Stop whining about ROI and start digging for numbers
I think ROI is hugely important, but lately people seem to be looking to a vendor for all the answers. The truth is you need to have your own answers to a few questions before we can get to that.
Every person I talk to struggles with the ROI (return on investment) of social media. The first step in finding ROI is establishing what is measurable. I see "ROI" and "measurement" used interchangeably when they really aren't. You can say your site got 10,000 thousand visitors, but until you attach a value to each of those visitors you can't calculate a return. And it's the second step, establishing that value, that is the most important piece.
We could be talking about social media, or people walking around wearing sandwich-boards. If you don't know the value of a few basic things in your company, stop marketing now and leave... please close the door behind you.
You didn't really leave did? Of course not you are reading this... Let's assume you have your house in order and you know the value of a few basic things. These could/should be
- What is the cost of customer acquisition? How much are you willing to spend to get a customer? Before you have pens printed, book a trade-show booth, and of course embark on a social media campaign do you know this value?
- What is the annual value of a customer? Is it a repeat purchase product? A one time, large purchase? High margin, low margin?
- What are the costs associated with supporting a customer? What does a single support call cost?
- What do you spend on product research? Focus groups, R&D, testing?
If you make a direct link from your site metrics to the numbers above, bingo! E.g. X questions asked in our support area times the cost of a support call = return. Usually its a little harder, not every web question would have resulted in a call to a support desk. Some customers would have just not bothered (God knows I never call Bell Canada on the phone). But... how much higher is your customer satisfaction when they can get a question answered immediately? So really what happens on the web is there ends up being a few things that result, each having incremental value. Lets stick with the support example.
- number of support questions answered - Customer retention, Support costs
- increased customer satisfaction - Customer retention
- search engine optimization - Customer acquisition
- sentiment data - R&D, product development
Comments | Add Comment
BY: Connie Bensen (6/25/2008 11:47 PM)
COMMENT:
Some excellent points, Dave.
Just the cost of a support call has been estimated as averaging $8-10 per call. And if people can help each other that is not only a huge cost savings but increases brand loyalty because people get their answer immediately. (and it is measureable)
The savings on R&D & prod dev't is two-fold - one in that you get the info for free + it reduces the product's development time. (plus the good will created by letting customers participate - they love that!)
Jim Benson & I were talking about this today. We were talking about the the qualitative value of community. What is the value of increased brand awareness? Can a company even buy that? And then there's the positive word of mouth... again something that can't be gained by an advertising campaign. I think that the ROI becames apparent over time.
Reply to Comment
BY: francois gossieaux (6/28/2008 12:45 PM)
COMMENT:
It is amazing how people get confused about how to measure progress and success of social media initiatives. I'd say three things to those who are confused:
1) Whatever business process your social media initiative supports - measure the results the same way as you would any other initiative in support of that process.
2) Use common sense. Again at a customer meeting this week, where customers are supposed to interact with one another through SMS and email, they were measuring progress and success by pageviews and time spend on the site. When I suggested that they measure success by looking at increased sales in their stores they were all dumbfounded. Yet that is exactly how they measure every other marketing program....<sigh>
3) If you are still confused, don't measure. By measuring the wrong thing you may kill the program (see point 2).
Reply to Comment
BY: David Dines (7/15/2008 2:35 PM)
COMMENT:
David -
This is a good start. Each company is different so the metrics, and their relative importance will vary.
My experience has been that certain costs or revenues tend to be discounted by organizations. For example, I showed (in a prior life) a cell carrier that we could predict and reduce their churn rate by 1%, which would have paid for itself in no time, and they were not interested. It was a no brainer to us, but they would not make the investment. We probably made some internal group look bad. The point being, that having a solid ROI story is a necessary but not always sufficient condition for getting approval.
I have also observed that companies are sometimes wary of ROI analysis generated internally or by the vendor of the solution. It is a fact of life that we cannot avoid (I am planning on doing an ROI analysis this year that might make a difference).
Francois - good point about the metrics. This is a common problem with many web 1.0 and web 2.0 initiatives - we let our existing measurement tools cloud our thinking about how the best way to measure the success of a project. Activity measures will give you a sense of the overall health of the community, but not tell you anything about meeting business objectives.
Reply to Comment
