A modest model for social media ROI

Building on a previous post regarding marketing ROI, this article makes a case for a doing away with old models of marketing investment.

Marketing measurement is in a slow evolution hampered by a view based solely on short-term returns.  (Dead Horse Point, Utah)

Marketing measurement is in a slow evolution hampered by a view based solely on short-term returns.  (Dead Horse Point, Utah)

Given the shifts in digital marketing in recent years, what is needed is a new model that pushes through the barriers of the Old Model of advertising in marketing services and moves into the social world.  Old Model methods involve media spend in a certain period that have zero residual benefit.  Social World marketing creates returns in the immediate term and also in the long term through creating social assets, the durable value created through social activities that will benefit the brand over time.  So the Old Model – this has actually already been covered above, but it produces zero residual benefits once the spend is done.  This is different than the social model, which actually creates the long-term benefit, so current measures of measuring return on investment and marketing don’t apply. 

The return on social media investments must capture this durable value as well as its immediate returns.  This model, which we call Social ROI, provides the true financial returns for large investments brands are making in social media dollar for dollar, Euro for Euro.  Given that your investment in social media is being applied toward both your social balance sheet and social earnings, let us outline both for you.  So that will come a little bit later. 

The Social ROI, though, needs to have everything tie back to a financial return.  This is dollars, real dollars, thousands, tens of thousands, hundreds of thousands, millions of dollars that are being invested in something that is very early stage.  This is the early days of radio or the early days of television or the early days of the internet when money flows in and we’re kind of unsure as to what the returns actually are because we can’t measure them in the exact same way as we can other mediums, yet we can. 

But these dollars need to really be tied back to sales.  You can have a short-term period where one experiments in order to say have a seat at the table so you can experiment and get to understand.  Think of it as R&D dollars in a new medium, but the time is far gone for looking at social media as research and development.  We are now more than a decade since Friendster came on the scene.  We have gone through a My Space era, a Facebook era.

And now we’re moving into a completely social internet where the entire world is networked together and their actions and their inactions and their preferences are being expressed in a highly organized, tightly coupled way that is helping us learn more and more about them.  And it’s time for us to pounce and to actually turn this great asset and this great phenomenon into dollars. 

So let’s talk about two different things.  There’s the social balance sheet and there’s the social earnings statement.  So this theory of understanding returns on investment comes directly out of financial models.  There are two ways that when money is spent by a company, there are two ways in which it can be accounted for. 

One is to expense it.  You buy something.  You spend money on advertising.  You have a travel expense.  You buy some advertising.  You hire your employees.  Those are all expenses.  You take their wages, you expense them all and it goes against your revenue.  And so you have money that came in, expenses that you put out and then you have some sort of net income at the bottom of that. 

Now there’s also the ability to capitalize money that is spent and make it an asset.  So if you buy a building or a machine or furniture or you invest in a particular technology or buy a company, those can all be assets that show up on your balance sheet.  So if I spend a million dollars buying a machine, it doesn’t have to be expensed in this one period, this one quarter when I made that investment.  It’s going to give me returns over some long period of time. 

So instead, I can capitalize it on my balance sheet and then slowly depreciate it over the appropriate time by pulling out some percentage and expensing that percentage over the useful life of that particular object.  This is what we propose doing with social media, to take both the short-term view in terms of a social earnings statement, but then also a long-term view in terms of the social balance sheet. 

Your social balance sheet is the sum statement of your long-term investments in social media.  It’s comprised of social assets and social equity.  Social Assets are those investments that have value over time, such as fans and followers on various social networks, digital assets you will use for more than three months, brand champions, influencer relationships and long-term changes in search results.  Each of these are multi-month to multi-year assets that can influence topline results for your company.  In other words, their value lives far beyond the period in which you made the investment.  So let’s talk about each one of these areas and understand how they are an asset and also how we should treat them.  

The case for marketing as an asset - A backdrop

This is a first blog post in a series I think of as SocialROI, but more broadly speaking will lay out my thoughts on how the rise of the social Internet and the democratization of publishing has created a world in which not only marketing has changed, but the measurement of marketing has also changed.  Investments in marketing can have long-term impact, but that must be properly understood an measured.  I hope to properly explore that here.

The Need for Investment in the Long and Short Term


While the effect of advertising is by and large felt in the period in which it’s displayed, social media is different.  Advertising affects an audience for a specific time.  You come up with a creative campaign.  You develop that campaign across print, radio, TV and other channels and then you spend money to place that creative in front of someone’s face.  And they are able to respond during the period in which you are accomplishing it and during the period in which you are advertising it. 

