I hear a lot about the “ROI of Social Media” these days, and every time I do, I cringe.
Over last 27 years I’ve done a ton of ROI calculations determining if an investment of “X” in something (call it “Y“) could, or did, produce an adequate return on that investment, based on predetermined thresholds.
So, if my threshold was 10%, and my X investment in Y returned 12%, I was either good to go or popping a champagne cork.
Let’s now consider “Social Media“. Here’s my first problem – most people aren’t buying these platforms, that is, unless you are a venture capitalist that owns a piece of Twitter, Facebook, LinkedIn, or anything else out there.
They are just USING them. For free (or pretty close to it).
There goes the “X”, because there’s no investment, and the “Y”, because there is no something that has been bought – in one fell swoop.
And thus, the cringe.
What Then, Is A Better Value Evaluator?
I believe a far better way to characterize the potential value of using Social Media is to look at its Utility.
That is, its “fitness for some purpose or worth to some end” (thank you Webster’s dictionary).
Because when you get right down to it, as I’ve said in this space before, Social Media is just another way for humans to communicate. Right up there with television, e-mail, texting, telephones (wireless and wireline), morse code, tin cans and good ‘ol snail mail.
What’s more, we have (at least) a million potential “ends” for communication – and if you pay close enough attention to your social media streams, you’ll see quite a lot of them.
Pick An End, Any End
For this exercise, let’s just pick one of them, one that I’m pretty familiar with -customer service.
To provide the kind of customer service I want (where the level of satisfaction is such that the lifetime value of those customers is maximized), I need to communicate well. I need to be available to my customers to talk about their problems, discuss their bills, take payments, sell services, or even talk about the weather.
I need forms of communication that work well towards that end – they need to have high Utility to me.
The Utility Test
Now let’s put Social Media to the customer service utility test. On the positive side, it’s probably already being used by a significant number of my customers, which combined with the relative ease of using the tool means that we have good accessibility. Next, the negatives – this communication is being done “in public” (so good and bad is exposed), with inherent limitations on the expansiveness of our discourse (i.e. to use Twitter as an example, I only have 140 characters).
The bottom line on Social Media’s Utility for customer service? I believe it is poor-to-marginal- we can score some PR points for “being there” and showing empathy and courtesy, but when it comes to actually solving problems and answering questions in a meaningful way, we’ll end up “moving the conversation” to the traditional means anyway (most likely through a telephone, or a face-to-face discussion).
With this Utility determined, I can put it up against the Utility of all the other forms of customer service communications and allocate my resources accordingly (which means we won’t be shutting down our call center anytime soon).
This is just one example – I could also put Social Media through its Utility paces for me personally – and given the way I use it, I’d give it high marks for finding and forging friendships, promoting my blogging activities, learning more about the world I live in, and indulging my love of music and music trivia.
Now About That Screwdriver…..
What I hope is apparent here is that Utility carries with it a large doses of subjectivity and personal preference -things that are hard to measure on a pure objective scale (like an ROI), but really should be evaluated when deciding whether or not to use something.
Which is the beauty of assessing Utility for Social Media- it just boils down to, how well does it work as a means to your end? And within that beauty lies the reason behind the ever-growing popularity of the medium – its seemingly endless number of uses for a corresponding number of ends.
It’s just another tool in the communications toolbox – and when was the last time you tried to calculate the ROI of a screwdriver?
Think Utility instead, and send the ROI back to your stock portfolio.
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The whole post is based on the false removal of X from the equation.
A company doesn’t own a television station it advertises on, yet they still calculate the ROI of commercials.
I still dig the utility aspect, though.
Hey Jenny, thanks for stopping by! I agree, in your example, you do have an “X”, because the commercials cost money. Going on Facebook or Twitter doesn’t cost anything. If they did start charging for access, the game would indeed change a bit and ROI comes more into play, but I still like Utility better. Hope all is well, and all the best!
But you can still calculate cost in terms of employee time spent on social media, right? Complicated, yes, but if you had them do a week’s worth of hours spent blogging/tweeting/whatever, as well as hours spent doing more traditional work, then crunch according to salary… wouldn’t that be a start, even if it’s hard to measure the end result (conversions, more positive mentions online, better press, etc.)?
