Measuring Social Media: ROI and Sales vs Value

Measuring the ROI (return on investment) of social media activities is a pretty hot topic for marketers today.  Many have theories on how to measure, what to measure, and how often to measure.  But is it right for your business?

Without getting overly technical (because, let’s face it, I didn’t major in accounting/finance for a good reason), ROI is mostly defined as the ratio of sales minus investment to investment [(x – y) / y where x=sales and y=investment].  Seems simple enough, right?

The not-so-simple part comes from trying to attribute your social media activities directly to sales.  Where the water is muddied is that many confuse sales with marketing, when in reality these are two different business functions.  According to Seth Godin, “Marketing tells a story that spreads.  Sales overcomes the natural resistance to say yes.”  Simply put, sales is the measurable (at least in dollars) part of marketing.  However, there is much more to marketing than simply sales.  The bigger part of marketing involves building relationships and leveraging those relationships to hopefully then make sales.

Breaking the argument down:

If social media = marketing

And marketing ≠ sales

Therefore, we can ascertain that social media cannot be equated to sales (by manipulating that whole transitive theory stuff from high school math).

My contention here is that just because social media cannot be measured directly in terms of sales, does not mean that it doesn’t increase the likelihood of sales (afterall, the purchasing decision is a complicated one and social media involvement can play a role in that) and thus does pose value to businesses.

I know, all fascinating stuff, but what does it mean to your business?  It means that as business leaders, we need to realize that not all business activities can be directly measured in dollars coming in the door, but that doesn’t mean we stop (or never start) doing them.  Just as many times sponsoring a charitable activity many times can lead to dollars floating out the door rather than in, that doesn’t mean that as a business you stop being charitable.  Businesses realize that this leads to building relationships within your community, bridging gaps, and sending out the good vibes about your organization as being one that gives, cares, and participates.

Social media is just bringing this to a different level.  It generates value for your organization that may not be directly attributed to sales, but definitely contributes.  Your business needs to find a way to benchmark, set parameters, and define what value this brings to your particular business as this won’t be the same across the board.

I’m not aware of any of my friends or colleagues who have purchased a product or service on the sole basis of a tweet or Facebook post, so we as businesses should stop trying to measure our social media activities as if this is true.

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Posted on October 25, 2009, in Measurements, Social Media. Bookmark the permalink. 1 Comment.

  1. Hi Amy
    Your website is well done! Its design and contents are both very well-organized.
    About the measurement of the social network implementation, I agree with you, there is no clear defined method widely used. Maybe because the social network contribute to the company in a very direct way, it directly impact customer’s awareness, and public image of the organizations rather than the financial performance, which is easy to measure. However, we cannot ignore the importance of social network just because of that. Companies need to continue using social network as a tool to communicate with customers and advertise themselves.
    Chenglei

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