TRAACKR

The hype around Social Media ROI measurement has finally gotten to me: I’m growing tired of 140 characters promises, conference invitations, or free trials to the latest tool solving social media ROI measurement and help brands get on the social media bandwagon.

The promise of a silver bullet to approach this really complex issue is slowing down the development and adoption of social media by businesses, not accelerating it.

So let me call it as it is: measuring the ROI of social media can’t be done. I’m actually quoting here the father of ROI measurement, Bob Kaplan (ref. #SMB10), inventor of the balanced scorecard.

Trying to calculate the ROI of social media is the same as trying to calculate the ROI of email or the road you drive to work on. The costs can be approximated but the benefits can’t. Their reach is too broad and too many other factors are at play to even to list them all, let alone attempt to measure profits.

Maybe even more importantly than one’s inability to measure ROI for social media, the main problem of this ROI hype is that it fuels the idea that social media for businesses is an end in itself and can have its own P&L. It’s not, it’s a capability (or rather a very broad set of capabilities) that serves other business objectives and of course one should measure success associated to these business objectives.

I can’t tell you the number of clients of Traackr who asked me whether they should be on Facebook or Twitter. My answer is invariably the same: what are you trying to achieve?

There is no ROI associated to social media. There is an ROI associated to business objectives and social media can help achieve some (many?) of them.

The decision whether to invest in social media doesn’t lie in an excel spreadsheet, rather it’s a leap of faith and a belief by some business leaders that they are better off with it than without it. The tipping point for companies is based on risk tolerance, peer pressure and critical mass, not on a dubious ROI calculation.

This morning, I attended Boston’s Social Media Breakfast 10 where Brian from Hubspot, Matt from Visible Measures and Andy from HBS each presented their point of view on ways to measure the ROI of social media.

Aside from the framing of the issue that unnecessarily restricted the definition of social media (how is blogging not social media?!?), the talks were quite interesting.

The highlight of the session (that may well have corresponded with caffeine finally kicking in) was a quote by Bob Kaplan relayed by Andy McAfee who was answering a question about measuring the ROI of technology and the answer of the Accounting Hall-of-famer (yes there is such a thing) was simply: “you can’t do it.”

His point of view is quite straight-forward really: one can’t apply reliable ROI calculations to very complex and ill-defined environments. This of course applies to Social Media as well and is a lesson for us all: don’t overreach.

Does it mean that we should give up on measurements, and that Visible Measures, or Traackr for that matter, shouldn’t be in business? Quite the opposite.

Andy made it clear in his talk that the cost side of ROI ought to always be tracked diligently.

I would add that the opportunity side (aka revenue), though largely qualitative at the beginning needs to be followed with equal, if not greater, attention. There are two reasons for this: first, by tracking performance over time, you will get reliable trending information very quickly, second, by observing a variety of performance metrics you will end up being able to close the loop and calculate an ROI.

As an example, Traackr has started following the impact that Amazon reviewers have on the sales rank of the products they write reviews on. We can discern clear performance patterns and build reliable ROI calculations around this because we operate in a controlled environment (here Amazon) and have a set of historical data to work from – and btw these Amazon reviews also belong in social media.

The issue that Andy McAfee and Bob Kaplan are highlighting is that this data is not available beforehand thus can’t drive an investment decision and that it will ultimately take the leap of faith of a business leader to make it.

If you’re the one doing the convincing, remind your boss that they most likely have their job today because someone made such a decision before. The fact that your company is in existence is all the proof you need.