Image by kyz via Flickr

There is a lot of buzz about Social Media ROI, and since the topic is complex, there will continue to be buzz about it for years to come. Brands want to know that Social Media works, what works, and how to invest their money.

Much of the results generated by Social Media can be measured quantitatively and qualitatively: transactions, decreased customer service costs, increased awareness, improved sentiment, etc. But some of the advantages from Social Media cannot be measured, because much like investments in insurance and tires, the benefits come from risk avoidance.

Let me ask you a personal question: In 2009, what was the ROI of your investment in life insurance? The vast majority of you paid your premiums and filed no claims (or you wouldn’t be reading this). You received a negative ROI, so clearly that means you’re suspending your life insurance in 2010, correct?

Perhaps you might argue that the benefit received from your payment of insurance premiums can only be measured over the long term, and you’d be right—to a point. Even over the long term, most of us will still experience a negative ROI from our insurance investment. This is because insurance companies need to generate a surplus from many people to cover the cataclysmic costs of the unfortunate few. Some of us will pay life insurance premiums for 70 years, while others will meet our demise after paying a single premium.

So, if a rational person knows with great confidence that his or her likely lifetime insurance ROI is negative, should they cancel their life policies immediately? The answer is still no, because one of the benefits we receive from insurance—in fact, the most significant benefit—isn’t financial but emotional. We pay for insurance because it gives us peace of mind that our families are protected in the unlikely event tragedy strikes.

Social Media is like corporate reputation insurance. You pay premiums in the form of building relationships, listening, responding, creating widgets, and building communities. And because you’ve done so, you’ve earned protection that can help should a PR disaster strike—you have an existing group of people who have affinity for your brand and an existing channel in which to reach them.

Speaking of disasters, what is the value of avoiding disasters that you can’t know would otherwise occur? Take the tires on your car. How many miles do you have on them? You could ride on them another six months, saving you cash. Alternatively, you could replace them now, but where’s the ROI of that?

Buying tires now versus later is always a negative ROI because you lose the time value of money, and the benefit of the new tires is completely unquantifiable. If you replace the tires, you cannot know if they would have been fine for six months (no cost), or if you would’ve walked out of work to find a flat tire (low cost), or if you might’ve had a high-speed blowout (high cost).

If you change your Social Media tires, how can you know and quantify the costs you’ve saved by preventing problems you don’t have to face? I recently had a problem with an air carrier and tweeted as much. I received a rapid response, was satisfied with the response, and tweeted my satisfaction.

This company was minding its Social Media tires and because of that, they cannot know the positive ROI they generated by avoiding the negative ROI of a Social Media flat tire.  What possible outcomes might they have faced had they failed to listen and act?  Maybe I would not have tweeted again. Or maybe I would’ve created a video a la United Breaks Guitars and sparked 7.4 million negative impressions. A news organization actually contacted me about the incident, and I declined to share my story because the company met my expectations; it’s likely the company’s quick Social Media response helped them to evade a negative online article that would’ve been seen by tens of thousands and lived for years in Google’s database.

What is the ROI of the road not taken? What disasters might your organization’s Social Media programs avoid? How do you calculate the cost of incidents you don’t experience and cannot imagine? I’m not suggesting much of Social Media ROI is not calculable, just that all of it isn’t. If you don’t approach Social Media with an eye toward the risks managed and avoided, then you really aren’t considering all the benefits Social Media ROI delivers.

Of course, while the ROI may not be fully and completely calculable, it can be fully estimated. Forrester has an approach known as Total Economic Impact, which incorporates costs, benefits, risks, likelihoods, and future opportunities into the evaluation. Watch for Forrester reports that use the TEI model to better define Social ROI in the future; in fact, I had the privilege of reviewing an upcoming report that explores TEI for B2B Social Media ROI from Laura Ramos today.

If marketers demand hard and demonstrable ROI from all of their Social Media efforts, then they will fail to invest properly and wisely. This same attitude might also cause them to stop paying insurance premiums or ride on bald tires, but I’m not expecting those are trends we’ll see in 2010.

