Blogger extraordinaire Mark Schaefer published a timely blog article on metrics and ROI as it relates to social programs.  You can read the article here.  In his article, he discussed some rather passionate discussions of social ROI and similar business metrics.  Mark was at one of the annual Social Media Week conferences held throughout the world earlier this month.  When the conversation came around to social ROI, here is what he reported was said:

I was speaking on a panel for Social Media Week New York when one of my fellow panelists said “This ROI stuff is just a bunch of crap. I’m so tired of it. You can’t measure what you’re doing and people should not even try.”

I began to twitch.

“I agree,” said the second panelist. “Too much focus is placed on measurement.”

My head began to throb.

“As a social media marketer, I can’t measure what I do,” said the moderator. “I just do it.”

Mark goes on to discuss his objections to this line of thinking regarding Social metrics and – in particular – Social ROI.  However, this view has been echoed by many of Social Pundits in the recent past.  As Mark points out in his blog:

Unfortunately, the tone is being set by some of our most beloved social media celebrities such as Gary Vaynerchuk,  David Meerman Scott and other high-profile pundits. When Gary is asked about the ROI of social media his famous reply is usually ‘Well, what’s the ROI of your mother?” Scott’s retort is usually something like “Why have a double standard? You don’t measure the ROI of the company receptionist.”

What is Social ROI?

We have been grappling with the challenge of developing Social ROI at Northwestern’s Medill IMC program and have found that the challenge isn’t in calculating ROI but understanding the many roles social media plays within a company.  If you understand how you are going to use social media from a business perspective, then you can determine which activities can be developed using ROI type measures.

Confused?  Think of Telemarketing

In my past life, I have had to build telecenters for several businesses.  When you design a telecenter, there are several type of telemarketing which occur every day.  There are two types of business activities in telemarketing, which are:

1. Inbound telemarketing – this is where businesses field questions from prospects and customers.  They call when they have a need [trigger event] or have been stimulated by some company ad or a discussion with a friend.
2. Outbound telemarketing – this is company driven activites where we initiate the contact for a specific marketing goal. 

If you think about these two types of telemarketing activities, the first is controlled by the market.  They call when they want to do discuss what they want to discuss. In telemarketing – as in social media – many of these interactions are untrackable because we don’t know the individual.  The conversation is 1-to-1 but anonymous.  This type of telemarketing is much like our social conversations on Twitter, Facebook or on forum sites.  These are social sites where people can find us to ask us questions and discuss options. 

Outbound telemarketing is much like blogging, viral programs, and other social media activities which are designed to stimulate a community to action.  It occurs because the company initiates an activity which impacts a target market and delivers them a communication & offer they find appealing [some of the time].  It is heavily tracked and measured … all the way through to the final sale.

How does this apply to Social Media and ROI?

When I cost justified a telecenter, the activities associated with inbound were viewed as either a pass-along cost to a specific marketing program or simply a business expense.  When a person called our center, we asked them if they could give us a code embedded on our advertising message [a keycode].  if they could do it, we would then attribute the call – and its related expense – back to the marketing program which generated the activity.  If it was a customer call for information, we attributed cost to the product.  When we couldn’t get the caller to give us information, it was considered untrackable and became a “cost of doing business”. 

In justifying our telecenter program, we could track customers who did and did not use the telecenter and did generate some ROI activity.  However, unless we could link it to a customer database, we could never generate ROI-type calculations.  This is similar to many social media programs.  Because they are anonymous and not linked to any database, they are simply expenses to a company and can never be measured.

Outbound programs are different.  They started with a market and – at every step in the process – contain tracking codes and links back to the source of the names.  This allows no only ROI tracking within the marketing effort but it allows us to track the impact of telemarketing on the lifetime value of our customers.  With tracking systems and a link of every outbound telemarketing activity to the customer database, we could determine the exact impact of outbound telemarketing on the value of every customer we acquired [and the cost of those we could not sell].

So where is the ROI in Social Media?

At Northwestern and my company – Marketing Synergy – we build social marketing which is designed to achieve two major objectives.  The first is it must “go viral”.  It must be so exceptional in the eye of our target community, it generates talk throughout the social community where our prospects congregate.  The second objective is it must drive the individual to an information exchange where we trade their email for mass customization & total control of the marketing process.  Unless they request information, they will not hear from us.

Why these two objectives?  Because having the email & other personal information lets us:

• Track the level of involvement on the social site
• Separate prospects from customers
• Identify all sales from each individual on our customer database
• Determine current and potential lifetime value
• Calculate ROI and other business measures

This allow us the ability to now have ROI from each of our social marketing programs.

Today, ROI is necessary to allow us to talk about our social programs and justify them with metrics used by senior management.  The key is to develop a business model which tailors social marketing to develop the tracking and metrics necessary to “speak” to the CEO.