The return on investment for social media marketing is not an easy thing to determine. It’s not easy to measure. It’s not easy to argue. It’s not easy to prove.

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I’ll pause while the Kool-Aid drinkers curse at the screen and jump to the comments to call me names before reading the rest of the post.

For more on my thoughts, please revisit this post and conversation with Katie Payne from PRSA International last year.

What is easier to determine, measure, argue and prove (or at least so we think) is the investment in traditional media. This is why we evangelists have such a hard time with the subject matter of ROI. The irony is that traditional media is impossible to accurately measure while social media is less so.

But brand managers and C-level executives won’t accept the less than two percent return rate on the average paid search or email marketing campaign because folks like Nielsen and Arbitron have been telling them for years they’ve been getting 25-30 percent return on million dollar TV buys or radio campaigns. Throw in soft dollar metrics we can advocate for social media (impressions/unique visitors, subscribers, comments, followers, friends, online sentiment and tone, net promoter score and the like) and executives laugh social media out of legitimate conversations.

Decision-makers want to know, “If I spend X amount of dollars on social media, what does it get me?” And Twitter followers doesn’t impress them. You can build a business case for building a community of engaged consumers, noting that the lifetime value of a consumer is worth more than one-off sales of your product. But to truly build a vast community of loyal customers that can impact your bottom line in “good ROI” ways takes an investment of both time and resources.

That’s right. Resources. Social media is not free. (The Kool-Aid drinkers left can now fast forward to the name-calling.)

Let’s look at the reality of the mediums at this point. (I do think this is changing, but not fast enough for us social media evangelists to win this argument.) Spend $100,000 on social media and, let’s say, you wind up with some content, engagement with your audience and online buzz and the foundation for cultivating relationships with a few thousand, even optimistically 100,000, interested fans moving forward. You see a slight up-tick in sales, but nothing that moves the needle any more than the weather does, and forecasts are strong. That’s a pretty strong ROI in my opinion.

Spend $1,000,000 on a television commercial/campaign with strong creative and targeted media placement and show a six percent increase in sales, better brand recognition and so on.

(I made up the numbers. I know national TV can’t be done for $1MM. Oh wait. The Kool-Aid peckerheads aren’t reading anymore anyway. Never mind.)

Daniel Wiggins of Bouvier Kelly asked me recently what I thought about spending money on traditional versus social media. I’m sure he’ll blog some of my answers soon. One thing I told him, though, stood out as I re-read the email:

“As much as we love social media, the audience there is opt in. Mass media isn’t. Even though the messages are force fed to consumers they still have better reach. We need to build communities of consumers through social media to the point mass media becomes less effective in driving people where we want them to go. Until then, we should use the traditional to help populate the non.”

This isn’t the state of the world and end of the story. It’s just where we are now. I’m hoping we can continue this discussion both now in the comments and six months from now at South by Southwest Interactive in Austin, Texas. The brilliant Keith Burtis has put together a panel discussion called, “Prove it! Exploring Social Media ROI for Business.” He’s asked me to be on the panel along with this impressive list of social media and business thinkers: Amber Naslund of Radian6; Sue Murphy of Jester Creative; Alan Isfan, CEO of Favequest; Jay Berkowitz, CEO of 10 Golden Rules and Justin Levy of New Marketing Labs. In order for that panel to happen, we need some help with the voting. If you’d like to see that panel happen, click here to vote for it.

These folks are going to blog about this panel, too, in the coming days. I encourage you to subscribe to their blogs, hear what they have to say on the issue and comment. Add to our collective thoughts on this so the panel can be better informed and we can all begin to inch closer to better answers when people ask us how to measure the ROI of social media.

In the meantime, leap-frog through the Kool-Aid kids below and fire off some thoughts. I’d love to hear what you think.

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About Jason Falls

Jason Falls

Jason Falls is the founder and chief instigator for Social Media Explorer's blog and signature Explore events. He is a leading thinker, speaker and strategist in the world of digital marketing and is co-author of two books, No Bullshit Social Media: The All-Business, No-Hype Guide To Social Media Marketing and The Rebel's Guide To Email Marketing. By day, he leads digital strategy for CafePress, one of the world's largest online retailers. His opinions are his, not necessarily theirs. Follow him on Twitter (@JasonFalls).

