• by Jason Heller , February 21, 2012

As social media budgets continue to rise, demands from the C-suite to prove the value of these investments are intensifying. Executives do intuitively understand that direct consumer relationships are valuable, and they are patiently, albeit eagerly, awaiting the ability of their marketing departments and agencies to correlate the economic impact of ongoing social media investments.

Tying social media engagement to business results is primarily not a linear process, and therefore not easy. Most brands do not have a direct point-of-sale relationship with their customers, and even those that do, have a hard time measuring the impact of a non-linear relationship between social media activity and resulting customer value. While all the studies and research point to consumers’ desire to receive special offers and promotions in social channels, the reality is that response to these promotions is not significant, and force-feeding promos to your social connections too often is a great way to stifle engagement and the overall impact of social media communications.

A Rose By Any Other Name

Some agencies and social media “experts” have decided that changing the definition of ROI is the solution. Well, it’s not. ROI is ROI. Redefining the R (return) automatically changes the meaning of the term to fit a square peg into a round hole. 

ROI is not an engagement rate, number of comments or retweets. ROI is not the number of likes or followers amassed. ROI is simply not anything other than the financial calculation that an executive expects it to be.

Of course, social media is the last in a long line of marketing line items that cannot be tracked to a strict ROI -- and that’s OK. There are plenty of proxy measures that we can track and benchmark as we get closer to being able to better measure the economic impact of social media on our businesses.

Clarity of Objectives

From a 20,000-foot perspective, there are only four macro-objectives within social media. All tactical objectives will fall into these four buckets.

• Nurture relationships with, increase the value of, and facilitate advocacy from existing customers
• Create awareness and acquire new customers
• Provide customer service
• Acquire actionable insights and research

KPIs must be aligned with primary and secondary objectives, but for most of us, at this point in time, it’s not going to be ROI.

Measurement Model

Even before the social media revolution, we were able to prove that increased engagement with a brand will increase customer loyalty, value and advocacy. Successful relationship-marketing programs have used incentives for loyalty and communications via direct mail and email for years. Social media platforms have revolutionized two aspects of relationship marketing: consumers have control over the relationship, and marketers can easily and passively gain exposure to friends and family through the social graph.

Until we can more accurately model the economic impact of our efforts in social media, the best measurement approach uses a combination of metrics that report reach & growth, engagement -- and for appropriate brands, commerce. Regardless of your current scale, as long as these three buckets trend up and to the right, executives will be appeased -- for now.

• Reach & Growth: While the number of likes or followers is not a primary KPI, the more (qualified) social connections a brand has, the more consumers can potentially be engaged. Growth through the social graph will only go so far. Brands should use all of their owned channels to facilitate social connections with existing customers.
  
  
• Engagement: Ongoing engagement will yield an increase in customer loyalty and value. This value can be modeled by surveying a sample of consumers and projecting to the universe of total active social connections. It’s really difficult to project value of the unengaged majority, as they may not even be exposed to your posts (See: “The Social Media Spiral of Unengagement”). Of course, engagement is also the mechanism by which word of mouth proliferates across the social graph. Reach and engagement go hand in hand and present a chicken and egg problem to some brands.
  
  
• Traffic & Commerce: For brands that regularly measure multichannel commerce, tracking the attribution of social media influence in the ecommerce purchase path, and the redemption of coupons in brick-and-mortar channels, should be part of your reporting dashboard. While tracked revenue won’t be significant, the trends are improving. As far as traffic goes, you would be hard pressed to find a brand that has not seen a steady uptick in social media referral traffic year over year, month over month.

You may have noticed that I left sentiment out of this model. It’s important to note that sentiment reporting does not so much reflect the impact of social media activity, but rather the reflection of the brand as amplified by social media. However, having the ability to track and benchmark sentiment towards your brand and facets of your business is powerful and actionable.

Actionable Business Intelligence

Some of the most significant benefits of direct consumer relationships are the feedback and insights that can be gleaned from active engagement with consumers, as well as passive listening. Actionable insights that improve product development or otherwise positively affect consumer experience transcend the boundaries of social media and present a clear and undeniable economic impact from social media. Of course actualizing this impact requires a significant amount of collaboration with multiple disciplines within your organization.

The moral of the story is that there is no one universal standard way to measure social media ROI. Redefining the term isn’t the solution. Focus on modeling the economic impact of engagement, scale and insights over time. Continue to demonstrate an increase in actively engaged consumers over time, and you will continue to gain executive support, which is a vital component of social media success. Just remember that eventually you will need to be able to support the economic argument.

How are you reporting social media ROI? What have been your biggest challenges and success stories in gaining executive level support and bigger budgets? Speak up in the comments or hit me on Twitter @jasonheller.