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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?
Almost everything is a derivative of the numbers above. You can talk about customer loyalty, but it's really just the delta between customer acquisition and customer retention. Many companies don't care about keeping customers... just getting new ones. It depends on your business, the quality of your product, the propensity to repurchase etc.

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
There's clearly more to write here but I'd be curious to hear what you think needs to be factored into ROI formulas.

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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...
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