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Comments Policy

Comments on Social Media Explorer are open to anyone. However, I will remove any comment that is disrespectful and not in the spirit of intelligent discourse. You are welcome to leave links to content relevant to the conversation, but I reserve the right to remove it if I don't see the relevancy. Be nice, have fun. Fair?

  • http://en-gb.facebook.com/craig.mcgill Craig McGill

    The thing about traditional advertising and the ROI on it that annoys me is that you cannot guarantee a person reads that page or is listening/watching TV and radio at the right moment, therefore in a lot of cases it can have a ROI of zero.

    • http://socialmediaexplorer.com JasonFalls

      Hey Craig. Thanks for the comment. I agree with you. The numbers Nielsen and Arbitron and other measurement and rating firms have produced over the years are small samples extrapolated out with a lot of assumptions. Now that marketers are dealing with the Internet, they see a very low (in comparison) rate of return. My argument is the rate of return has always been that low, the numbers have just been inflated based on fuzzy math. (Anecdotal information only. No research to back that up.)

      I always leave them stumped when I say, “What's the ROI of a billboard?” You can't tell me unless you put a team of people counting every person who sees it and then acts upon it. Measurement doesn't scale. You have to guess. I think we've been bad guessers for a while. The web, however, gives you hard numbers. They just aren't as good as our guesses.

  • http://www.smoginc.com/ David Breznau

    Jason – Why one or the other? Why are the few, still having traditional, non-traditional conversations? Does anyone still believe they are separate? Can somebody say “integration?” And what about context? If I'm a local business owner trying to create local or even regional awareness, WOM (social platforms) are still an investment that I CAN afford and my ROI is significant. I have two local clients that are having great success with their efforts.

    From a national brand POV, there are plenty of successful examples. Best Buy being the most referenced.

    Keep serving up those “conversation” starters. I'm sure you're on your way to being labeled a “thought leader” and a “trust agent”, just a few ingredients in the Kool-Aid.

    • http://socialmediaexplorer.com JasonFalls

      Because executives who pay us don't see the two as separate. Spend X on TV get Y. Spend X on social media … what do I get? That's what we hear. And when we start talking the real return on social media investment … relationships and passion for the company, they say, “Can we have it by next quarter?”

      CEOs have become ADD as well.

      I don't disagree with you at all. It's just how it is in many cases.

  • JenZingsheim

    This is why when I speak I always emphasize a mix of both. Use traditional to find/attract the new consumers a brand needs to grow, and use targeted social media to engage and motivate brand fans. I guess I'm still baffled why anyone would present this as an either/or–the mediums serve different functions. A combination of the two allows for the highest likelihood that a brand will get the best bang for the buck (if, of course, it's well thought out and planned).

    Yes, it's hard (but not impossible) to measure–but again, this shouldn't be a surprise to anyone. Humans are sometimes unpredictable. Other times totally predictable. As Craig points out, a lot of the traditional metrics are junk (Mark Story has a great analogy about impressions and window shopping) and don't even get me started on the garbage that is “ad-value equivalency.” What I would hope to avoid is ending up with the same sort of made-up math being applied to social media.

    Measurement across all media platforms needs a total revamp. Where should it start? Top-down, or in marketing/PR classes in college? Now there's a conversation… :-)

    Great post.

    • http://socialmediaexplorer.com JasonFalls

      Can't disagree with you, Jen. Well said and thanks for chiming in!

  • http://ryanstephensmarketing.com/blog/ ryanstephens

    Jason – I love that everyone is starting to get serious about this conversation. Valeria yesterday, and Olivier had an awesome presentation on ROI at Charlotte's #SoFresh conference on Monday.

    Like I mentioned to Olivier, the ROI = Return on Influence or ROE = Return on Emotion and all that are fine and dandy provided they're a precursor for the bottom line. That's how we get big businesses to fund our efforts, that's how we move the right needles to convince others.

    Good stuff.

    • http://socialmediaexplorer.com JasonFalls

      Agreed, Ryan. The business angle is they want to know where the dollars are coming from and when they're coming. If we can't draw lines to that answer, we're going to have a hard time selling it through.

      Thanks for the comment.

