or practical.Monitor your participation to help you engage more and the results on the bottom line will soon follow!Cheers!

Derek L. Harris
Derek L. Harris

I can agree with most of your comments here, however, would not the same argument apply toward most tradition forms of marketing/advertisements--let's say a billboard ads, yellow pages.. If you are using multiple tools in an overall campaign, can we truly identify and measure which marketing vehicle drew what client, when? Most ad campaigns aren't really effective until they are seen at least 14-18 times. This can be a combination of TV, Radio, Print, Billboards...

You did an interesting thing at the beginning of your post. You said that "hundreds of people made offline purchases, but not a single one was measurable." But what did you do when you asked the question if anyone made a purchase that was influenced by social media? You measured it. --by a show of hands.

My point is that your ROI will greatly depend on what and how well you measure. (In your example, you measured on the back end--directly from the consumer--by a show of hands)

And maybe we'll never be able to grasp the total ROI from social media, but we can understand social media ROI just enough to justify a future purchase or decision.

Social Media ROI is more qualitative, than quantitative.

SproutSocial Blog
SproutSocial Blog

Hi Derek! Thanks for your comment. I think we all agree with your final point - Social media ROI is more qualitative than quantitative.

We firmly believe there is a vital role to be played for social media in business. And that it's also okay if you can't immediately and definitively link a purchase with a particular social media tweet or status update - in most cases this is just not possible or practical.

Monitor your participation to help you enaage more and the results on the bottom line will soon follow!

Cheers!

Alex Horton
Alex Horton

Really interesting article,

Measuring ROI on a brand enhancement campaign through Twitter or Facebook could prove a waste of resources. Simply creating the best quality and most frequent new and interesting social media content is a superb way to spend your time and resources.

- According to just under three-quarters of agencies surveyed (74%), clients use direct traffic to measure social media activity.

This is clearly a narrow minded view of measuring the effectiveness, or ROI, on a social media campaign!

Here are some other interesting statistics on corporate participation in social media strategy

- A third of companies (32%) do not spend anything on social media marketing and a further 36% spend under $5,000 a year.

I hope this has given a different slant to your point on Social media and ROI! I would finish by saying that ROI on social media is a fledgling concept with difficult parameters to measure. However I think that soon there will be full and accurate measurements of ROI on social media. In the meanwhile keep your content RELEVANT, REFRESHING and INTERESTING!

For a full 2010 Value of Social Media report containing statistics and industry trends for 2010 check out: http://ecly.co/9XJLkk

Don Power
Don Power

Thanks for your comment, Alex.

Whether or not there is a clear way to measure sales due to social media participation, it is almost a given that social media participation is valuable to most business and does warrant time, attention, and yes, money.

Besides, human interaction intertwined with business and sales is not going away. It's not a fad. It's where we are headed as a society that is 'always connected'.

Better for companies to accept and even embrace social media at its grass roots stage then try to re-enter the fray years from now when participation from new comers will be much more difficult than it is today...

BWood
BWood

Re number 1... how do I get blog post to fit on Twitter?

Don Power
Don Power

Hi BWood! Thanks for your comment. I think you must have been a copy editor in a former life ;). Fixed the wording now. Thanks for reading, paying attention to the details and for your comment!

- Don

Harbour City SEO
Harbour City SEO

I kind of don't agree - I think all marketing is measurable, and you don't need any super fancy metrics to do it.

Granted, you can go too far worrying about tracking - but the occam's razor approach says "if you get more business now than you did before, and a measurable number of things have changed, since it is unlikely that people have changed, then all growth is attributable to what has changed."

Justyn Howard
Justyn Howard

Basically, I agree with you. The challenge is the 'measurable number of things have changes' part. Especially for local business. The economy has gone up/down, they have a new yellow pages ad, the seasons have changed, a festival came to town, supplier prices have gone up, a popular item was discontinued etc.

From that standpoint, I think it's even more important to not make yourself dizzy trying to nail down the value, and trust that engaging with your customers in a meaningful way is always good for business.

Don Power
Don Power

Trust that engaging with your customers in a meaningful way is always good for business...

Fantastic!

