Social Media’s Impact on Business (and ROI)

Feeling like stirring the pot a bit this week so we thought a discussion on ROI should do it.

ROI certainly can stir the pot.  But, saying that most of everyone’s conversations on this topic are not actually ROI, rather Impact on Business (IOB), takes the act of stirring and turns it into a blender.  Ahh, much better!

So let’s start by saying that just because it’s “social” does not mean it should be held up to standards typically defined by financial returns whether in business, government or non-profits.  Someone can start a blog or join twitter simply to better understand the tools or to connect with associates they just met at a conference.  This becomes truly social and may at some point have an impact on your business whether financially or some other measure but does not need to be tied into sales goals just because an employee wants to post office pictures so other offices can see how they decorated for the holiday party.  That’s a beginners first step into social computing but not what we are interested for this discussion.

What we are looking for here is to better define and understand what we sometimes mean when we refer to ROI as a verb instead of referring to ROI as a financial metric.  The real definition of Return on Investment (ROI) is: gain from investment minus cost of investment, then divided by cost of investment.  Business books are written, classes are taught, and undergrad studies are derived from this very straightforward metric.  When I talk about ROI, I try to dumb it down a bit into either: 1) increase revenues, 2) decrease costs, or 3) increase in shareholder value and that assumes a financial investment of course.  So why then, does the term ROI get thrown around so much in the context of social media when no financial gain or costs saved are referenced?

Impact on Business (IOB) is the actual term that should be used when discussing things like: # of followers, brand awareness, mentions, impact, conversations and what ever else you can think of that is not related to a financial calculation.  The impact of an employee being nice on twitter is great.  The fact that the customer decides to continue service (Retention) as an indirect effect does not make the time that employee spent on Twitter an actual case for ROI.  It is however, IOB. Olivier Blanchard actually was the first that I know of to begin this discussion a few months ago here.  Companies all over are using social media to have an impact on their business like Kodak measuring Smiles or any company promoting their Facebook fan page.

Many industries discuss IOB like fast food, IT, or big box retailing and it affects every company’s business in some way or another.   You can even consider different departments of a company and the impact of HR, Payroll, PR, Sustainability, Operations play in a company.  Although often not connected directly to revenue, a company would have a difficult time without those departments.  Impact is easier to measure if you don’t have to tie it back somehow to ROI and ROI is much easier to measure if you don’t try to include calculations of impact.  To lead our discussion this week is Jacob Morgan, a principal at Chess Media Group, who focuses on Social Media ROI.  Jacob is well versed in this type of discussion and brings a lot of expertise to the table.  The questions will attempt to progress the discussion from ROI as a catch all phrase to the differences between Impact and ROI for businesses and how to align them.  They are:

1.  Whether Impact or ROI, what “Investments” could be measured to prove out value in Social Media?

2.   How can you prove value from Impact or ROI to executives to continue or try Social Media?

3.  What are some examples of businesses attaining true ROI from Social Media?

Plan on joining in this discussion Tuesday 11/10 at noon EST.  To join either follow #sm33 on Twitter or follow our LIVE site.