Return on Investment or (ROI) is one of those terms that has been mis-used by all in 2009.  As we look to 2010, how can we get back on track.  We know there is going to be a strong influx of interest in social media projects by companies.  In fact, a report from econsultancy and bigmouthmedia suggest that 86% of the 1,100 companies surveyed plan to spend more on social media in 2010 and 13% plan to spend the same amount.  The report is further detailed here. With all this investment in 2010, will any of it be tied to ROI or will it be looked at as non-financial impact?

We stated that the term ROI is widely mis-used.  Here’s what we mean:

This is NOT ROI:

• The return of my Twitter usage is 2009 is 1,637 followers.
• I increased the page views of my website by 300% on an investment of $120.
• I increased my brand awareness by putting better content on my blog.

The actions above relate to non-financial impact on a business.  For more information on Impact on Business we did a post a couple of months ago here.  What seems to happen is that we take what is a financial term (ROI) and mix it around with investments in media measurement or listening tools or other social media tactics that are a part of non-financial metrics like building relationships, brand management or engagement.  While these are all necessary and they do require an investment, the results are almost always non-financial.  Therefore, if you are in front of executives and trying to attain funding or approvals, they will be interested in financial returns as measurement.  While redefining the terms to meet your specific needs may be fun or even cute, no one is going to sign up for ROI when it means Return on Interest or Return on INgagement.

So what is ROI?  The accepted definition of return on investment is very straightforward: gain from investment minus cost of investment, then divided by cost of investment.  In other words, recruitment, engagement, interactions, listening are all very important pieces of the ROI equation however until that customer or prospect does something (ie: make a purchase) there is no financial measurement.  The exception to this is the relation to cost savings realized by an investment.  A great image of this was done by Olivier Blanchard:

Another important piece of the ROI pie is about actuals.  ROI is not about what we think is going to happen, it is about what happened.  Or in the words of Olivier again, “It’s not about potential, it’s about actual performance.”  So ROI is not a forward looking statement, rather it is backwards looking results.  So if you are looking for a quick refresher, check out this widely viewed deck on ROI here.

You may have guessed already on who could possibly by moderating this much needed discussion on ROI.  If you guessed Olivier Blanchard aka “The Brand Builder” then you are correct!  Olivier has long been a recognized and sought after practitioner and speaker on the topic of social media ROI.  He brings a very clear yet in-depth understanding to the topic and we are thrilled to have him moderating this chat with us.  The topic and question this week are as follows:

Topic: Advancing the Discussion of Social Media & ROI

Q1: How can strategy & planning can impact ROI?

Q2: What are the steps to integrate SM across a business?

Q3: What is the difference between measurement & ROI?

Please join us this Tuesday 12/22 for the weekly chat event at 12 noon EST.  The hashtag for this event will be #sm39.