  • http://www.moderndaygeeks.com/ Paolo Pazzia

    Thank you for the Panel Links – your post helped affirm that i'm not crazy, and that there are other people out there who are just as peeved as i am about the needle not moving as much on anything soft (btw, finally found someone who uses my diction as well…so tks again…lol)

    Anyways, i anxiously await the posts to follow.
    @paolopazzia

    • http://socialmediaexplorer.com JasonFalls

      Thanks Paolo. Appreciate the comment.

  • sabrina829

    Great post Jason. I think “traditional” ROI is something that will continue to be something that some people will always want. However, I think that new and social media are presenting a new wide variety of ROI factors that can't be traditionally measured.

    For example, traditional advertising may get you site views and if that is your only goal… awesome, congrats. However, your blog will not only get you site views, but it also gives you commentary which will lead to not only site views but discussion, comments, and conversation. Right now that may not mean much to a lot of big wigs, but eventually, they will get it… and even if they don't “get it” for real… they will want to do it anyway to keep up with the competitor.

    Really enjoying what you have to say… keep up the great work.

    • http://socialmediaexplorer.com JasonFalls

      Thank you, Sabrina. I appreciate the feedback. You're right that the metrics are changing. We just have to manage expectation until everyone understands them.

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  • smseonext

    SeoNext Social media measurement is one of those topics about which everyone has an opinion, but nobody agrees on the solution.In the absence of any accepted metrics, businesses still need to be able to determine whether or not a social media program is moving the needle, moving product or otherwise making an impact. This largely depends on the company’s social media objectives.Really a great post.

    • http://socialmediaexplorer.com JasonFalls

      Thanks for chiming in. You said it … depends on the objectives, which should include measures for success. Well done.

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  • http://blog.owengreaves.com owengreaves

    Traditional is still more accepted because they don't understand the difference or know how to measure conversations. It's even worse here in my area, virtually no one uses Social Media for any purpose. I wrote about this on my Blog as well, Am I Crying Wolf – The Tidal Wave Is Coming, although traditional formulas for ROI are the norm the shift will take place as more education on the metrics of SMROI become better explained.

    Talking about this topic more and providing more opportunities to educate business owners and executives will only help, good on you for continuing the cause.

    • http://socialmediaexplorer.com JasonFalls

      Thank you for saying so, Owen. Much appreciated, as is your perspective on the matter.

  • http://twitter.com/jsandford Jamie Sandford

    One thing to keep in mind is the effect that we have on building relationships that may not directly translate to sales now, but reinforces the likelihood of sales in the future. This is what I think is going to be the real difference going forward with social media and ROI — you may not be able to directly relate sales to SM capital that you are building as your investment. SM relationships are about the long haul and not only short term gain. There are still people – humans – on the other end of the line and we have to recognize the longevity of these relationships as being an “ROI stream” and not a single instance of a sale.

    • http://socialmediaexplorer.com JasonFalls

      I agree with you, Jamie. Social media is much more about the long-term investment than the short term payoff. But we still need to have a way to measure and justify the expense other than projections. My hope is the continued discussion will lead to an idea or two here and there that makes that come to life.

      Thanks for the comment.

      • http://twitter.com/jsandford Jamie Sandford

        So maybe if we look at what we need to satisfy the measurement in the short-term, then a solution like Amazon.com's “Prime” account that rewards customers in the long-term, while satisfying revenue for Amazon in the short-term. Yes, it's a version of a customer loyalty program, but it could be what we see more of going forward to show instant results that are tied to a longer term relationship. You're essentially able to tell the stakeholders that they will see the increase in customer affinity and “instant” revenue. But we have to consider this type of program just a gatekeeper to the customer's intentions — once you get them behind the doorway, then the relationship that we're all talking about can be cultivated to show an increase in sales; just because they're in the door doesn't mean that they have to buy anything. THAT is where SM comes into play and shows its value.

        • http://socialmediaexplorer.com JasonFalls

          Excellent thoughts and it pushes us down the right path, certainly. But what about service companies that aren't tied to instant sales? Insurance, healthcare, investment firms, etc. Perhaps they believe in relationship cultivation more readily, but they will still say, “What did we get last quarter?” It's not something we can answer today, but perhaps soon.

