Friday, 16 March 2012

You can't measure the ROI of Social Media. Stop trying.

I could have written this post under the title "How to measure the ROI of Social Media." There are a lot of pieces scattered across the internet already with that title, but it seems to be the done thing to write a 'How To' and then not actually explain how to do it all. On Wallpapering Fog though, we try to avoid misleading headlines - if we didn't, the site's traffic figures would probably be higher.

If you'd like to read some posts that claim to tell you how it's done, try Google. Or Twitter. There's even a book.

So, this post will not explain how to measure social ROI.

What it will do, is explain why a marketing analyst, a person whose job it is to measure the ROI of all sorts of media, says it can almost never be done. To clear up any confusion, that analyst would be me.

Let's start with what ROI means because there have been some quite determined efforts to corrupt the term and it really does mean something specific. ROI stands for "Return On Investment" and that means money. If an activity has a positive ROI, then it makes more money for a company than it costs to run. Easy, right?

Unfortunately, this means that cost per follower, cost per share, cost per like, cost per view and any other easy to generate social metrics that you might care to name are not a measurement of ROI. "Return" in "Return on Investment" means financial return; it means £ or $ and that's all it ever means. I'm not saying cost per follower is irrelevant (we'll come back to that another time) but it is not ROI. Saying that it is, will very likely wind up the finance department of whichever company you're talking to, even if you manage to sneak it past the marketing director.

To prove that Social Media makes more money than it costs, we're going to need to do two things; work out what it costs and then show that in the end we sold enough extra product as a direct result of the activity to pay for the campaign. These must be sales that would not have happened without running a social media campaign.

The first bit's easy, if a little unorthodox vs. traditional media channels. The cost is the cost of any content you need to create or buy, plus the time of the staff who keep the social presence running, plus any fees you have to pay agencies. That might be quite a bit of money; viral (and effective) doesn't necessarily mean cheap. You might need to pay for some boffins and a load of tech, like Mercedes did recently to make cars disappear...

Ok, we've spent some money and made a noise in a corner of the internet. Now we come to the hard bit; did a social presence persuade people to buy more of our product?

Let's park the idea that our social efforts may not have sold anything at all and just assume that they did persuade people to buy. I don't want to get into a debate about whether social works or not as it doesn't really matter for this post. Social could be tremendously effective and it still wouldn't be measurable.

As an example, we'll take an imaginary company - make it a car manufacturer - that's taken the plunge into social, with a Twitter account and a Facebook page for their brand. I've picked a car manufacturer partly because measuring any marketing impact on car sales is pretty difficult, which means social ROI measurement has a definite challenge on its hands.

It's difficult to measure the impact of marketing on car sales because people usually take several months to decide which car to buy, so we're trying to attribute a sale now, to some marketing activity that happened three months ago. If the buyer has seen loads of marketing messages over the past three months, then which one do you choose?

To measure by how much any activity has increased sales, we look for uplifts. These might be big uplifts that are easy to measure - like half price promotions, which put a big spike in sales - or they might be smaller uplifts that need econometric models to find. As long as the uplifts are there (essentially, if advertising achieves anything...) then we've got a chance of measuring them and working out what an activity did. It really helps if the uplifts happen at roughly the same time as the marketing campaign, which again, is why cars are difficult.

A thought experiment with social media though, says we're going to be in trouble straight away.
How might social media work? And if its working, what would the uplifts look like?

To begin with, social media could sell our product to completely new customers, who have never thought of buying us before.

Which is tricky. If these customers don't consider our product right now, then what are they doing following the brand on Facebook?  Most people who follow us and consume our content are probably already customers. This moves the measurement from 'can I see new customers being won?' to 'can I see existing customers not leaving?.

Now we're not trying to measure a spike in sales, we're trying to measure something not happening; trying to measure existing customers not leaving. We've got no chance.

If social media was a fantastically effective way to prevent customers from leaving, we wouldn't see a spike in sales that coincided with activity on  the Facebook page; we'd see a customer base that was a little less likely to defect to a competitor. We'd have almost no chance of measuring that.

Then there's a second problem, that puts the final nail in the social measurement coffin. If social media works, then it's reasonable to expect that it will work slowly. We've already said for this example that people will decide slowly which car to buy. Social persuades with a steady drip of content and so it's slowly changing that decision (if it works - I'm not an evangelist for social, I'm just pointing out the measurement difficulties...)

Crucially for social measurement, there is no change in sales that you can point at; no sudden step upwards and no short term spikes. If social was hugely effective (please do note the 'if') then you'd see sales start to slowly trend upwards some time after you started to invest in it. You wouldn't be able to blame that upward trend definitively on your Facebook efforts, because it could have been caused by many different things. Life's never quite as simple as beginning a Facebook page in January and then six months later being able to point at the start of a mysterious upward trend in sales, starting from that date.

All of which is why I don't claim to be able to measure the ROI of social media and am deeply suspicious of those who say they can. Especially after having read quite a few pieces titled "how to measure the ROI of social media".

That's not to say there's carte blanche to go social crazy with the client's marketing budget. There are good metrics and a framework for social to give you the best chance of making a good investment and once we park ROI, we can have a sensible conversation about what they might be. Maybe next post...


Nigel Sarbutts said...

I don't disagree with the general tone and I too am fed up with misleading blogs on this but you are treating social media, in quite a narrow way, as if it were only something to make money.
ROI can be measured in cost savings, for example where social amplifies the reach of a campaign using other media, possibly even displacing media spend elsewhere. It may be used as an alternative to market research, it may be used to amplify or displace investment in SEO and so forth.
It's an understandable thing to ask what is the ROI, but given that we don't yet have reliable ways to measure the ROI of other forms of marketing that have been around since Caxton's day, it's a little naive to expect social media to have the silver bullet just yet.
As someone smarter than me said "You might as well try to measure the ROI of your phone system".

Neil Charles said...

Hi Nigel,

I do think that all marketing has a 'narrow' goal to only make money for a company, unless you're explicitly being charitable. Even if you say CSR, then I think many CEOs would expect there to be a tangible share value return from being seen to do 'good things'.

You raise a good point that making money might not be a direct income stream though. It could be opportunity costs (like the alternatives to having a phone system), which just makes ROI measurement all the more difficult.

If you're displacing SEO, then proof of ROI would be proof that that for the same cost, you can win more sales than SEO did (and profitably). For me, all marketing investments always come under the umbrella that in the end, they must make more money than they cost - it's just a question of whether you can prove it or not.