Harbour City SEO
Harbour City SEO

I agree that engaging in a meaningful way is crucial, I guess my point is that social messaging is only one way to engage.

If engaging with consumers is a zero sum game, by that I mean we all communicate somehow and only give so much time to communicating, then it is likely that social messaging is replacing something else. That thing might be email, phone calls, chamber meetings, whatever.

If you look at average sales over time (one month won't cut it), and also look at when you started doing social messaging, you can extrapolate ROI from the following.

If sales are up (on average), and social messaging is a replacement for something - ROI is good

If sales are the same (on average) and social messaging is a replacement for something - then you have no loss/no gain.

If sales are down and social messaging is a replacement for something - then the biz may have lost people that were comfortable with other forms of communication that you use less, or have stopped altogether.

It's basic, and I wouldn't use it in anything official, but I think it can give a good idea if something is at least working, or maybe needs to be pulled back.

There's also the fun factor, which is a form of ROI - so if you enjoy social media more than phone calls and it makes you better at your job, more productive and generally happier - that's measurable in and of itself.

Don Power
Don Power

Great comment Sean! What a way to break down a complicated set of variables and potential variables to something more understandable and manageable.

My Logic professor from university would be very proud ;)

Cheers and thanks for your comments!

- Don

Don Power
Don Power

I remember studying the advertising spending habits of Coca Cola in one of my university marketing courses 20 years ago - before social media - even before the INTERNET!

Back then, the rationale for spending so much money on advertising, was to make sure thath whenever a consumer was thirsty, they thought of a cold coca cola. It was marketing 1010 back then and it's marketing 101 today - except now a local raestaurant or a local brewery can compete on the same playing field as coca cola and they don't need a trillion dollars in advertising to do it!

They just need people to be engaged with them so that when it comes time to purchase, consumers think of the businesses they are engaged with first.

So engage first and measure sales at the till, if you must measure something!

Thanks for your comment Janis!

- Don

Paul Holmes
Paul Holmes

This is the best article on the "ROI vs. mindshare" topic that I have read to date. Very well done, sir.

Don Power
Don Power

Thanks for taking the time to stop by, read, and comment Paul! See my extended reply to Justyn below RE: "ROI vs. mindshare".

Cheers!

- Don

Justyn Howard
Justyn Howard

Thanks Paul! I'm not even sure I articulated it fully, but I do hope it helps some people stop chasing their tails and get back to engaging their audience!

Don Power
Don Power

I especially like this part Justyn - "Instead of trying to measure mindshare, the restaurant would be better off trying to generate it. That is an important piece of advice to businesses who may otherwise let themselves get overwhelmed with measurement for measurement's sake.

In fact, you made a very consistent point at your talk at Social Media Camp when you gave the analogy of people stepping on a weigh scale every morning...why measure unless you're actually going to do something about what it is you're measuring!

Great stuff!

- Don

Lorne Daniel
Lorne Daniel

Good points Justyn. With 20 years in marketing communications, I've had many clients ask about ROI of various media. What they think is a simple counting of referrals is a much more complex and expensive undertaking. Persuasion rarely, if ever, happens in one communication through one medium. Consumers are also notoriously inaccurate in recalling the ways in which they have interacted with a brand. So there's holes in most ROI schemes that you could drive a truck through. What matters is more basic questions: do you want to build relationships with clients / consumers? Does this help? Social media can play a significant role in building the relationships that translate into marketing success but the idea of measuring a tweet's effectiveness is pretty iffy...

Don Power
Don Power

Lorne, you said: "Persuasion rarely, if ever, happens in one communication through one medium" - so true!

Social media itself provides for several platforms - several different media, if you will (Tweets, Video, Check-ins etc.) but let's not forget traditional media too. I still read newspapers and hard copy magazines and yes, I do read the ads. My wife gets mad at me when I pay more attention to the TV commercials in between the Hollywood angst of Grey's Anatomy...

Marshall McLuhan said long ago that the medium is the message so one could extrapolate and say that the more media you employ, the more messages you deliver. Spending too much time trying to measure which message produced which action is an exercise made easier by third party tools to be sure, but at the end of the day your customer is your best datum. Listen to what message she's giving you!

