Industry Discussion: The True Nature of Social Media ROI

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There is a common misconception about the return on investment (ROI) via social media. For reasons most of us do not understand, Social Media has been classified primarily as a marketing tool by many. Because of this misconception at the foundation of a social media strategy, calculating actual ROI can be a circuitous and inexact exercise at best. Luckily, examining social media in its “completeness” as a communicative business tool, strategies in its correct use can better be employed.

In the 1990s businesses and the vast majority of people though all that was needed for success on the Web was a website – then magically money and/or fame in buckets simply had to flood in. Well, the proper use of social media as a tool today is at about in the same juncture. So, the questions arise; “how should businesses be approaching social media as a business to consumer tool?” What should be employed to measure social media efficiency?

Focus On the Problem

Let’s use the analogy that “everything online has it’s real-world counter-part.” In such a scenario, social media’s real world counterpart might be a lounge bar with a non-stop crowd circulating from table to table, pausing to chat here and there, telling life stories, socializing, in general mimicking real world social behavior. Onto this casual stage, our hard selling marketer walks, dressed in a sandwich board, coming to talk about his/her latest toothpaste, soap powder, or hotel deal. Just how welcome is such an interruption in your circles?

This real world metaphor is a case of reality for today’s social media marketers. So, justifiably the corresponding ROI logically resembles that of bulk email marketing, or SPAM, maybe worse. Factor in a brand’s reputation, and this “would be” social marketing effort takes on an almost ominous tone. Let’s call the situation a “Negative ROI Noose” the marketer has stuck his or her neck in. To further galvanize this idea of misuses of the social sphere as a marketing tool, let’s hear what Rick Rudman, Founder and CEO of Vocus, a company at the pinnacle of understanding PR and marketing channels, told us:

“The hard part about having a discussion like this is that a lot of people don’t even agree on how they define PR, social media and marketing today. With that caveat, I think social media is clearly about all three. I thinks its easiest implemented as a PR tool, but that it can be just as effectively used as a marketing tool, although fewer people know how to do this effectively. There are real leads and revenue being generated on social networks and more sophisticated software is on the way to help companies track “buying signals” on social networks and turn those signals into business.”

Alternate Marketing Reality

Take what Rudman suggests here, and picture several of the people in our real lounge bar having just returned from a hotel in New York, after having a super experience there (probably without hard sell marketers about). At our bar they discuss their experiences, share snapshots, mull over every detail with friends and associates, all amid this easy going atmosphere. Now, wouldn’t those planning a trip to New York be keenly interested to hear? To learn? Discover?

Next, steps in a knowledgeable hotel representative talking about great attractions, deals, meals, and other important tidbits about New York. Yes, this is our super hero, marketing gurus keep envisioning. The rep goes on to brief our group of travelers about an upcoming event in April being a better choice than one in June, simply because of crowds and heat. You get the picture, subtlety applied at exactly the right moment, is 1000 times more powerful. The hotel rep does not even have to push his hotel deals, someone in the group will ask him, you can bet on it.

What’s the lesson? Clarifying Rudman’s point on “know how,” the sandwich peddler is oblivious to not only his surroundings, but even knowledge of good salesmanship. The hotel rep, on the other hand, has the easiest job in the world, giving people exactly what they want or need. Social media is a fantastic communication tool of course, but would any sane marketing or sales professional use a bull horn in a chic restaurant to offer car parts at wholesale? Ironically, some actually do via social media.

Go With the Flow Branding – Long Term ROI

What of social and digital media as branding tools? Think of social media as a channel of communication between businesses and current or potential customers. Continuing our analogy of the lounge or club we can group the social networks as a single entity (when in fact it is several entities – Twitter, Facebook, Google+ etc) and compare it to a global lounge or club. You may not think of Facebook or Twitter this way, but most people really working amid these networks are actually marketers or PR types. Let’s call the environment “passive” for lack of a better term.

People give and take, but no one is really searching for products on Twitter or Facebook even, they’re having fun or relaxing, even executing on an habitual habit etc. The only business being conducted by customers is initiating interaction with “their brands” or expressing opinions about potential ones, that’s the gist of social interaction. Such a landscape is ideal for brand awareness, management, even monitoring reputations, but marginally adaptable for marketing – only under well-defined sets of circumstances.

