March 17, 2012

Unraveling the Mystery of ROI in Social Media

“Show me the ROI from social media.” I can’t tell you how often I hear this. Over, and over, and over again. In fact it is endemic with every person and organization participating in the medium. It was even a huge controversy at one of the largest social media parties in America: SXSW. Needless to say it is a topic that has become tired and vapid and rarely yields satisfactory answers for those asking the questions. I’ve talked about it over, and over, and over again and I too feel my answers are becoming cliche. But an epiphany hit me today as I sat with the rain pounding the Napa Valley. It is all about the flaw of the question, the multi-purpose function of the medium, the false expectations of the market (I blame Google), the misunderstanding of the term ROI, and the people who ask the questions understanding their own business goals. To keep this post short(er), I won’t go into all of these but instead focus on two important principles: the meaning of ROI and what we see as the three buckets of measuring social media.

First and foremost it seems that in the context of social media the acronym ROI has been forged into a singular meaning of “efforts that convert directly into sales.” I am not sure where the disconnect started but it likely originated from the skeptics and naysayers with myopic phrases like “show me the money” or “social media does not make sales so it has no ROI.” Borrowing a statement from one of my favorite thought-leaders in social media Brian Solis in his forward for Olivier Blanchard’s incredible book: “it’s impossible to measure the ROI for something if we haven’t first established the R (return) or the I (investment).”

Secondly finding ROI in social media has hit three major categories:

The Baseline

Social Media is no longer a novelty. The Internet has been socialized and there is no turning back. The traditional consumers of content have been empowered and are now the biggest producers of content. Social customers are increasingly turning to their social and interest graphs for product information, recommendations, and support. For brands it is no longer acceptable to ignore social media. Just as when businesses adopted the telephone, added fax machines, started using email, and established websites, social media is now just part of doing business. I think we can all agree that the pace of change in the digital arena is only accelerating. Whether brands choose to evolve and embrace these new channels or hope they fade away, the adoption of these channels by consumers in all demographics is unstoppable. Therefore, at least at a base level, a minimal investment in social media has become a requirement. Fully leveraging the medium and maximizing the return are where we need to focus. Interacting with customers is one of the greatest investments a business can make and almost always yields the greatest return. Social media represents an extremely cost-effective and scalable medium for businesses of all sizes to connect with their customers.

The “R” in ROI

Then there are the tactical goals associated with your strategy with social media. This is a very clear function of defining your goal and measuring your investment vs. your return. Your investment can be money, time, product, intellectual property, etc, etc and your “R” (return) can be increased engagement, better brand awareness, reduced wine club churn, increased second sales, email acquisition, and so on. Your goal can even be, *gasp*, sales. In this way social media can definitely be measured and you can assess the ROI of your efforts. But there is no single magic formula that determines ROI. It is specific to the individual goals of the business. This is a basic concept and is (hopefully) one we are already applying to our other business activities (advertising, marketing, sales, operations, etc). For more specific guidance and tactics for assessing ROI in social media, I highly recommended the book from Oliver Blanchard. You can learn more about the book or buy it here:  Another AMAZING post about ROI in social media is from Brian Solis himself:

The Macro Measurement – Business Health

Yes, we are all in business to make money and the ultimate measurement of success is a sustainable business. In this way we measure the contributions from all our efforts to the overall success of the business (sales, marketing, operations, finance, public relations, technology, R&D, etc, etc). Interestingly social media has real use cases for almost every department and can contribute tactically to achieving the strategies for each business unit. But rarely do we say that one component of any of our strategies and one of our singular tools/channels is responsible for contributing to the health of the business. I have rarely heard that operations, finance, public relations et al using a singular tactic that ensured the health of our business. I am still confused why we still look to social media as the panacea for business health.

Footnote for perspective on ROI as viewed through the expectation of conversion in the wine industry.

With so much focus on trying to determine the ROI of social media as a tool for converting to sales perhaps we should take a look at common tactics we use and their ROI:

  • Is email marketing the magic pill? Ha, you are killing it if you get an average of 2.9% sales conversion?
  • How about direct mail? Consider your sell a master if you get .5% – 1.5% conversion?
  • Advertising? How many of you think traditional advertising works anymore . . .?
  • Wine Events? Once upon a time this used to be a great way to meet customers. Now, due to the amount of competition and the way they are marketed, they tend to be drunk fests and are a complete waste of money and time.
  • Publicity? Yes, publicity works but with the decline in traditional media, the increase in wineries looking for stories, you’re left with a hope and a prayer to earn a story and that readers will be drawn the story.
  • Wholesalers? We all know that playbook is from the 1970’s and for the majority of brands, using the traditional tier is no longer dependable.
  • Telemarketing? Probably one of the most effective and underutilized sales channels in the wine industry. However it is costly and frowned upon. Ironically, though, this 1:1 communication sounds a lot like . . . social media (just without the other advantages of reach, etc.)
PS – After I posted this article Oliver Blanchard did another amazing post about measuring ROI:

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  • Interesting post…..I am always searching posts of these type of informative topics.Thanks for posting…..!!!

