Six Pixels of Separation - The Blog
January 20, 2010 8:45 PM

Killing ROI

How do you measure success? If this were a high school cheer, it would probably end in: "R-O-I!"

Ahh, the elusive ROI is Social Media. If yesterday's Blog post (Social Media Gurus - That Old Chestnut) didn't provoke some thought and commentary, then trying to crack the elusive Social Media ROI will surely get your noodle boiling. Richard Binhammer (from Dell's Social Media team) gave a private presentation yesterday and when one of the audience members asked about how Dell measures the ROI of their Social Media strategy, Binhammer responded that ROI was nothing more than an accounting term and probably has little to no place when it comes to measuring the success of any Social Media marketing initiative.

How would that make your clients, team members and supervisors feel?

Pushing Binhammer's comments further, he also said that if you're looking for the ROI in the campaign, you'll probably spend too much time, budget and energy just trying to figure out what your definition of ROI is, and concluded by saying that he doesn't think about ROI, rather he looks at the overall business objectives and if Social Media can help him meet those objectives, then that is what is ultimately the most important thing.

Let's repeat: forget the ROI and look at the business objectives.

In looking at business through this prism, Dell has changed the way they do business and - in doing so - they have made lots of money by being engaged and using everything Social Media that is under the sun. In a more primal way, they're focused on using Social Media to meet practical business objectives and not looking at the overall ROI. In thinking about Social Media and how it can help in overall business objectives, it does make things a lot easier to swallow.

Take a practical approach to this scenario...

  • Scenario 1 - Your company is having a customer service issue and is trying to figure out the best way to nip it in the bud. Someone in your department recommends a Social Media strategy, but the c-suite would like to know the ROI of using this approach before getting started.
  • Scenario 2 - Your company is having a customer service issue and is trying to figure out the best way to nip it in the bud. Someone in your department recommends a Social Media strategy because if the business objective is to correct the current course and to inform consumers about this scenario, Social Media is a great way to create, communicate and engage with people in a way that will also make the information easily findable and organic in terms of how it evolves. The c-suite becomes silent.

Both scenarios are similar/same.

Binhammer is on to something (he usually is). Thinking about business objectives instead of ROI makes the whole strategy that much workable and doable. In the end, instead of looking for the ROI in Social Media, maybe the smarter thing to do is to focus on what the business objectives are, and then figure out if Social Media is an effective means (from both a strategic and budgetary point of view) to help you and your business accomplish your goals.

Or, is this too much of an over-simplification? 

By Mitch Joel


Comments Comments Feed
  • Posted by Simon Young
    Mitch Joel

    That's very helpful inside an organisation, but when an outside supplier who focuses solely on social media is involved, they need to justify the investment required. So even if ROI isn't the term used, some sort of value needs to be put on the social media element.

    Which brings back up all those other questions about social media departments and social media agencies...

    Reply
  • Posted by Erika Barbosa
    Mitch Joel

    Great post Mitch! I actually was listening to a podcast this weekend about the same topic. David Meerman Scott was explaining this same perception of "ROI." I couldn't agree more.

    Reply
  • Posted by Jeremy Victor
    Mitch Joel

    Mitch, I think simplification is what we need.

    Binhammer speaks to it when he makes this point about ROI, "you'll probably spend too much time, budget and energy just trying to figure out what your definition of ROI is."

    Meanwhile when you are wasting your time doing that, your competitors are listening, engaging, and communicating with their customers, and more importantly, probably your customers too. That said, of course there is a need for measurements to let us know how we are doing, and identify what works and doesn't.

    But waiting for the next report from Forrester or Marketing Profs to come out to prove ROI exists in social media and then getting started...is a complete waste of time and in my opinion demonstrates lack of leadership and fear.

    Markets are evolving, the leaders have already begun adapting. Only time will tell what will happen to the late adopters.

    Reply
  • Posted by buzz
    Mitch Joel

    ROI is easy to measure. You measure it one customer at a time.

    Social media is about making personal and meaningful connections with consumers who tell two friends and so on and so on.

    http://www.cyberbuzz.com/2009/11/05/times-square-or-twitter/

    Reply
  • Posted by Kneale Mann
    Mitch Joel

    The issue with ROI is that those who count the beans think "I" only stands for money. Spend $1,000 and get it back. That is an insult to every human that works in the company because their time is worth a lot more than dollars on a general ledger.

    Without sustained engagement, hiring the best people, having laser focus on your offering and managing your expectations, convincing those who can't be convinced is not your highest priority.

    Reply
  • Mitch Joel

    Enlightening post Mitch,

    Intangible benefits, the bean counter nightmare. We measure what we can, but if you have to spend more time trying to figure out how to measure it than you spend doing it...Its probably because you are trying to fit an inadequate model on the thing.

    I like the way you present it in scenario 2. Presenting with a well defined problem to solve as a business objective makes it easier to justify. What happens however when its purely relational, the cost of engaging in the conversation.

    Becoming a good and influential social citizen of the web will cost money...and its not something that is easy to wrap our counting heads around...


    Reply
  • Posted by Ramsey Mohsen
    Mitch Joel

    This is extremely interesting and refreshing to hear- especially from a global brand like Dell. That said, I can't say I agree that an entire lack of ROI measurement is smart. Furthermore, getting execs to agree that as long as business objectives are met SM is justifiable ...nor do I think they'll keep signing the checks for the heads in the department(s) managing social media without some for of basic metrics. That's a tougher real-life scenario that most brands are faced with.