Thanks for your comment Lorne - we got some great #YYJ representin' here!

Cheers!

- Don

Don Power
Don Power

Lorne, you said: "Persuasion rarely, if ever, happens in one communication through one medium" - so true!

Social media itself provides for several platforms - several different media, if you will (Tweets, Video, Check-ins etc.) but let's not forget traditional media too. I still read newspapers and hard copy magazines and yes, I do read the ads. My wife gets mad at me when I pay more attention to the TV commercials in between the Hollywood angst of Grey's Anatomy...

Marshall McLuhan said long ago that the medium is the message so one could extrapolate and say that the more media you employ, the more messages you deliver. Spending too much time trying to measure which message produced which action is an exercise made easier by third party tools to be sure, but at the end of the day your customer is your best datum. Listen to what message she's giving you!

Thanks for your comment Lorne - we got some great #YYJ representin' here!

Cheers!

- Don

Nanaimo Chiropractor
Nanaimo Chiropractor

Great post! As a chiropractic clinic using twitter, I can tell you social media has worked well for us. We record how each new patient came to us (referral, yellowpages, google, twitter, etc). Our software will then tell us how much business eaach marketing tactic generated in a given time. This allows us to plan where to best put our future marketing efforts. It's not a perfect system but it does give us a pretty good idea of our ROI. As social media is free, it's only the time investment. We now know twitter well enough that we can spend only 15 minutes a day. With over 300 mostly local followers, what better way to stay in the daily consciousness of so many people.

@pure_chiro

Don Power
Don Power

Thanks for your comment Nanaimo Chiropractor!

You mentioned "With over 300 mostly local followers, what better way to stay in the daily consciousness of so many people"

I think that's a great point - "staying in the daily consciousness of people" - and social media allows you to do that so well (and so efficiently).

We all know of the friend you hear from only when he needs something from you.

And many of us are fortunate enough to know a friend that calls from time to time just to say hi and to stay in touch.

How much more likely are you to pick up the phone and call the latter friend when you want to reach out and share something.

And the same equation appears to hold true in business and commercial relationships too (see lacouvee's comment above).

Remember the old neighborly expression "don't be a stranger!". Well social media, done right, allows you to be familiar...in touch and top of mind with your family, friends and yes - customers!

I've seen your partipatio nin social media, it is "done right" and you are reaping the rewards with new customers, loyal customers and new opportunities to become top of mind for your services in your local community!

Well done!

- Don

Don Power
Don Power

Thanks for your comment Nanaimo Chiropractor!

You mentioned "With over 300 mostly local followers, what better way to stay in the daily consciousness of so many people"

I think that's a great point - "staying in the daily consciousness of people" - and social media allows you to do that so well (and so efficiently).

We all know of the friend you hear from only when he needs something from you.

And many of us are fortunate enough to know a friend that calls from time to time just to say hi and to stay in touch.

How much more likely are you to pick up the phone and call the latter friend when you want to reach out and share something.

And the same equation appears to hold true in business and commercial relationships too (see lacouvee's comment above).

Remember the old neighborly expression "don't be a stranger!". Well social media, done right, allows you to be familiar...in touch and top of mind with your family, friends and yes - customers!

I've seen your partipatio nin social media, it is "done right" and you are reaping the rewards with new customers, loyal customers and new opportunities to become top of mind for your services in your local community!

Well done!

- Don

Justyn Howard
Justyn Howard

Thanks for sharing! I'd be interested to hear how you are capturing the source of your leads. Is your front-desk staff asking consistently? Would be useful for others to know how you might do this. A very small percentage of businesses are actually keeping track in this fashion.

Nanaimo Chiropractor
Nanaimo Chiropractor

Hey Justin,
It's on our new patient intake form. If the patient leaves it blank, the front desk staff ask the patient. It's never an issue. Everyone is happy to tell us how they heard about us. It just makes good sense to track which of your marketing efforts are most productive. We even send a $10 Starbucks giftcard out to those that refer to us. They're never told "if you send us a referral we'll send you a gift card." It's just us going above and beyond to thank our patients for their trust in treating their friends or family. I

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