A lot of people and companies are struggling to come up with good ways to define an ROI for social media investments – Patrick Schaber’s recent post on the topic is just one of the many thoughtful pieces on the topic.
The key to measuring your investments in social media is to first define what it is you are trying to do – are you trying to increase sales, improve the SEO of your site, get more new product ideas into your new product development funnel, trying to improve customer service, or enhance your PR by getting a bigger share of voice in the social media space? And yes, you can do all that with various social media strategies – we have case studies in each and every one of them.
So once you have defined what it is you want to do – measure it the same way you would measure any other program deployed for that same purpose. If you already track idea sources and various percentages to gauge the success of your new product development pipeline, just add a category for the new social media-based community and measure everything else the same way. If you want to increase sales, just measure the efficacy of the social media based campaign the same way you would measure any other lead generation program. And if PR/awareness in the social media space is your goal, then there are many more tools at your disposal in the social media space to measure progress than there are in traditional media. One bonus of social media-based programs is that they will impact multiple marketing functions much more so than traditional marketing programs. So in effect you might develop an ROI in one area and see the cost of doing business in other areas go down at the same time.
Now, the real problem is that we measure traditional marketing programs the wrong way. Almost everything in traditional measurement programs is customer transaction-based – how much will it cost to get a customer to buy…ONCE. What we really want to measure is how programs affect a customer’s life-cycle value – including his/her ability to influence others in making buying decisions. The other problem with most traditional measurement yardsticks – and ROI is perhaps the most famous of them – is that they are trailing indicators, not leading indicators. Not enough companies measure things in ways that give them indications of where their business is going, or how sucessful add-on programs will be.
We are currently working with Deloitte on a research project to uncover how companies are measuring the progress and success of various social media-based external communities. If you would like to help with that or if you have opinions on the subject, feel free to email me at francois [at] emergencemarketing [dot] com.