But beyond that it has very little residual value.  When the billboard comes down, when the digital ad is no longer displaying, when the TV ad has ceased, very rarely is there any additive value.  Very rarely is there anything residual that’s left.  When you fill up the bathtub with money and the drain runs out, the residue that is left from a paid media campaign is essentially zilch. 

But enter social media and you actually end up with some different characteristics.  Social media, while one could simply advertise on a social platform such as Facebook or My Space or Pinterest, the effects of social media really do have a significant residue.  People tweet and that tweet lives on.  It’s there permanently, not only in the person’s profile, but available to Google searches, Bing searches, available in someone’s history when it is mined and searchable using social media search tools. 

When you run a campaign that’s on your Facebook, it may result in a Facebook fan, someone choosing to follow your conversation and yield to ongoing opt-in marketing.  It’s a permissions-based marketing system.  And so while you may present a message to someone and they may click and they may buy or they may go down to a retail store and purchase, you also have an ongoing relationship with many of them because they’ve chosen to become your fan. 

There’s also other value that’s created, which goes beyond your campaign and lives longer than the period.  Someone may make a recommendation, which is I like this.  I want to buy this.  I own it and it is good.  It is something that I want or prefer or something that I hate or something that I’m going to take a look at, something that I’m reading and it lives on beyond that period because it’s said and that expression is heard by people significantly more impactful than if they hear it through media. 

So when they say I bought a Sonos media player and I love it and it’s the best thing I’ve ever bought.  And it’s worth the money, even though it’s three times more expensive than other options, it’s the best.  That recommendation will live on in the recipient’s memory or it may when the person comes time to make a purchase decision for audio equipment, they may come back to the person who made that expression and say, hey.  I know that you liked something, the thing, a Sonos.  Is that still what you would recommend?  And then through that relationship the person is able to have disproportionate power in their recommendation because they have that relationship. 

I may have sold a dozen Sonos systems through my recommendations.

I may have sold a dozen Sonos systems through my recommendations.

So we have fans, Facebook fans.  We have followers, such as Twitter.  We have subscribers who may be subscribed to a blog feed or a YouTube video channel.  We have digital assets that live on.  So these are things that live on beyond the period. 

So we have digital assets such as a micro site that you create that goes on and keeps living or a forum in which people can share their ideas about what is good and what is wrong.  And it creates long-term available, not just to the people who are viewing it at the time, but to people who are searching for something in the future.  It could be a Facebook tab that allows you to shop or to share or to compete and it may be something that is ongoing.  Now there are of course short-term digital assets and we’ll cover that in the future, but there are these digital assets that live on beyond the short term. 

Then there’s champions.  A champion is different than an influencer.  A champion is someone who loves your brand, loves your products, and wants to come to your aid.  They could be influential, but in most cases they’re regular people who are willing to in a time of crisis come to your aid and defend you at a time of opportunity to cheer you on.  At a time of something new, such as a product launch or a launch of a campaign, they’re able to get the message out and share it with those who they love.  It is incredible to understand how much the words of 10 or 15 people can do to completely change the direction of a conversation and the comments on a blog post at Huffington Post. 

A small number of champions can do a lot of good.  A large number of real champions can do incredible things on behalf of a brand and those relationships are ongoing.  They’re not immediate to build.  It’s a relationship that you build over time with champions through developing a compelling champions program, but they are an asset that lives on and on beyond the period in which you are investing in acquiring them. 

Another area is influencers.  Influencers are those that have a disproportionate amount of influence in an audience based on the fact that they have a particular readership or followership of people who are listening to them or who are subscribed to them.  It is a group of people who may have general influence over the internet, meaning they’re one of their most read bloggers or most followed people on Twitter or they may, and this is more likely, have significant influence in a particular topic area. 

So if the topic area is college level humor or a particular area of technology, these people are highly influential in this topic area, which means that people link to them, discuss them, include them, share their stories, tweet them out and otherwise are referential and deferential to them in the conversation.  And they influence both opinion as well as the topics that are discussed.  So to recap, fans and followers, subscribers, digital assets, champions and influencers are among the long-term assets that are created that live well beyond the period in which you do the activity. 

So a proper investment in social media involves long-term and short-term investing.  So we want to capture the impact of today’s phenomenon and growth while also building for the future.  So anything that is purely asset building that only builds long-term value may not actually capture the needs to actually drive revenue in today’s period, driving sales.  It may be that there are phases where investing in the long-term assets is absolutely the most important thing that needs to be done at this moment.  And it may be the only effective thing that one can do. 

Build your followership.  Build your thought leadership.  Build relationships with champions.  Identify your influencers and build relationships with them.  And it may be that in order to do that, you need to build the communities.  And then once they’re built, then you can more effectively drive a current period time or current period returns where you’re actually driving real sales or real communication style goals that deliver real value to the brand in the current period.