There are more than 38 million posts about the ROI of social media so I suppose the last thing we need is another one. But here is the issue.   ROI is an accounting and investment term, first and foremost. It implies that we can say the ROI of social media activity is say, 12.  We can’t say that.

What we can say is that social media has different values to business depending on what social media efforts are targeted to achieve.  Therefore we should talk about social media and how it contributes to “Business value.”

Many of the 38 million posts citing ROI of social media are not about financial accounting, they are about results or outcomes.  I often bristle at the term ROI of social because it implies: 1) a single number for social media use by business when in fact social media can be used by business in a number of ways and have various and different positive impacts.  2) ROI is a financial calculation, social media is about people in a business interacting and connecting with people who are your stakeholders — although the results of this are measurable as noted here.

Wikipedia defines Return on investment (ROI) as:

“the concept of an investment of some resource yielding a benefit to the investor. A high ROI means the investment gains compare favorably to investment cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.[1] In purely economic terms, it is one way of considering profits in relation to capital invested…. In business, the purpose of the “return on investment” (ROI) metric is to measure, per period, rates of return on money invested in an economic entity in order to decide whether or not to undertake an investment.  ROI and related metrics provide a snapshot of profitability, adjusted for the size of the investment assets tied up in the enterprise. ROI is often compared to expected (or required) rates of return on money invested.

return on investment (%) = (Net profit / Investment) × 100%  or return on investment = gain from investment/ cost of investment[1]”

Successful businesses deliver value to customers.  The intersection of value for a customer and value for business is what keeps business successful.  It is that same intersection where social media can be best applied in various ways to either make the intersection larger or strengthen the bonds of connection in that area of intersection.  Social media is most effective when it is considered in the context of delivering value to customers while also bringing value to the business.

In many businesses, lots of things are measured and there is a wide selection of metrics that can be deployed.  In business discussions, business leaders don’t talk about customer ROI, or ROI of Human Resources, or the ROI of sales or the ROI of communications.  More often they talk about, and report on, key performance indicators (KPIs). For example, many businesses have measurements that roll up to executives related to “customer satisfaction” (CSAT); sales often have key performance measurements around the number of potential sales leads, rate of closing, predictions on both the likelihood of closing sales, as well as looking at how long they might take to close; business may track demand and lead generation; Human Resources may have metrics related to time to fill a position, success in filling roles, number of roles filled with internal versus external candidates; customer support may measure the “time to resolve” an issue and follow up with CSAT metrics;  marketers and communicators might look at “share of voice” or overall “sentiment” and message pull through.

Key Performance Indicators (KPIs) as defined by Wikipedia are “a type of performance measurement.[1] An organization may use KPIs to evaluate its success, or to evaluate the success of a particular activity in which it is engaged. Sometimes success is defined in terms of making progress toward strategic goals,[2] but often success is simply the repeated, periodic achievement of some level of operational goal (e.g. zero defects, 10/10 customer satisfaction, etc.). Accordingly, choosing the right KPIs relies upon a good understanding of what is important to the organization. ‘What is important’ often depends on the department measuring the performance – e.g. the KPIs useful to finance will be quite different from the KPIs assigned to sales. Since there is a need to understand well what is important (to an organization), various techniques to assess the present state of the business, and its key activities, are associated with the selection of performance indicators. These assessments often lead to the identification of potential improvements, so performance indicators are routinely associated with ‘performance improvement’ initiatives.”

KPIs indicate whether social media is delivering business value and can be used across a social business to evaluate the effectiveness of different social media initiatives in various business functions.  KPIs are indicators that inform business and can facilitate change to be a better and more effective business.  KPIs enable insight into numerous activities across business functions and can then enable business functions to determine if  their use and deployment of social media efforts are contributing to the value that business function delivers to the overall business.  Here are some examples or some questions to ask about different measurements related to social media’s business value:

• Best Buy community generates $5m in support savings and sales advocacy annually. Cisco reduced resolution time by 32% and saved $7 million by launching their customer community. 100% of customer service is handled by the giffgaff community while the brand enjoys an NPS of 73%—one of the highest in the world. Source: http://socialmediatoday.com/1401646/10-examples-social-media-roi
• Data-driven digital marketing strategies at Lenovo increased conversion 53% and revenues 175%. Source: http://adobe.ly/17LGKah
• 25% of all DELL’s B2B sales are influenced by social engagements Source: https://twitter.com/bobbyisaacson/status/379637439985631232
• Did your social media efforts open new sales avenues or specific new customer opportunities? Did it lead to current customers looking to your business for other products and services that you offer that previously had not been sought from you?
• Did your social media efforts shorten a sales cycle and the time to close?
• Do your social media connections demonstrate stronger customer loyalty? More purchases from existing customers? Sharing and advocacy on your behalf?
• Did your social media programs improve reach, share of business voice and/or sentiment? Can that be equated to purchases? How about CSAT?
• Have your social media listening efforts avoided a crisis? Been any faster in identifying a product glitch than the days of waiting for a media call or number of telephone calls to a call center?
• What have been the online customer support results?   Faster time to resolution? Impact on Customer satisfaction or loyalty? Impact on likelihood to retain customers?  Is there online sharing of solutions between customers – resulting in fewer calls or need for the company to act?  Are satisfied customers sharing their happiness with your online support versus just their upsetness and wanting help?
• Did the HR team find they have reduced costs for out-sourced job searches?  Are social media efforts helping your HR team attract more of the “right people”
• There are another 101 examples here thanks to Peter Kim

Next time someone raises the possibility of social media ROI, the answer is more accurately stated as “social media initiatives deliver business value across a broad spectrum of the business in various forms.”  To do that the social media efforts must 1) deliver value to customers in order to also have value to your business 2)Social media measurement is most workable, definable and effective when aligned with existing business KPIs rather than a discussion of some undeterminable “ROI.”

Finally, if you have not seen this post at Occasm’s Razor by Avinash Kaushik it is worth taking a look at  “Best Social Media Metrics: Conversation, Amplification, Applause, Economic Value.” Its focus is on things you can actually measure if you are participating in social media in an optimal fashion and the measurement proposal uses that data to incentivize companies to do the right thing by measuring what matters, what makes social unique.