A great deck from Brandon Murphy of 22squared, which proposes another way of measuring the ROI of social media:

Return on investment = Return on interaction + Return on influence

And then details the research they conducted which backs-up their theory. Pretty convincing stuff…

As I’ve mentioned before, measuring the ROI of social media on a campaign level is pretty tricky and as Sandrine pointed out a couple of weeks ago, companies may need to take a long term view in order to fully reap the benefits of social media.

However, in theory, working out the ROI of a social media programme is easy (assuming you’re measuring it over a long enough time period), as Olivier Blanchard shows us in this presentation:

Of course, there’s a lot more more to it in practice (even without resorting to econometrics, which is of course why our consultancy services may come in handy):

• In step 3 (slides 44-46), you should also consider measuring other things like:
  • Customer retention/loyalty (to understand why this is important, have a read of Chris Stephenson’s overview or his entire paper on the subject)
  • Net Promoter Score (see Paul Marsden’s study around NPS and how advocacy drives growth)
  • Brand equity (Andrew Sharp sharp gives a good overview of why you should be thinking about this).
• In steps 6 & 7 (slides 54-55) it’s possible there will be a significant lag between your efforts in social media and their potential effects so try to take this into account when looking for them

Having worked client side for over 10 years before joining We Are Social, I totally get the ROI culture of most companies – this is how things work, especially in these recessionary times when every penny counts.

The frustrating thing is that measuring the ROI of social media is tricky (as Scott Monty, Ford’s head of social media famously said “What’s the ROI of putting your pants on in the morning?”). However, I joined a social media agency not only because I am passionate about social media but mostly because I am 100% convinced that social media 1) will become a core activity for businesses of all shapes and sizes and 2) it will transform the way companies operate. To me, social media is a long term commitment.

With that in mind, Chris Lake draws a very interesting parallel between social media and e-commerce:

We’re still hearing a lot of hype about something that is unproven, in ROI terms. That remains true, although some companies are generating ROI today, whereas others may take a hit before seeing a return. If you buy into the idea that this might work, then you need to be prepared to wait in order to see some positive results.

There are parallels with the great leaps into e-commerce a decade ago (amazingly some retailers have yet to dip their toes into the water). The cynics at the time doubted that selling things online would ever become a mass market no-brainer, as it is today. I wonder if the same applies to adopting social media?

There’s no doubt that the internet has done wonders for many companies. Tesco may pull in around £2bn of sales from its online operations this year, and perhaps £100m in clear profit. And John Lewis now counts its website as its biggest store, ahead of the huge ‘flagship store’ on Oxford Street. If that’s not progress, I don’t know what is. Not that it happened overnight. ROI obviously wasn’t generated immediately. Both Tesco and John Lewis needed to pony up a large wedge of development money in order to set up their websites, and to recruit appropriate people to run them. They had to pay to play, in order to transform their businesses.

The next decade will be the age of customer engagement and customer satisfaction. Don’t want to miss out on the next big revolution? Then start engaging with social media now.

It’s a question we get asked a lot, and despite the temptation to reply with Scott Monty’s (the head of social media for Ford) famed response – “What’s the ROI of putting your pants on in the morning?”, we usually say something more considered. We talk about how, despite the fact that we can measure the outcomes of the work that we do (and that we’re getting pretty good at it) and that we work with our clients to set meaningful KPIs at the beginning of engagements, it is still really hard to map those back to business metrics like ROI.

This is why we’re working closely with the rest of the IAB’s Social Media Council to get our research into the effectiveness of social media at a campaign level off the ground (you would not believe how hard it is to devise appropriate and affordable research methodologies to do so), and also one of the reasons we’re active participants at MeasurementCamp.

However, those that tell you can’t measure anything are wrong. If you’d like to know more, Jon ‘yongfook’ Cockle has a great presentation and accompanying blog post that outlines an approach to measurement that pretty much mirrors our own:

Some of us weren’t lucky enough to get a chance to meet ‘la crème de la crème’ of social media at SXSW, but after my first day at the Marketing 2.0 Conference in Paris, I feel that I’ve had the chance to mingle with some of the top social media and marketing people. Shame the WiFi was non-existent once again at a French conference - I guess US folks must think WiFi hasn’t been invented yet in France!

But back to the conference, the impressive list of speakers and what this first day was all about. Much was said about the fact that people trust their peers more than they trust brands or advertising. Scott Monty at Ford, Alex Hunter at Virgin and Georges-Edouard Dias at L’Oreal all insisted on that notion and went into the details on what this meant for their company and the notion of ‘conversation’ was once again on everyone’s mind.  For Scott Monty at Ford, conversation is indeed what it all comes down to: social media is an opportunity to prove to individuals that you’re listening to them; it’s about building a relationship with people and humanising the company. For Charlie Schick, at Nokia,  the web is a conversation channel and brands must participate in conversations.

What’s interesting from our point of view at We Are Social is that the concept of conversation is clearly emerging – when Robin and Nathan set up We Are Social and established it as a ‘conversation agency’, it was in some way ‘groundbreaking’.  It now looks like the Forrester Connected Agency report’s predictions that ‘facilitating conversations for its clients will become the new role of an agency’ is now a reality, which is great for us as a business as more and more brands will understand the importance of being conversational. And clearly when Charlie Schick at Nokia explains that social media is the voice of a brand, this really reflects what we do for Skype: not only do we help them with strategic consultancy and social media monitoring, but we are also the voice of Skype: my colleague Peter is Skype’s blogger and he’s also @PeteratSkype on Twitter, managing their reputation online through conversation. Similarly, the This is Now campaign for the Ford Fiesta we’ve been working on for the last 6 months has all been about the conversations we’ve created.

But back to my favourite word for 2009: ROI… If social media is about building relationships with people and engaging in conversations in social media, how, as a brand, you measure your ROI? As an agency we have a fairly advanced approach, but I guess I was interested to hear about how these brands approached it. I very much like Scott Monty’s answer: ROI is very much a campaign-based approach vs. a long term commitment and an opportunity to build a relationship with people. And he went further and added “What’s the ROI of putting your pants on in the morning?”, along with a joke about how campaign-based ROI can be measured through HITS: How Idiots Track Success. Nevertheless, in real life, and especially in this period of recession, we know that ROI is important to clients but it’s great to see brands are taking a longer term interest with building relationship with people. Olivier Hascoat at MySpace insisted on that concept again: ‘stop campaigning and make a long term commitment’.

All in all, a very promising first day! As I’m publishing this, Day 2 has started and it’s already looking as exciting…