The ROI for social media engagement is increased sales revenue…the same as it ever was…

Lately, there has been some serious mumbo jumbo presented in models and blogs talking up the complexity of measuring social media ‘ROI’.  You know…a quadrant for this and a quadrant for that…with arrows going in every direction accompanied by an opaque consulting jargon and expensive reports to explain the opaque jargon. Suddenly, we are hearing an old siren’s song.  “non financial ROI”. 

Anyone else experiencing déjà vu?

When the young priest in the movie the Exorcist claimed he heard the voices of many demons coming from the possessed body of Regan, the old priest replied dismissively…”there is only one”!

The only ROI for engagement in the social medium is revenue from sale of product and service.  That is of course, unless you are not in the business of making money. 

David Ogilvy famously said “let’s not forget, the purpose of advertising is to sell product”.  Amen brother.  That’s the purpose of engaging in social media too.

You can measure anything you like on a balanced scorecard.  If expending funds to deliver those goals doesn’t coincide with an increase in net earnings over some specific timeframe, your shareholders will trample you in the rush for the door. Remember, capital has other places to go and competing returns and risks.  

Clayton Christensen  reasonably justifies investment in social media engagement as investment in disruptive innovation.  By its nature, disruptive innovation may or may not provide immediate or even downstream financial benefits.  Christensen gives excellent justifications for engaging anyway.  They just aren’t ROI justifications.  They play more to the strategic competitive risk of not engaging a new technology.

If there is no immediate ROI, no amount of intellectual masturbation around new evaluation metrics will change that fact.  You can justify the cost of engagement in social media anyway you please at the end of the day.  That justification doesn’t necessarily amount to an ROI.

The problem with calculating an ROI for social media engagement only arises if engagement has little or nothing to do with improving sales revenue or retaining customers now.  If that shoe fits, then wear it.  Let’s not start a new cult of flawed investment logic like those which characterized the dot-com era or the recent housing bubble.

Drill down one level and ask, does my engagement in social media do anything to either reduce the attrition of existing customers or increase the number of new customers acquired?

If the answer is “yes”, your engagement, including basic brand management and simple customer service initiatives should produce a measurable ROI.  The next task is to forecast the impact you expect to have on revenue over a specific timeframe, and the costs you need to expend in order to deliver that ROI.  This will give you a forecast ROI.  Putting the sanity of that forecast aside, you will ALWAYS be left with the actual ROI….actual revenue and actual costs of engagement over any period.

Where the evaluation of actual ROI is concerned, the devil is always in the detail.  Depending on the nature of the business, evaluation methodology will always hit hurdles when it needs to separate the revenue contribution of multi-media campaigns across product.  Suffice to say there are numerous methods for determining the impact of each campaign medium on the financial result.  Often, history holds the key. Staggering the campaign elements can help distil the ROI from an investment in any medium.

Customer service and brand awareness campaigns may not be aimed at immediate sales, but if they don’t ameliorate the attrition of existing customers or bolster sales over extended periods, what good are they?  Again, determining the impact of service and awareness campaigns can be achieved by looking back into history for ‘before and after’ results.  You can run a million polls and surveys, but what do they mean without an increase in sales over some specified timeframe?

It is always better to engage in a campaign where the means for evaluation of ROI are imbedded in the design, than to launch a campaign and then start asking how to determine whether it is making a difference to sales. These are hardly new challenges for companies that believe in measuring real ROI.

Without a forecast ROI, you may as well say, “I don’t have any idea of what financial return I expect to see as a result of investing in social media engagement”.  Again, you can waive the requirement for a financial justification for engagement.  Just don’t try to morph ROI into something it isn’t.

The bottom line is; Don’t engage until you have a financial evaluation methodology defined.  Know why you expect an ROI to result.  Know the time frame over which you expect to see results. Know how you intend to measure the ROI inside the campaign term.  Engage for other reasons if you wish…but don’t call it ROI.

When the novelty , excitement , vagaries and idiosyncrasies of social media subside, or are better understood, ROI will be seen to apply to this new medium just as it did in every preceding medium.  In this context there is nothing new under the sun. The definitions for earnings, revenue, profit, expense and assets will retain the same meanings over time.  Of that I’m sure.