I was pleased to have the chance recently to speak with Jennifer Jones of the Marketing Voices podcast. We talked about reaching Gen X through social media marketing and word of mouth, as well as how marketers can measure the impact of their social media efforts (one of my favorite topics). To listen to the interview — and see a very large photo of me — head over to Jennifer’s site.

Thanks Jennifer!

Marketers don’t think they’re very good at measuring social media. 
When my colleague Emily Riley asked marketers to
rate their ability to measure the impact of their social media
initiatives, the average grade they gave themselves was 4.5 out of 10.
Not a great score — especially given that accountability is one of the
key selling points of interactive marketing. So I’ve spent a lot of
time this year trying to understand why marketers aren’t good at
measuring social media — and how they can do better.

The fact is, social media marketers are drowning in a sea of
metrics. Every social platform and vendor offers its own metrics, and
there are literally hundreds of ways to measure the success of social
initiatives. With so many numbers to choose from, and so little insight
into which metrics are important, it’s not surprising that marketers
feel overwhelmed.

Most marketers fixate on easily-available measures like followers or
fans — regardless of whether those metrics are important. Many others
fail to measure obviously useful numbers just because they’re not on the first page of a report. A marketer focused on talking [video] should have a radically different definition of success than one focused on embracing
[video]. But marketers are much more likely to tailor their social
media measurement to the tools they’re using than to the objectives
they’re trying to achieve. Have a look — most marketers measure pretty
much the same metrics, no matter what their objective:

It’s
obvious that marketers need more clarity into which social media
metrics they should be tracking. So we’ve developed a simple three-step
process to help marketers better tailor their measurement strategies to
the objectives they’re pursuing. Walking through these three steps will
help you cut through the clutter on your marketing reports and measure
your social media initiatives more effectively:

• Step 1: Think back to your marketing objective. Go back and
  find your notes from when you were first planning your social marketing
  effort — and remind yourself of the objective you were pursuing. If
  you don’t know what your goal was, you’ll never know what you should be
  measuring, or if you succeeded.
• Step 2: Consider what types of metrics signal success. Don’t think about specific lines on a report yet — instead, think
  about what types of consumer behaviors and sentiments match your
  objectives, and focus your measurement on those categories of metrics.
  If your goal was energizing, success is defined as lots of people
  saying positive things about your brand; if your goal was supporting,
  you want to know if users were providing good advice to each other –
  and whether it kept users from having to ask you for support directly.  Again, this isn’t about specific metrics, it’s about how
  you hoped your social initiative would change your relationship with
  consumers.
• Step 3: Look for that category of metric in the social technology you’re using.
  Once you’ve identified the type of metric that will signal success,
  then you can look for ways to track those metrics within the social
  platform you’re using. This is when you should get into the specifics
  of which lines on the report Facebook or Jive gives you are most
  important — and which other vendors you need to use to find the exact
  numbers you’re looking for.

In my new report, ‘Three Steps To Measuring Social Media Marketing,’
I offer a framework that helps marketers place social
media metrics into one of six categories, shows them which categories of
metrics should be used to measure which objectives, and gives examples
of how to obtain those metrics from each social platform. I hope
clients use my framework; I think it will make their lives easier and
their measurement more successful.

But the key message of that report (and this blog post) isn’t the
framework, it’s this call to action: We as an industry must do better
at measuring social media marketing. Social media budgets keep rising,
but that trend won’t continue forever if we can’t prove that social
initiatives are effective. Perhaps more important, if we don’t know
which social applications succeeded and which didn’t, we can’t learn
from our experiences and improve on future efforts. And it’s
surprisingly easy to measure social media effectively: we just need to
focus on measuring objectives rather than technologies.

Whether you use the detailed framework in my report, or simply keep
these three steps in mind as you design your own measurement strategy,
I hope these ideas help you sift through all the social media metrics
that are available, and find the right ones to measure your efforts.