ROI Doesn't Mean 'Return on Ignorance'

The new world of social media is among the most actively analyzed, celebrated, yet misunderstood mediums affecting businesses today.

On the one hand, the social media phenomenon introduces new channels and methodologies to drive and measure sales, service, and marketing. It brings a renewed sense of vigor that is challenging creativity and convention. And yet if social media are truly transformative for businesses, why do we hear so much about the splendor of participating in conversations and forming relationships—and only abstract debates about measuring performance and return on investment?

A 2009 study by Mzinga and Babson Executive Education reported that 84 percent of professionals from a variety of industries said that they do not measure ROI within social media. This, tallied with my own experience, suggests there is a widespread desire to jump into social networking without all—or even some—of the answers. But not making the attempt to explore metrics is not an option for businesses with long-term vision and goals. ROI does not mean "Return on Ignorance."

Don't Follow Blindly

General advice, experience, and case studies are collectively establishing the golden rules for social media. But if most businesses aren't measuring ROI, we can only assume the examples we see time and again were not intentional in programming, design, or desired results.

In fact, many of the much-discussed business illustrations (think Comcast, Dell or Zappos) are of little help to another company's unique market challenges and dynamics. The true value of the lessons from the early adopters lies in executives' ability to pull from the elements that echo and resonate with their own challenges and opportunities—while simultaneously defining the unique specifics of their own circumstances.

We are all students of new media, and as such, we need to answer our own questions instead of seeking instructions through "off the shelf" templates and theory that may actually avoid business metrics.

A Price Tag on Your Time

The barrier to entry in social networks is much lower than in most other communications and branding channels. In many cases, establishing a presence in these networks is free. But remember the saying, "nothing in life is free?" The same holds true in social media. Your time has a price tag, and resources don't materialize without costs.

At the same time, the imperative of social media is real. The real question is to what extent are social media more or less valuable than other forms of marketing, service, sales, branding, public relations, and so on? We can—and should—find out. Piloting programs with precharted milestones or an end goal in mind allows us to compare and contrast performance at a campaign level and against other initiatives.

In one such instance, Starbucks (SBUX) set out to increase traffic in stores around the country through a "free pastry" program shared through social networks. The coffee company says that social media contributed to 1 million customers visiting local stores in one day. The company didn't expound on total revenue generated as a result of word-of-mouth marketing conducted via Facebook and Twitter, but it's reasonable to assume they know exactly how well it performed in revenue generation and ROI.

Marketing Via Twitter

Direct engagement is also measurable. Conversations can lead to outcomes, with conversion ratios demonstrating performance. The Roger Smith Hotel in New York tracks discussions related to N.Y. tourism on Twitter and offers advice and also coupons to lure potential visitors to the hotel. During an evaluation period, the small team of two estimated that they grossed an additional $20,000 in revenue as a direct result of contacting tourists via Twitter. Once time is subtracted from the campaign, net income and ROI materialize. The programs continue, so we can assume the ROI is encouraging.

The promise of interactive marketing is not about establishing a means; this is about defining and connecting the dots to create a means to an end. Identifying that end helps us reverse-engineer the stops necessary to reach our destination—or at least validate our path. The introduction of measurable milestones in this journey provides us with reassurances, insights, and rewards along the way.

Adding meaningful business performance metrics should serve as the focus for education and experimentation with social media. This focus will challenge us to create and introduce richer, rewarding, and effective experiences and engagements. And knowing what we want to change or the reactions and actions we wish to inspire will help us create socialized activities that unite purpose and performance.

Before it's here, it's on the Bloomberg Terminal.