Tuesday, March 10, 2009

The nitty gritty of ROI in social media

I've been doing a little thinking about Return on Investment in Social Media. I'm often asked to place value against things I kind of 'feel' have value and can give you case studies about creating value, but often what is asked of me is harder and more focused than that.(picture courtesy)

They want an equivalent or comparable to page impressions (CPMs) or click through rates (CTR).

However short-sighted or crude you may feel that is, there's a reality about answering the question. Those asking it may have spent enough time with you and your presentations and pitches to 'get' what you're saying - but they've got someone looking down from high above them who hasn't had the benefit of all that direct education.

Rare is the client who has some 'experimental cash' to back their personal judgement.

So coming up with an answer helps your closest contacts persuade their bosses that there's a job that needs doing and is worth doing - ie investing in joining in conversations - becoming human in peer-to-peer networks.

Find that answer and they are happier, their boss is happier, you (ok, I mean we, get to be happier).

It seems to me that at its heart this is relatively simple, at least the questions we need answering are relatively simple.

They are about conversion rates.

And they are about the value placed on the defined action by the client/organisation.

For example, let's say for every 1000 page impressions The Company sells one Product X. The value of this to The Company is £10. So every 1000 pi you notch up is worth £10 to the client. A page impression is worth 1p.

Your media buyer will of coure be looking to buy at rather less than that.

And if for every 10 P2P recommendations of Product X The Company sells one product X, then the value of a recommendation is £1. Pay your social media agency 50p per recommendation recorded and you are laughing all the way to the bank.

And that's all there is to it.

Even when we move into where the real explosion of value in social media occurs - co-creation, we simply have to define the value of the chosen action.

How much is one idea from a 'consumer' who cares about making your products better actually worth? How much could crowd-sourcing NPD saved you? Don't forget to include the value of the free and powerful marketing you'll get from those involved in co-creating the new version of the product. And the A/B testing they'll join you in.

Subtract what you plan to share with them. You are going to share, right?

I say that's all there is to it - but peer to peer is a place of supply and demand networks - webs not chains.

So the questions can become more complex.

Consider just some of the elements of social media.

Images, videos, blog posts, blog comments, IMs, texts, email, audio, forums. In a perfect world you'd be able to place a varying price on recommendations/mentions in each of these depending on their scale and scope - and whether they are being uttered by someone followed/influenced by more people than another. And whether that persons 'influence' ebbs and flows topic by topic and moment by moment.

The variables are many. The complexity immense.

But we have to start somewhere.

For example, if a recommendation is made in social media has anyone actually calculated how many times more likely it is that a purchase follows, compared to a page impression?

Has anyone worked out the likelihood of a defined action after someone has installed a badge/app/widget on facebook etc compared with an ad being served at them?

Do you have answers? Do you have questions?

Either way, please comment below. If we get a little traction I'll take this into a wiki we can work on and share together.

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The rate of change is so rapid it's difficult for one person to keep up to speed. Let's pool our thoughts, share our reactions and, who knows, even reach some shared conclusions worth arriving at?