Brands are strengthened or weakened on social media depending on the conversations and the realities surrounding them, situational, in real time. Ideally, brands can learn and react to customers at light speed, the advantage of which alludes to Rick Rudeman’s ideas on “leads and revenue generation.” Yes, revenue is generated in and around social media, but seldom as effectively as is possible. We spoke with a giant of PR on this subject, Ronn Torossian of 5WPR started in a dinky, obscure office in Manhattan, and is now one of the Big Apple’s power broker PR gurus. Here’s how Ronn sees social media at its best:

“Social and digital media is still in its infancy – it’s a lot like the transistor radio compared to today’s 24 hour news cycle and everything on demand. Social media – whether on twitter, Facebook, or other “social” mechanisms, are brand builders rather than revenue generators. I’d tell a client looking for quicker revenue generation to invest in Search engine optimization over ‘social’ media.”

Clearly Defined Campaigns – The Only Vector to Success

Going back to Rudmans take on the definitions of PR, social media and marketing – public relations is “the managing of communications between an organization and it’s public with the purpose of improved public opinion for the organization.” In the same vein let’s define marketing as; “the process or technique of promoting, selling, and distributing a product or service.” This makes more clear just how social media fits where these definitions are applied to correct use of the channels.

So, social media channels are best suited as a PR tool for communicating with the public, for informing, and for interacting directly to help shape a favorable opinion for the organization. Conversely, social media should be a marketing tool used as a platform for advertising just like any other advertising medium, with banner ads and all the bells and whistles associated.

Social media is a network that permits the organizations and public to interact. Unlike the old PR tools such as full page ads or talks to groups, social media is connected to individuals, and it is imminently direct. It is really too direct to be employed for marketing in many cases, better served to allow for customer input, than for broadcasting to the potential client during a game of Angry Birds or Farmville. While creatively placed marketing campaigns via games, polls, contests, and other events can be highly successful, these are essentially short term, cyclical events, the ROI from which ends abruptly when a contest ends, or a better one begins. The key here being, creating ultra-focused campaigns that make use of these facts.

So, going back to the point we made on the outset of this article, how do you measure the ROI of Social media? The answer to that question lies in how we use social media. For PR uses, social media is measured same way as a PR campaign. For advertising a brand/product, examining things like cost per click or click trough rates, just like a banner ad can be measured otherwise. Looking at all this, clearly social media isn’t a category apart, but rather a platform that can be used by PR and marketing people to communicate. Attempting some measures of ROI can be like trying to measure that of “emails” or of “the internet” as a whole.

Examples of our theories here are illustrated in the more recent successes of political campaigns using social media, these campaigns are not selling more than an idea (PR). Similarly, twitter accounts of musicians, celebrities, and artists followed by consumers (fans) help those consumers understand their artists better, feel connected to them, even speak to them. Again, like the hotel rep in the lounge they are communicating directly and not selling. This PR aspect (or passive marketing one) creates a positive perception and reception with the public, one where advertising may work far better.


The return of social media is based on the campaign being done. Purely as an advertising platform it has more use as a branding tool. Branding has never been a high short term ROI but is a long term strategy to build awareness of one’s name. The ROI of such an activity can and should be measured in the increase of searches for the brand name.

As a PR tool the ROI of social media is similarly not short term. Building a good PR for one’s brand takes time and one is often targeting a very broad public, many of which may never become customers for the brand. However there is an ROI and it can probably best be measured in how many people are sharing one’s brand information which would indicate the real value of the information (word of mouth).

This article was a collaborative effort by Phil Butler and Martin Solar

Phil Butler is editor-in-chief of Everything PR and senior partner at Pamil Visions PR. He’s a widely cited authority on beta startups, search engines and public relations issues, and he has covered tech news since 2004. Phil wrote in the past for ReadWriteWeb, Mashable, Profy, SitePoint, Search Engine Journal, AltSearchEngines. Follow Phil on Twitter, g+, or send him an email at phil [at] pamil-visions [dot] com.

Martin Solar
Martin Soler is Marketing Director at World Independent Hotel Promotion (WIHP). He frequently writes about hotel marketing and use of hotel marketing on WIHP’s Magazine... Read Full Bio
Martin Solar

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  • Great write up Martin and one that clearly reveals that the application of social media tactics and technology to a variety of strategic initiatives within the organization. I’ve seen & worked instances that stalled for marketing or PR (internal fighting as to who should own it) while HR, Customer Service and Development moved ahead and presented a social presence that addressed their interest and needs – a process that actually had excellent results because service can help establish a positive persona and presence and then marketing / PR could leverage the sentiment / tone already present around the brand.

    In our book, ‘ROI of Social Media’ we look at the social marketing side of social media, while also acknowledging that the low-hanging fruit of ROI might come from better another department. Pitney Bowes reported an estimated $250K / qtr attributed to their use of social media, but not tied to marketing. Here’s agreeing with your comment that social is not just for marketing & PR – it’s a change agent for the whole organization.