          • http://twitter.com/jsandford Jamie Sandford

            I think the low-hanging fruit here is reduction in customer service call handle time and the expense that is spared by avoiding the cost of additional CSR's by handling issues via SM. Maybe the pitch is to present SM as a cost-reduction tool versus a revenue-increasing one. This is data that most stakeholders can understand and can translate directly into avoided cost. So, perhaps it's not “what did we get” as much as “what did we avoid”? But the great side benefit of cust. svc.interactions using SM is that not only are we avoiding cust. svc. costs, but we're also doing the relationship cultivation at the same time.

          • http://twitter.com/Brandon101 Brandon Sutton

            Excellent point Jamie! Definitely has multiple benefits and takes advantage of a budget line item that is already there.

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  • heatherwhaling

    Coming from a traditional PR background, these conversations surrounding social media ROI sound strikingly similar to the ones about PR ROI. Both genres of communication struggle to prove their value against something like advertising, with all it's “hard metrics.” For PR to be effective, it requires an ongoing, consistent effort. We don't “win” when we get a clip in the NY Times. We're successful when we've helped move the needle for our clients. That's more difficult to measure than transactions stemming from an ad buy. To some extent, social media faces the same challenges. But, PR people have been able to demonstrate the value of good PR. I believe that strategic, savvy social media consultants can do the same. If not, what's the point, right?

    Heather (@prtini)

    • http://socialmediaexplorer.com JasonFalls

      Well said, Heather. Thanks for that.

  • facebookapplicationdeveloper

    nice post! informative. thanks

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  • http://www.SocialMediaCommando.com JoeMescher

    WIN

    Social Media is Opt-In, not Push Push. That's a point many people don't appreciate to their own detriment. You can spend vast sums of money on 'Traditional Branding', but on a per capita basis it's just not as powerful as the inbound marketing approach.

    I wrote a similar post about Social Currency. It's not fancy analysis, just an honest look at how people and businesses profit in the broadest sense.

    Great post Jason, as always!

    • http://socialmediaexplorer.com JasonFalls

      Thanks, Joe. And thanks for the point to the post!

  • http://www.facebook.com/andrew.ballenthin Andrew Ballenthin

    Great article. I'm presently writing a book on social media monetization for Pearson from a marketing perspective. In the next few weeks I'll be writing the chapter on ROI. Please feel free to get in touch if you and your esteemed colleagues would like to provide input. In the meanwhile I've included your blog as a recommendation on my new Facebook group where I'm aggregating all articles that are influencing my writing and research for the book related to SM/SN monetization http://groups.to/socialmediamonetization.

    • http://socialmediaexplorer.com JasonFalls

      Thanks Andrew. Good luck with the book and thanks for the point. I'd be happy to chime in if you have questions and would like my perspective. jason — at — jasonfalls.com.

  • http://twitter.com/AzamKhan AzamKhan

    “As much as we love social media, the audience there is opt in. Mass media isn’t. Even though the messages are force fed to consumers they still have better reach. We need to build communities of consumers through social media to the point mass media becomes less effective in driving people where we want them to go. Until then, we should use the traditional to help populate the non.”

    I guess this is the state of media. The people actually evangelizing for your social media in their companies either don't know how to effectively sell their upper management on it or are making it seem like comments and followers are pretty much benign entities.

    Ok so what if social media is opt-in? I'm not sure about you but I am overdosed on social media being about conversations material. There is more than enough prevalent material from those approaching thought-leadership such as Jeremiah Owyang that effectively make cases of how to lower the barriers presented by opt-in. If conversations, trust and transparency is where things are headed, then opt-in should be not be a big issue. The trouble is that creative ideas and the ability to effectively listen before jumping in seems like some kind of obstacle.

    Creating something thats remarkable and viral is apparently more difficult hence it's better to spend 10x as much. Look, I think these guys KNOW that soft metrics are important, but there are people opposing change since it will take away from their earnings. These are the barriers standing in the shift = existing mindsets and people who want to keep attracting brand dollars.

    best,
    azam@involvesocial.com

    • http://socialmediaexplorer.com JasonFalls

      Well put, Azam. Thank you for the additional thoughts. I agree that the resistance comes from a change in earnings thanks to spending on these “soft” benefits. It's all great fodder to think about. Maybe one day we'll solve it. Appreciate the input.

