Is Social Media ROI for Real?

Ask any CEO about proposed marketing initiatives and his first question will always be: Where's the return on investment (ROI)? Sounds reasonable. But what happens when the proposed initiative is one that can't properly be measured? What can marketing teams do to convince their bosses that success doesn't always reveal itself in numerical form? This has always been the dilemma of social media marketing (and, according to analysts, will continue to be for some time). We all think Facebook and Twitter help build brand awareness but we have only anecdotal evidence to prove their value. A new report by Forrester Research titled The ROI of Social Media Marketing contains a benchmarking scorecard geared toward helping brands evaluate how and why their social media initiatives work (or fail).

"With any other marketing channel the actual financial ROI is not always going to be possible to measure," says the report's author, Senior Forrester Analyst Augie Ray. "What we wanted to do with this report was to advise our clients to look at the benefits of social media that are long-term in nature [rather than the sales or cost-cutting benefits."

The true way to properly value the impact of social media marketing investments, is to align objectives, metrics, targets and strategies across four perspectives, Ray writes. The four perspectives are financial, digital, brand and risk management.

The inspiration for Forrester's social media scorecard is a book written in 1996 by Robert S. Kaplan and David P. Norton called The Balanced Scorecard: Translating Strategy into Action. The book evaluated business impact from four perspectives: financial, customer, internal processes, and learning and growth. The four perspectives Forrester uses to assess social media initiatives in the report are:

1. Financial: Has revenue or profit increased or costs decreased?
2. Digital: Has the company enhanced its owned and earned digital assets?
3. Brand: Have consumer attitudes about the brand improved?
4. Risk Management: Is the organization better prepared to note and respond to attacks or problems that affect reputation?

The benefits of a balanced scorecard will allow companies to align measurement on all corporate objectives, rather than focusing simply on sales. "A properly designed social media marketing Balanced Scorecard validates achievement of broad-based objectives rather than merely counting dollars," Ray writes.

Companies should also be able to better enhance strategic development processes as a result of their scorecards. The ability to define success measures and set targets for those measures will help businesses furnish a solid foundation for "approving or rejecting proposed strategies and tactics," says the report.

Two other important benefits of a balanced scorecard are A) Building a consensus on metrics and targets among shareholders as a means by which to take account all the varying needs a company has and B) avoiding short-term gains at the expense of long-term brand health by limiting promotions that may allow consumers to "substitute affinity for the brand with affinity for discounts."

Measurements of social media initiatives, though difficult to come by, are possible to collect. The report suggests businesses evaluate:

• Promotion response rates with social-enabled commerce;
• Improvements in average consumer spend and share of wallet;
• Savings from decreased return rates;
• Costs eliminated; and
• Brand impact in the social channel.

 "Increases in conversions and revenues per sale are the most obvious monetary result, and are relatively easy to measure using trackable URLs and adserver tags," writes Ray, "but marketers can measure a wide range of other financial benefits."

Ray argues that social media can also be used to manage risk, a task that can't truly be measured and assigned any ROI. The risk management perspective is "not about creating positive ROI but reducing unforeseen negative ROI in the future," the report explains.

According to the report, the way to assess risk management is to:

• Estimate the costs of potential PR issues;
• Forecast the likelihood of these issues in the next year; and
• Consider the extent to which the costs may be reduced.

 Assessing these three benchmarks will help companies "consider how your social media preparedness and assets can reduce these costs across several different social media crisis scenarios," Ray writes.

The report offers final recommendations for companies interested in implementing social marketing campaigns:

• Develop a social media marketing Balanced Scorecard as part of the POST process;
• Eliminate financial measures that are not direct and attributable;
• Do not rely on just one or two perspectives; and
• Don't use the term "ROI" unless you are referencing financial returns.

Try explaining that last recommendation to your CEO! 

Related Articles

The 6 Hidden Dangers of Social Media

CRM Evolution '10 — Day 3: Companies are eager to make their presence known on the social Web, but they must remember to look before they leap.

The 5 Ms of Social Insight

CRM Evolution '10 — Day 1: "Social will be like air in 2011," says Altimeter Partner Ray Wang in presenting the top use cases for social CRM.

Social Media: The Five-Year Forecast

Social media has only just taken off, says Forrester analyst Jeremiah Owyang -- and his "Future of the Social Web" report says social networks and marketers will have to change their strategies. "Bad things will happen," he says.

Listen and Ye Shall Hear: 2009 Forrester Wave on Listening Platforms

Forrester Wave on Listening Platforms '09: The analyst firm listens closely to a market segment that used to be known as brand monitoring.