It's all the buzz these days, what is the ROI of social media? What's the return? How much money can I make off this Social media stuff? What's the investment? How much time and money is this going to take? You've heard it all, right? We know conversation with our customers is the right thing to do. But how can we justify utilizing social media even on the most basic of levels?


The Traditional Tools of the Trade
We marketers love our tools and know them well. Direct mail, e-mail marketing, public relations, websites/landing pages, search engine marketing, advertising, etc. In fact, we know our tools so well that we can, for the most part, actually implement them in our sleep and guess the return on our efforts (for example, direct mail response 1-2%). But, as good marketers we also know that these tools need to be used in combination, and often many times over, in order to really move that needle from prospect to customer (assuming there's a need for the product or service). We also know that sometimes implementing all of those tools and moving that needle takes time and usually that's understood.
We are also so confident in their tools, that I'd venture a guess that it's been a long time, if ever, that a plan has been written to use those tools to meet goals/objectives and measure against them.
But now there's a new tool. And it's different because it talks back, tells you how it wants to be used, and you can't control what it says or where it goes.
We aren't feeling so confident any more, are we?
The Conversation Disconnect
Our traditional tools have always done the talking, that's just the way it is. We design them to share our messages and hope that they are coercing enough that the recipient will let our sales and/or business development people initiate them in conversation and relationship building. That's their job, right?
Until now.
Now, this new tool, social media, is inviting marketers (and companies) back to the table for a nice long chat. How exciting and yet how scary. What do we even say? Where do we have this chat?
But what's that you're saying? You need to justify the ROI of the social media BEFORE you can participate in the conversation? How the heck do can that be done?! Let's start out with training wheels.
What's the Return?
Well, what are the results you are looking for? What do you want to measure? As David Alston of Radian6 once asked, "what do you want to measure the "social" or the "media"? Marketers are comfortable, for the most part, with measuring the "media" part (i.e. tools). It's the social part that trips us up.
What's the Investment?
Today, you know that if you spent $20,000 to generate 100 leads, your investment was $200 per lead. That is your return on marketing spend (for simplicity sake). But now what are you investing when you can't control the return?
The New Tool of the Trade
Let's break social media down into two subsections for easy digestion:
Social: conversation, comments, feedback, buzz, friends/followers, mentions, readers, etc.
Media: Twitter, Digg, Flickr, YouTube, StumbleUpon, blogs, communities, etc.
The media makes up the tools that are used to generate the social aspect of social media.
The Plan
So back to our social media measurement question–do we want to measure the social or the media? How about both we measure both? But first let's devise a plan (this is obviously not a full-fledged marketing plan). For the sake of time, the illustration of ROI will be basic. Return equates to results we are looking for and Investment equates to time.
Our plan includes: Goal, Objectives, Tactics and Measurement
Goal: To generate conversation around Product X
Objective 1: To increase number of comments about Product X on Twitter, YouTube, and Flickr by a combined 50% in the next 3 months.
Objective 2: To get 5 bloggers to mention Product X in the next 6 months.
(Remember, your objectives should be SMART: Specific, Measurable, Achievable, Relevant, Timebound)
Tactics for Objective 1:
Utilize Twitter to develop a network that allows Company Z to participate in a two-way dialogue; Post videos of Product X in action on YouTube; Post pictures of customers using Product X on Flickr.
Tactics for Objective 2: Pitch 25 bloggers on demonstration of Product X.
Measurement of Objective 1: Twitter was utilized for conversation, YouTube and Flickr to share videos and photos, by doing so, the number of comments and conversations about Product X increased from 10 to 15 achieving the objective.
Measurement of Objective 2: 25 bloggers were pitched over a 6 month time period, which resulted in 4 mentions of Product X missing the objective by 1 mention.
But what's the "real" ROI?!
Now, I know what you are thinking. 'This doesn't demonstrate actual ROI in the form of sales and revenues!' And you would be correct. Remember I mentioned at the very beginning of this post that as marketer's we know that traditional marketing tools can take multiple efforts, combinations, and time to move the needle from prospect to customer? Well, utilizing social media takes the same effort, combinations of tactics (i.e. media) and time. Social media isn't a silver bullet for spiking sales and revenues.
I think you'll find that if you develop a strategy for social media (no matter how basic), you will be able to demonstrate to 'the powers that be' that prospects and customers are discussing your company on-line. And by showing progress in conversations and interactions, with a measureable plan, eventually you might just be able to prove that social media can and does lead to a trusting relationship, loyalty and...yes, eventually sales and revenues.
As always, this is my perspective on how I'd justify the ROI of social media with a plan. What do you think? Is it too basic? Is it helpful? Let's open this great debate up for discussion.