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.