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  • Paul – Right on, except on one point. I find wine events still to be a great way to connect – but you have to choose the right wine events. Tis true that many of the big events are drunk fests, because the goal has become to maximize attendance. Smaller events and events that attempt to qualify their attendees are still a great opportunity to connect with new friends and reconnect with old friends. 

    One thing I keep saying about SM is that “you don’t get to pick the way your fans connect with you.” Some want to connect on Facebook et al, but there are still plenty that want to connect in person. And, the wine event and SM can reinforce each other: SM gets them to the wine event, and the wine event drives them to your SM.

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  • Biancaben48

    Interesting. I really like the quote from Brian Solis.

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  • Interesting, but the article fails to address specifics when it comes to measuring successful ROI.  ROI has to be a measurable quotient or it becomes relegated to opinion and supposition.  If Kendall Jackson is considered a social media success because of widespread brand recognition, is it because they have successfully communicated with their individual consumers, or is it because their “social media” contribution is massively widespread availability of product and the social interaction is their label prominence? 

    Secondly “social media involvement” is referenced from the perspective of brand building, which is not such a simple goal in the wine industry.  Many small producers are not in the business of brand building but product sales, and as such any investments of time or money have to be reflected by some form return.  The term “social media” is way too broad of a term to dissect effectively in such a forum as social media is most often interpreted as facebook, twitter etc. yet social media can be as simple as a shelf talker, a radio ad, a billboard, or a bikini clad girl waving a sign.  Each of these interact in a social context.

    Ultimately the “tech based social media” can have its effectiveness measured, and the investor must decide if they are satisfied by the ROI by measuring sales or social engagement.

    Lastly, and for the small producer, the most effective method of social media engagement is DTC.  

    • Juliuso, In regards to specifics, that can only be accomplished by outlining a goal and then putting an equation to it.  The point is have a goal (an “R”) and then measure the success of that vs. the investment “I.”

      Brand building was not the focus, it is just one method of leveraging social media but a functioning business is like a watch with each department being a gear and social media being one cog in all of those gears.  Social media is NOT a shelf talker or a radio ad, or the other forms you mentioned.  Those are push media efforts with no two way communication form the customer to the brand.I don’t disagree that DTC is a key factor for MANY small wineries and social media allows them to scale their customer relations to ensure they retain and acquire new customers.  It cost less to retain a customer than to acquire one . . .

  • Sean P. Sullivan

    Paul, to your point, whenever a winery asks me about the ROI of Social Media I ask them:

    Did you pour your wines at an event last month?
    How much did it cost you to participate in the event?
    How much wine did you pour at the event?
    How much did that wine cost?
    What were your travel/labor costs to participate in the event?
    You didn’t sell any wine, so what exactly was the ROI?

    Wineries are used to participating in these events and most consider it a cost of business yet inexplicably seem to hold Social Media to a higher standard. Several years ago I thought of this as skepticism. Increasingly I think of it as ignorance.

  • My experience in business is whenever someone wants to can an idea that’s unproven, they will ask for an ROI calculation. Once they get the calculation, they point to the assumptions as unrealistic and unsupported. Well dugh! How can assumptions about a new or evolving concept be supported with historic fact? Its a circular argument. Its also no different than the difficulty traditional advertisers have historically had in proving the ROI of marketing and PR. Its hard to measure.

    None of that matters. A calculated ROI will never prove to be supportive to making a decision about entering the fray or standing on the sidelines. Mearurements have to be made to support instinct, but inevitably this is all the same issue we struggled with when the PC came out and there was no software. We didn’t know what to do with it.

    The real issue today isn’t ROI but risk (Beta) in actually meeting goals assigned to any SM campaign and outreach. In this case, the examples of success have to be more apparent before the territory will be settled by settlers…. followers. Until then, Pioneers will get shot on the one hand and have first mover advantage on the other.

    Its still early in the game to bet the whole farm on successfully executing a strategy. Its very late in the game to start thinking about Social, but at least there is still time on the clock for the more cautious among us. 

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  • Nice article! Goal setting is important. I wrote a similar article outlining 5 quick tips for achieving social media ROI:

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