Is SM ROI Important?

by Jay Deragon on 03/03/2009

The more business people I talk to about all this social stuff the consistent response I get is “Show me how to make money with it”. To this response I ask the following questions:

  1. How much money do you make with email?
  2. How much money do you make from your phone conversations?
  3. How to you measure the ROI on marketing materials, sales brochures, attendance at industry events?
  4. How much money do you make on a sales call?
  5. How much money do you make from your web site?

The consistent response is similar to a deer staring into the headlights of an oncoming car. Most business people think they are managing by measuring results and for “soft issues” they make up measures to satisfy themselves. Measuring business results has turned into a “counting game” without regard to the quality of the inputs, the relationships and the quality of the business which covers many aspects. (Wonder why we need an economic bailout?)

I find this whole social media ROI discussion rather sophomoric and only reflects the old school management philosophies which need to be transformed in order to survive.

What Can Be Measured?

Stephen Smith writes:The problem with trying to determine ROI for social media is you are trying to put numeric quantities around human interactions and conversations, which are not quantifiable.”

“To illustrate that point for all our measurement and metric geeks out there, what you are trying to do is assign multiple choice scoring to an essay question. It’s not possible.”

… “Ultimately, the key question to ask when measuring engagement is, ‘Are we getting what we want out of the conversation?’” And, as stubborn as it sounds Mr. CEO, you don’t get money out of a conversation.

“To further the discussion a bit, I sat down with Katie for an episode of SME-TV, which will be added to this post later today.”

“What Katie evangelized a bit in her session was that the conversation (comments on your content) was the best measure of a level of engagement. Avinash Kaushik says much of the same in his discussions on web analytics. This isn’t an end-around the need for ROI, it’s the answer. Or at least a big part of the answer.”

(Side note – Provided this is true, isn’t it sad that most companies haven’t even upgraded the technology used on their websites to enable commenting and conversation. Of course, it’s even more sad that if they had the technology right, they’re still afraid to use it. I digress.)

“When you ask businesses why they are participating in social media, what do they say? If they say, “to make money,” then they will fail because currency in the social web is found in both relationships and content. If they say, “to grow our business,” they’re just saying, “to make money,” in a nicer way. If they say, “to participate in the conversation,” which is the more appropriate reason to be involved in the social web, then why on earth would they not measure success by the value of the conversations they have?”

How and Why Do You Measure Relationships?

Any good sales person will tell you their number one objective is building relationships over time. Yet few if any company bothers to measure the cost of building relationships rather they measure the results of relationships. Measuring the results doesn’t tell you “how to build effective relations” or “which methods create the best relations.”

Relationships come from human experiences, not corporate spin and hyped promises. Human relationships are measured by trust, sincerity and common values. If you want a return on social media then focus on conversations that build lasting relationships based on value exchanged and create great experiences. Why is ROI so important? Because that is all you know how to manage. Get it?

What say you?

{ 14 comments }

eMarketing Expert Tips August 23, 2009 at 3:03 pm

WOW Top Internet Marketing, Social Media and Online Business Books you should have read but haven’t yet: http://htxt.it/87m0

powstash April 15, 2009 at 1:17 am

Ok, so my last tweet on measuring social media ROI? Scratch (most, err, some of) that. http://is.gd/5ee8

Ashley March 5, 2009 at 12:24 am

It sounds like you are gathering lots of different ideas in your blog. This is great stuff.

socialpr March 3, 2009 at 10:26 am

Now reading… Is SM ROI Important? | The Relationship Economy…… http://ow.ly/BbG

JDeragon March 3, 2009 at 9:41 am

Why is ROI so important? Because that is all you know how to manage. Get it?http://short.to/1ml8

JDeragon March 3, 2009 at 6:10 am

Is SM ROI Important?: The more business people I talk to about all this social stuff the consistent response I g.. http://tinyurl.com/6zy6ge

JDeragon March 3, 2009 at 5:52 am

Measuring the results doesn’t tell you how to build effective relations or which methods create the best relations. http://short.to/1ml8

StarGazon March 3, 2009 at 5:48 am

Is SM ROI Important? /The Relationship Economy……/ – The more business people I talk to about all this … http://tinyurl.com/63rlx4

JDeragon March 3, 2009 at 4:56 am

New blog post: Is SM ROI Important? http://tinyurl.com/6zy6ge

Stephen Smith October 31, 2008 at 4:49 pm

Thanks for linking – but I do want to point out that Jason Falls wrote the original article, and I wrote an expansion.

Dan October 30, 2008 at 11:51 pm

I think one problem is the persistent assumption that if it can’t be measured, it has no value. ROI is a short sighted valuation tool by most modern standards. A better measure is found in the concept of real options (contingency claims). In finance, an option is the right, without the obligation, of exercising the asset. Options have value. So just because you did not exercise the value of the conversation, this does not mean it has no value.

Perhaps what you learn today in a conversation will combine with your knowledge and become a powerful insight later. Maybe a bad idea today is a great idea when technology catches up. In fact, there is no such thing as an original thought – only a new combination of existing ideas that were acquired from someone else. You want to be able to exercise any options available to you. This is the value of social media – options. Relationships have value – they make lots of options. This is the agreement that we make to each other and the thread of social fabric in our communities.

In aggregate, we can generalize that a flow of value exists in every conversation, meeting, relationship, sketch, email, sales brochure, etc. While the value may not be directly observable, we can observe a proxy for that value.

Innovation economics (http://www.ingenesist.com/integration/the-definition-of-innovation.html) provides the following equation: I = dK/dt, K = di/dt

This means that Innovation is proportional to the rate of change of knowledge with respect to time. And it says that Knowledge is proportional to the rate of change of Information with respect to time. Therefore, if you want to measure innovation, simply find (or create) high rates of change of knowledge in you organization. If you want to measure knowledge, simple find (or create) high rates of change of information with respect to time. It works – trust me.

Therefore, if you can place a value on one thing; information, knowledge, or innovation, you can calculate the value of the other two.

Oh, one more thing – if you discover that people are innovating in an area that is not part of your product line, change your product line.

Joao Moraes October 30, 2008 at 3:26 pm

It’s a great article. An oversimplified measure should be how much, average, you receive from friends, followers, network selling them your product or services. But that is too simplistic and a narrow vision of relationship… People connected to your network should not be connected directly to you and should be a buyer. And, I think, is easier to sell to unknown people than to those in your network.

Jay Deragon October 30, 2008 at 12:50 pm

Yes to all the above. However there is a process to accomplishing the relationships and I spell it out here http://www.relationship-economy.com/?p=2142

. Hope this helps

Paul To October 30, 2008 at 11:05 am

Good point. What do you think is the alternative metrics then, to measure the effectiveness of a given social media site? Stickiness? Repeat visits? Dwell time?

Paul

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