Hi Christa – thanks for your comment. Yes, time spent can still be calculated, but you’re also correct that measuring the net result is quite difficult. I would offer that the “ROI” needs to be assessed at a higher level – that is, how did my choices as to how I spend my communicating time effect the profit the company made – or the customer counts – or some other objective measurement. Thanks again for stopping by!
“how well does it work as a means to your end? And within that beauty lies the reason behind the ever-growing popularity of the medium – its seemingly endless number of uses for a corresponding number of ends.
It’s just another tool in the communications toolbox”
oops posted too quickly! What I was trying to say is that this bit sums it all up so perfectly:
“how well does it work as a means to your end? And within that beauty lies the reason behind the ever-growing popularity of the medium – its seemingly endless number of uses for a corresponding number of ends.It’s just another tool in the communications toolbox”
I found this on twitter and as the Social Media coordinator for my organization (and a self-proclaimed SM addict) I am always looking to further educate myself on the subject. I am preparing to give a presentation on the what and why of SM is important and your post just gave me some great ideas! Thanks!
Working out this stuff is different depending on your organization type. It is easy for me as a one man band to justify my social media involvement as I only have myself to answer to. I have had leads, opportunities and clients just from twitter, so there is my ROI.
For a larger company you have to justify the time or other resources you require in advance. There are several costs involved for larger companies, not least opportunity cost. I work with several clients who are only now committed to social media after months of trial schemes, and those were a leap of faith.
Companies who struggle most with the ROI question are those who do not have a capability to measure their PR investment, active branding campaigns, display advertising, community outreach, etc. On the other end of the scale are the “direct” companies who are already measuring right through the chain using coupons, sampling, lead capture, commission structures, analytics and online advertising. For them social tools and interactions can be plugged in as sources. Just look at Dell, their profits just from Twitter are in the millions, but they have gained far more I imagine from their idea generation and engagement campaigns.
Twitter in particular is becoming key to proactive customer service – hunting out the people who are upset/disappointed before the issues fester. We are not yet at the stage where social media is a “must have”, like a website and email customer service, but I think we will get there.
Thanks Kristina, and I hope your presentation goes well. All the best!
Hi Chris, and thanks for the comment. I agree that there is certainly a “return” to be gained from using Social Media, but as you point out there is a lot of struggle going on out there with measurement. On the one hand, when the cost of entry is practically free, it doesn’t take much to generate what looks like a fantastic ROI, but on the other, that “fantastic” looking number in an absolute sense could pale in comparison to what could be generated by better use of all the tools in the communication toolbox. I’m advocating more of a “holistic” approach that uses the Utility concept to rationally prioritize all the tools, as a way to allocate money and resources to the right places. The return comes from the improvement in bottom line results resulting from this allocation of resources.
Twitter’s role in all of this is exactly what you’ve offered here – a means to be more proactive.
Thanks again – it’s always a pleasure to discuss the finer points of this medium with you!
Terry…always a pleasure to read your stuff.
Love the idea of social media as a utility/tool to get what you need out of it…drink up some knowledge and move on. The unfortunate thing…and I know because up until June 29 I was battling it daily…is the fixation on the acronyms of ROI, TCO, PPC, EIEIO…etc.
I get it…budgets are tight and you have to prove value, but when was the last time you were forced to prove value for a Google or Wikipedia search for information? And how fruitful was that search?
That’s what I’ve begun using Twitter and other mediums for…checking for a pulse. And while I haven’t begun monetizing my time — yet — Facebook, Twitter, LinkedIn, posting on blogs like yours, and anything else I can contribute to sure does result in clicks to my site, gets people aware of me and collectively makes me a lot smarter.
That an ROI I’m totally comfortable at present, even though I am and my Web voice is still very much a work in progress.
I consider it a personal brand value prop instead of a lead gen value prop. Lead gen has its vehicles (DM, pay-per-click, e-mail + microsites, teleprospecting, banners (ugh!) etc.) Use those to justify ROI. Use social media to gain awareness, share insight and provide a voice for your brand. Oh, and a few exclusive offers to your exclusive SM peeps never hurts either.
Cheers,
Mark, aka, ev