  • http://www.onthewater.wordpress.com/ Tim

    Great post Jason, I can’t agree more with the Kool-Aid references. From a young professionals standpoint who grew up with both traditional marketing and new media marketing I can’t help but get frustrated with a majority of the conversation today about social media and how businesses are being told to pick “one or the other.”

    Social media in my opinion is a tool, albeit a very powerful tool, but nevertheless a tool within a marketer’s toolbox. Too many times I feel we forget marketing is a 360-degree experience. Customers can be anywhere today – TV, print, online, mobile – and it is a companies job to effectively target and reach their selected customers through each of these mediums utilizing a variety of distribution methods.

    When I explain marketing to potential clients I draw a circle and put their brand in the middle. Each part of the circle represents a different part of the pie, and in order to reach each section the company has to push their message out in that direction. Media once it reaches the edge can then flow in a circular pattern – say someone retweets and blogs about a message they saw in print and suddenly customers are reached across the circle – but it’s a complex web that must be built up over time and with the understanding that there is no one simple one answer.

    Many times I find companies look at social media as a powerful tool, but then opt to place an Intern or entry-level employee at the helm. A senior executive might oversee the strategy, but the lack of economic investment means the “saving grace” of the companies marketing program is left up to an employee with potentially little allegiance. This makes me wonder: just what value do you really see in this? When I speak to companies I make it a point to not paint a social media vs. traditional media picture, but rather one that involves everyone in a form considered non-traditional.

    The other large piece of the puzzle, and one that I consider equally if not more important, is the rise of content creation and understanding how content can be utilized in multiple mediums for the same purpose, but that I’m afraid is another topic.

    • http://socialmediaexplorer.com JasonFalls

      Awesome input, Tim. Thanks for that. I love the 360 perspective argument and the point toward content creation. Good things to think about. Thanks for the comment.

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  • http://buhlerworks.com/wordpress JEBworks

    When you say here:

    Spend $1,000,000 on a television commercial/campaign with strong creative and targeted media placement and show a six percent increase in sales, better brand recognition and so on.

    My question to that CMO is, how did you arrive at this result and can you track it back to that TV spend? I have my doubts, but when it comes to social media measurement the traditionalists all clamor for air tight ROI numbers while their traditional spend doesn't provide it either.

    The only truly measurable spend is direct response marketing, definitely not the darling it seems of so many – TV.

    • http://socialmediaexplorer.com JasonFalls

      Right there with you, JEB. Traditional media tracking is off base as well. C-level folks have just grown used to it over the years and don't question it. Well said.

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  • Stores_Online

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  • eprometheus

    Jason,
    Nice article. As an Online Media Analyst, I am used to variables such as impressions, clicks, grps and conversions. I find it hard to just 'throw in' Tweets into a cross media regression model (if I wanted to determine the impact Twitter had on sales) since we all know that all Tweets are different whereas the impression for a banner ad or tv ad is the same. (Unless you are Tweeting the same message over and over again which would be ridiculous.

    Eric
    http://www.OnlineMediaAnalyst.com

    • http://socialmediaexplorer.com JasonFalls

      Hey Eric. Don't neccessarily disagree with you. Tweets are mostly conversational communications rather than uni-directional messaging. There really aren't a lot of refined metrics for conversational marketing and those that exist (replies, comments, volume of comments, etc.) don't mesh well with the other metrics we're used to. It'll take a bigger brain than mine to figure it out, most likely. But it's an interesting problem to chew on.

      Thanks for the comment.

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  • jilladdison

    Click here: http://budurl.com/tm29 to see a video on “5 Reasons You're Avoiding Social Media and Why It's Time To Get Over It.” This 5 part series of 3-minute videos is about how to effectively use social media for business. What do you think?

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  • http://www.socialfactory.net/ social media applications

    You know, I’ll be honest I’m always amazed that ROI brings up so many discussions. In my undergrad business courses it was hammered in that ROI is a financial metric.

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  • http://www.replicon.com/time-clock Employee Time Clock

    We receive on an average 30% ROI on the email campaigns we role out. Social Media is definitely a great source of revenue unless we know how to use it. But I dont think Social media gets better ROI compared to Email or Paid affiliate marketing. Do you?

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