I’m a big fan of Marshall Kirkpatrick (@marshallk). He’s one of the best voices behind ReadWriteWeb, and one of the few people that delivers consistently good reporting and analysis on social media technology. But Marshall’s recent piece on the supposed death of Social Media ROI really deserves a crushing response. Not only is social media ROI decidedly undead, its death shouldn’t be longed for by marketers in the first place. The fact that ROI is such an albatross around marketing’s neck is no one’s fault but marketers, and the way to put it in its proper place is to tackle it head on, something marketers have failed to do for more than a decade. It is precisely the treatment of ROI as Marshall frames it that ensures its persistence as a bludgeon against lightweight marketing.
I’ve written about the challenges of ROI for marketers for more than 10 years. In fact, it’s somewhat depressing to point out that an article I wrote for MarketingProfs in 2003 would still suffice as a counterpoint to Marshall’s depiction of ROI today. ROI is an important tool of limited value, but it’s importance is magnified ten-fold because marketers steadfastly refuse to understand it, much less understand why it is so frequently used by CFOs and CEOs to stop marketers dead in their tracks.
So here are five reasons Social Media ROI will not die:
1) ROI is a fundamental financial equation. Saying ROI is dead is like saying Balance Sheets are dead. We’ve got liabilities and assets we just don’t need to calculate them anymore. Right. ROI is not, as marketers relentlessly frame it, a generic synonym for “results” or “value”. Using the term in that way makes marketers sound clueless to anyone serious about business and finance i.e.: the CEO and CFO. It confirms in their minds that marketers are business lightweights who must be kept on a very short budgetary leash. The ~only!~ answer to the question “What is the ROI of x?” is a number. Period. If you can’t determine what that number is, don’t substitute another answer and call it ROI. No one is fooled by that but other marketers.
2) ROI is a metric tailor-made for a business environment fixated on short-term results. For better or worse (well, it’s definitely for worse) we have created a business world in which short-term results are king. Quarterly results drive everything from sales bonuses to stock value. ROI as a financial metric requires that the return is realized in the same reporting period as the investment, which feeds perfectly into the short-term focus. There are plenty of reasons to argue for longer-term metrics of value creation in marketing, but until marketers can demonstrate mastery of short-term financial results, no one is going to listen to them.
3) ROI drives critical data and discipline. It’s like the speedometer in your carit tells you how efficiently you’re converting resources into forward momentum. That’s important because you have limited resources to get where you’re going, and if you run out of fuel on the way, you’re out of the game. Trouble is, it doesn’t tell you ~where~ you’re going, and you might be very efficiently moving in entirely the wrong direction, which is why it’s so important for marketers to master it and move on. But if you can’t demonstrate you know how to create momentum, no one cares what a genius you are about strategy.
4) ROI is really about trust. CEOs understand that marketing is critical. They just don’t trust marketers with a budget, precisely because marketers can’t seem to grasp the most basic test of accountability: If I give you a dollar to invest, how much are you going to give back? You know, in ~dollars~. The trust issue is really what articles like Marshall’s are trying to get at, and why marketers wish ROI would go away. They want marketing’s value to be so self-evident that no one will question its activities any more. All I can say, as a CEO, is if your best argument for a program is that IBM is doing it, you haven’t earned an iota of trust in your abilities.
5) ROI isn’t really a hurdle at all. Look. It’s hard to measure the value of complex activities and intangible outcomes. Good CEOs and CFOs get that. Particularly when it comes to new technologies and programs. But you will always find a reflexive ROI roadblock if you can’t demonstrate due diligence in mapping the relationship between social media metrics of activity (follows, likes, etc.) and worthwhile financial outcomes. If you don’t have a strong ROI case, you should be able to win the day by starting with a measurable business objectiveto increase sales, to reduce costs, to improve customer retentionconstructing a credible hypothesis for how social media can achieve those objectives, and designing limited and agile deployments of social media activities to test your hypothesis and measure results. If that doesn’t fly, your problem may be more political than financial. Read the post I wrote on The Four Percent Solution for some ideas on how to navigate roadblocks.
ROI is only kryptonite to marketers because they don’t give it the respect it deserves. Instead of wishing it away, marketers should embrace it as an important financial metric that can help them apply the scientific method to their social media program. Doing so will not only offer new insights into what really matters in marketing engagement, it will help bridge the gap between marketing and finance teams, and do a world of good in building credibility for marketing programs.
If you want to really learn about Marketing Finance, I would recommend reading everything you can find from Jonathan Knowles. He’s taught me most of what I know about marketing finance that has any value. Disclosure: After many years of collaboration, Jonathan is an advisor and investor in SocialRep. But his content speaks for itself.