Via Stuart Bruce, I found this funny clip in which social media marketing guru David Meerman Scott lambasts client-side marketing managers for continually asking about the ROI of social media projects.

His point is that marketers don’t know the ROI of traditional forms of advertising like billboards and 30-second TV slots, so why is it such a stumbling block when it comes to social? It’s nonsense, he says. Often, the objection is really that people don’t like doing new things.

Bruce rightly points out that social media people have been guilty of muddying the waters by equating ROI with an increase in page views, twitter followers and whatnot. While those things might be the objectives of a particular campaign, they’re not the same as return on investment. ROI is just about money:

In finance, rate of return (ROR), also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. The money invested may be referred to as the asset, capital, principal, or the cost basis of the investment. ROI is usually expressed as a percentage rather than a fraction. (wikipedia)

I’m sympathetic to these arguments. The objectives of social media campaigns can be as broad as increased awareness, employee retention, customer satisfaction and R&D. They are rarely just about flogging more stuff. It’s not like some coupon campaign where you can add up the number of coupons redeemed to see how much it was worth.

But there’s a problem. And that problem’s name is The Grumpy FD. Because he turns round and says:

Hang on, sunbeam. If you can’t calculate a monetary value for all these social shenanigans, then why am I going to sign-off your invoices? Furthermore, I note that you’re charging me £150 an hour. So you have already put a value on these activities, not to mention all the other costs you’re incurring in terms of my staff’s time. Where is my £300 an hour that I should get from employing you?

If you stick to your guns and insist that ‘it’s all about the love, man’, then the conversation could end quite briskly.

I’m not terribly experienced in these things, but there are certainly better solutions.

I think you need to unpick what you’re doing a little more carefully. Everything you’re doing has to result in increased profitability, otherwise the Grumpy FD isn’t going to pay your invoices. The difficulty is in obtaining the proof and putting a precise value on it.

Ultimately, a lot of the time, the information that you’d need to calculate the Rate of Return is too difficult to obtain – or won’t be available within a sensible time period. I think the main thing to do is to get the GFD to agree to some conservative estimates.

Let’s say you agree with a client to look into a new project. You’re planning to set up an online, but private, staff ideas forum, with the aims of improving the firm’s service offering. Something like Dell Ideastorm but internal (you can buy solutions off the shelf for this).

To work out how much that’s worth, you’re going to need to guesstimate some things:

• How much time people will spend on the forum and the value of that time.
• Likelihood of anyone having a good idea over an agreed period of time.
• Likelihood of that idea being workable.
• Value of that improvement to your service.
• How much you’re going to charge for implementation and training.
• Potential reduced R&D costs.

The added benefit of improved staff morale, recruitment and retention probably exists and has value, but I think it should be left out of your sums. It’s a gift, rather than the objective the GFD is paying for. Also, although the product ought to have lasting value, stick to an agreed time frame for measurement. A set period is part of the definition of what constitutes a project. If things get sticky, you might remind the GFD, however, that his ROI is going to recur long after you’ve disappeared on your micro-scooter.

My point is that every investment in anything is an educated guess. You don’t know whether the price of gold will boom or bust, but before you invest, you’re going to do some research and some sums and arrive at a probability of each of those two outcomes. If your chances look good, then, depending on your level of risk aversion, you’ll take a punt.

What people won’t do – least of all the GFD – is invest in ‘this thing’ you’ve just found on the Internet that may or may not be successful and you haven’t got any more information to inform a decision.

photo credit: Iscan

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