Home > Marketing Strategy > Social Media ROI is Fine but it’s the NPV We Need

Social Media ROI is Fine but it’s the NPV We Need

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Image Credit: viZZZual.com

Most brands grappling with developing a social media proposition reach the ‘ROI question’.

It has many variants, depending if it’s asked by the finance department, the head of marketing or the CEO, but the ROIQ may ultimately be expressed simply as:

What financial benefits will the business receive in return for investing in social media?

Naturally this questions can be asked of any marketing activity but I choose social media specifically – as opposed to traditional media – as it’s the activity least likely to be understood by the senior executives in an organisation.

Nevertheless, it’s the right question to ask; we’re running a business after all.

In 2007 Forrester’s Charlene Li and Chloe Stromberg produced the much-thumbed ROI of Blogging, perhaps the first serious attempt to calculate, in hard dollars, the value of an activity which brands were increasingly being urged by agencies to adopt or at least consider.

While blogging is just one tactical consumer touch point, Li and Stromberg posed thorny questions the stampeding suite of fresh-faced, emerging online services would inevitably face.

Heroically, Mashable’s Christina Warren then wrote How to Measure Social Media ROI, an attempt to engage the larger question of ROI in social media (she cites a very enjoyable presentation from Oliver Blanchard which is also worth clicking through).

She (rightly) suggests that campaigns should take some very practical measures to help arrive at an ROI, including:

  • Define clear goals
  • Use metrics
  • Analyse sentiments

So far, so good.

Blanchard’s presentation takes a more detailed look at the underlying calculations required to support this approach, no doubt a breath of fresh air to finance directors everywhere.

The question remains: considering the sums involved with social media investment, do these calculations go far enough?

Tools for Decision Making

More and more, marketing’s natural evolution is putting it not only at the heart of product and service development but overall business strategy as a whole.  Consequently, those responsible for strategic decision making, be it the CEO or CMO, ought to adopt the rigor associated more with the ‘hard science’ of business planning.

Professional business strategists, regardless the industry, think a lot about ROI when considering purchasing decisions. But it is not their only consideration.

Assuming those involved with the decision are rational, they will employ models to account for both fixed and variable associated costs, while actively reflecting commercial risks as functions within the calculation.

In the end, senior executives make a decision based on normalised, apples-for-apples compartive data; a single, bottom line figure is reached for these options, called the net present value, reflecting the specific, future commercial benefit of each.  These NPVs are evaluated fairly, without prejudice, and the Right Choice is obvious: it is the one which delivers the greatest benefit.

Strategic marketing resource allocation should follow the same principles, which brings us to the question of social media ROI.  Blanchard and Warren, noble in their endeavour, appear to fall short of delivering this crucial figure.

An ROI is a post hoc metric, the result of a past action.

It does not help us decide between two competing, future activities, for example the puzzle of whether to invest either in a Facebook promotional campaign or in a traditional 30-second TV spot.

Becoming Bullet-Proof

We fixate on the ROI because it is a concept we understand; it’s no secret that social media ROI has baffled brand managers for some time and for obvious reasons: we will forever be challenged to deliver bullet-proof predictive power when using post hoc metrics alone.  This, of course, assumes you have previous ROI metrics – figures sorely lacking for many brands – which, when absent, introduces a null into the equation, damning it entirely.

Determining ROI of campaign and marketing activity is important to any responsible professional; I’m hardly suggesting throwing the proverbial baby out with the bath water.

Rather, instead of clinging to ROI as the holy grail, let’s view it as what it is: a simple yard stick, a single measure of past results.

It is not the ultimate gauge of success or the solitary figure on which all future marketing activity should hinge.  Instead, let’s put our effort and energy where it belongs: on developing NPV models which help us make wise decisions in the first place.

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