  • I’m going to go out on a limb here with my response. I’ll start by acknowledging that ROI is almost always a required consideration in every business analysis. However, I think that ROI isn’t being effectively applied to social media almost everywhere. I believe that the dynamics of social media are far more abstract and multifaceted than ROI or any other metric for that matter is. Social media marketing for business is largely focused on generating quantities. Whether it’s sales, # of followers, # of likes, etc. But, when you think of how you, the individual, uses social media, there are subtle, yet key differences. Instead of focusing on quantities, you’re focused on quality. You build relationships with people because you want to enhance the quality of the friendship. Whatever you’re after, whether that’s a deeper relationship, more time spent with a person, or whatever, it’s more than likely not about how many times you can hit them up for something. You aren’t focused on how many nights a week you can spend with that person, you are instead focused on mutually benefiting more by putting in more time into your relationship. That key difference between the way businesses are using social media and the way individuals are using is what I believe causes struggles with social media marketing. The businesses that can’t see or accept the way individuals use social media are the ones who are left constantly scratching their heads about its ROI.

    Needless to say, very interesting read. I appreciate how you approached this subject.

  • It seems to me that all advertising and marketing strategies fall on a continuum. On the far right, you have “direct response” – a place where success is measured in (relatively) short-term ROI. On the far left, you have “name recognition” – a place where the measure of success could be as simple as “getting more qualified prospects familiar with your brand/company.”

    If you’re a bootstrapped start-up in a (relatively) boring industry (say plumbing), you’d better TEST and find 2-3 direct response advertising and marketing channels that allow you to cost-effectively generate business. To find these, you might have to test 5-10 strategies. You should sleep (somewhat) well at night knowing that any money “wasted” on testing (ultimately ineffective) lead-gen strategies at least earned you some name recognition. You will also have learned something in the process (which is more valuable – an MBA or lessons learned through real world tests?).

    How does all this relate to social media marketing? In most cases, people aren’t on Facebook to buy stuff. They are on there to voyeuristically spy on their friends and strangers (and let’s be honest… most of us aren’t “really” friends with our FB friends!). Instead of trying to “sell” to people via social media sites, my guess is that most companies should simply try to engage with their prospects and customers SOCIALLY. When used in this fashion, SMM is somewhere on the continuum between direct response advertising and strategies that are purely about getting your name out there.

    All the standard rules apply that go along with most social endeavors. Follow these and exhibit a tad of savvy and, over time, you and your brand/company will “win.” Go for a quick direct response and you’ll kill the effectiveness of the channel (unless you have a cool social product/service – like beer, a restaurant, etc.). I run an ad tracking company, but I’ll tell you… not every marketing endeavor must return a short-term ROI. Part of being sophisticated with analytics is knowing what is worth measuring and which metrics can be used to determine success.

  • Speaking as a small business owner who markets, rather than a trained professional, the analogy of the lounge bar is most appropriate. We don’t ordinarily look for measurable ROI from a single meeting for drinks, but we might get it all the same. If we plan a campaign of going to the lounge to speak to people with a particular outcome in mind, we may be more reasonable in expecting a measurable ROI.

    As @Steve Hill’s comment notes, social media is more complex, and more multi-faceted (like the lounge experience) than can be measured simply by a straightforward ROI calculation. We have received bookings that either our online analytics, or the guests, tell us resulted from social media. But continued conversations with other guests indicates that social media may have played a role, from sparking interest, to answering questions, to just conveying the idea that they would be comfortable at our lodging property.

    Great article, Martin (as usual).

    • Scott, your view is spot on. In PR, we so often try and reveal the ways in which brand and momentum are spread, often to deaf ears.

      A single campaign can go viral or see adoption that will seem like the so called “digg effect” even today. However, this happens infrequently. More often, the residual effects, long term brand effects, and carefully maintained traction is what’s needed.

      Businesses consider any suggestion that does not involve instant success as a ploy for a longer campaign, more fees, or they are just impatient. As Steve suggests, social media is far more complex than flipping a button on and off.


  • Great insight and article here Martin.

    Social Media ROI is a like double edged sword. Info is real time and comes on us in 100 miles and hour. And we can’t be driving 100 miles an hour looking in the mirror wondering what did we miss.

    At the same time as fast as information flows today effective Social Media Strategies focus on long term effects. The clue is to be open to change when new opportunities knocks on your door.

    The Hotels that get handle on their Reputation Management strategies is the ones that will experience the real value of Social Media ROI.


    Are Morch
    Hotel Blogger