    Reply
  • Posted by Sheila Averbuch
    Mitch Joel

    Excellent post, Mitch, and thanks also for setting my poor brain on fire with the original Six Pixels book, which I am reading this week for the first time. I've been meeting clients in Dublin and Glasgow and have left a trail behind me telling every one of these contacts they need to read it. 99% of them said they are not using Twitter and 100% of them looked guilty and sheepish about it. When corporates talk about ROI of social media it may also -- in the Irish/Scottish business environment I work in any way -- the code for "I'm terrified of this medium, give me an excuse to ignore it by telling me the ROI is zero".

    Reply
  • Posted by John Hutson
    Mitch Joel

    Fantastic post! Thank you for putting it together.

    This is an area that I'm passionate about for sure. The whole subject is something that will continue to raise debate for a while yet.

    What gets me is its almost like companies are asking "How much is it going to cost me to care about my customers? How much will I get back?"

    What they don't seem to think about is how it can be used to raise brand awareness (something which they are happy to spend on billboards without concrete ROI), customer services, PR - the list is endless.

    How about product research? Asking their customers what they would like - all for free is invaluable research and could normally cost a lot of money and ultimately end with a product being created that no one wants.

    Yes - I do believe its worth trying to show the money but I think its a fantastic suggestion here: "if you're looking for the ROI in the campaign, you'll probably spend too much time, budget and energy just trying to figure out what your definition of ROI is"

    With the Dell Twitter campaign - that is fairly easy - it's trackable due to links and analytics showing the purchases made from those specific links.

    It's the overall use of Social Media that I believe doesnt fit into the "traditional" ROI model.

    Thanks again - and great comments above!

    Reply
  • Posted by Petter
    Mitch Joel

    This would be all well - except Dell ain't doing that great. Profitmargins has been slashed more than 50% year over year, and revenue is down. Still in the black, but losing ground. I have no exact details over how and what they do social media, and the impact of it - but apparently neither have they. Eventhough I agree that plain ROI is the answer to everything, how will they ever know if social media actually helps rather than just being a waste?

    Reply
  • Posted by Marcus Schaller
    Mitch Joel

    One reason social media ROI is so difficult to measure and communicate is because social media is not purely a promotional tool. It's not adwords. It serves more than one purpose.

    And while it's difficult to connect cause and effect in purely quantitative terms, I think it's reasonable for any smart manager or business leader to expect that an activity has the potential to lead to some bottom line benefit, whether in the short term (direct sales) or in the long term (market insight and customer interaction).

    Rather than dismiss the idea of ROI completely, we can adapt how we position social media and sell it to decision makers for what it is...a revolutionary yet still highly experimental communication tool that deserves a portion of our time, money and energy.

    Reply
  • Posted by richardatdell
    Mitch Joel

    Hi Mitch

    Appreciate your picking up on this and you certainly are on the track I was going. I also said I could talk for a whole separate presentation about the benefits (and costs) of social media.

    Petter, Ramsey too, we have numerous and various ways to at look at what we are achieving and how that contributes to business...ultimately adding benefit to the bottom line....but that is a cumulative and "project"/business-by-business based assessment. Also social media does not a business make...so trying to draw those kind of macro conclusions around one aspect of a global business sort of misses the point.

    My argument is not against metrics and measurement as it relates to social media and business. My point is that we sometimes get lost in the forest for the trees....and one step further, some of the traditional metrics and insights need revision when we think about social media and business....but fundamentally we do measure measure and measure more.

    Reply
  • Posted by Joe Szabo
    Mitch Joel

    Mitch, excellent perception. And kudos for the massive simplification.

    All too often the c-suite is concerned with ROI and the value they can out of going social. Instead, companies should do like DELL and provide value to their consumers - VALUE is the new experience.

    To all the c-suite who cannot see the value in that, I say put DELL in your ROI pipe on smoke it.

    Reply
  • Posted by Olga Kouzina
    Mitch Joel

    Great point, Mitch. to me, measuring ROI of social media in business is as useless a task as measuring ROI of a hand or of a leg standalone in the holistic human being.

    Reply
  • Posted by Barry Hurd
    Mitch Joel

    I always love simplification, but the statement you have made is still and ROI one.

    If you grade any tool by a YES / NO qualifier and can substantiate its benefit towards reaching a massive goal, ROI becomes an issue of YES / NO.

    The problem with most social media types is that they fail to create the fundamental framework.

    If you are a painter, does a paint brush have value? YES / NO

    Can you quantify the percentage of return on the dollars spent on the paintbrush vs the person using it, counter-balanced by the quality of paint, the absorbing factor of the canvas and compared against the drying time? (Probably not.)

    When asked about ROI, I often realize the person asking the question is attempting to quantify common sense.

    ~Barry Hurd

    Reply
  • Posted by Travis Bryant
    Mitch Joel

    His thoughts seem pretty coherent, though it would be nice to see how the objectives fulfill the ROI requirement. The problem is that social media practitioners can not be seen as "swapping the scale". Something akin to 'we can't show how SM impacts ROI, so lets measure by something else... ahhh, success!' or 'I'm not loosing enough weight so I'm going to move around the numbers on my scale & compare myself to a whale... ahhh, success!'

    I've heard you say "with, not instead of", that is the key to understanding social media strategies. As much as they work, there is a limit to their scope and that one quote communicates that. Marketers have always had tools and strategies that couldn't be measured by the bean counters. This is no different.

    Reply
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