The ROI of ROI: Does ROI Always Make Sense? |

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The ROI of ROI: Does ROI Always Make Sense?


Posted by on February 5, 2011

When I go into meetings there’s one question I love to ask when it comes down to social customer initiatives.  I get the key stakeholders seated at a table together and ask, “If I told you that you would never know about making any direct revenue from your customers through social channels, would you still invest the time and money to do it?”  Sounds like a odd question but more often than not, every single person in the room raises their hand and says, “yes, we would still make the investment.” When I ask them why, the response is usually “because that’s where our customers are.”  We’ve seen some incredible stats about where customers spend their time online, how they research products online, how they share information and reviews online, and how they expect to interact with a brand online. These stats make it a difficult for companies to say, “nah, let’s skip the investment,” especially when their competition is already using social channels.

Now we get the ROI question which is, “what’s the ROI of engaging with customers online (or internally with employees through collaboration tools)”?  Well, the only way to answer that question is through data, all sorts of data that can be matched and pieced together (not correlated but matched).  This can include customer surveys, integrating social data with CRM systems, sophisticated tracking, and a host of other things.  As you can imagine the cost of such initiatives isn’t very cheap, especially for an enterprise organization.  So the question becomes, ‘at what point is it worth it to invest time and money to understand what the ROI of these initiatives and will the investment in understanding the ROI erode the actual ROI that we would have received to begin with’?

ROI makes sense for campaigns and projects, but if what we’re really talking about is an evolution of business, then does it make sense to measure the ROI for an evolution?  If we all agree that “social,” both internally and externally, is going to be a new standard for how business is done, then isn’t the argument of ROI completely pointless?  Again, I’m asking this just to challenge you and to get you to think differently.  Am I saying that you shouldn’t understand the value or return of your investments?  No.  But, we must also understand that companies and individuals invest time and money into things all the time without being to show any type of financial return.  When we as individuals spend time playing a musical instrument, go grocery shopping, give money to charity, buy a car, order a laptop, download an e-book, or purchase a new phone, we are investing time and money into these activities and behaviors without a way to show a financial return (most times).  Let’s say we could for a moment figure out the ROI of one of these things, is it worth it?  Take an individual purchasing a new phone and then scaling that purchase for a company with thousands of employees.  To that company deploying a social customer initiative, it might be equivalent to an individual purchasing a phone – - it’s a necessary investment in an evolution of how business done.  At what point does an investment warrant a ROI?  How much do you need to spend before you have figure out what you’re getting in return: ten thousand dollars? A hundred thousand dollars? A million? One hundred million?

The truth is, we can use data to tell any story we want to tell by picking and choosing which numbers we want to use and how we use them.  I can just as easily paint a positive picture with a set of data as I can a negative picture.

In the movie K-PAX starring Kevin Spacey and Jeff Bridges, there’s a scene where Kevin’s character (who claims to be from another planet) says to Jeff’s character (who thinks that Kevin is really Robert Porter, someone suffering from a mental disorder), “I will admit the possibility that I am Robert Porter, if you will admit the possibility that I am from K-PAX.”

I will challenge readers here to something similar, “I will admit the importance of measuring ROI if you will admit that sometimes it doesn’t make sense to invest the time and money into figuring out what the ROI is.  The question is, when is that ‘sometimes’?”

I’ll leave you with a quote from Einstein:

“Not everything that can be counted counts, and not everything that counts can be counted.”

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  • Gwen

    Great article I’ll be sure to share – simple and straight forward!

    • http://www.thefutureorganization.com jacobmorgan

      thanks Gwen!

  • Roel

    I think social media should be a part of a strategy enabling companies to delight their clients. That is change from product/service oriented to real customer focused (which is impossible with traditional management). If ROI would be calculated just based on the investment of social media, social becomes a goal at itself… and in traditional management terms, change in ROI the I for C and rule nr 1 in business is costs are always too high. Just my 2ct

    • http://www.thefutureorganization.com jacobmorgan

      Thanks for the comment Roel, your point makes sense and as I mentioned above to Pat, there should be several elements that define success, ROI can be ONE of those elements

  • http://www.facebook.com/patmcgraw Pat McGraw

    Jacob,

    As always, a thought provoking post – thanks for kick starting my brain on a cold, wet February day in Baltimore.

    If we were in a meeting together and you asked if I would invest resources in social channels without a guarantee that it would generate direct revenue, my answer would be “How do we know if the investment paid off for us?”

    For me, the investment is about improving awareness (measurable) and improving perception (also measurable). And if I could make more people in my target audience aware of me and help build a positive perception in their minds of who I am and what I do, the investment is worth it because it will lead to revenue generation through other channels.

    But a business has limited resources and can’t afford to invest those resources without getting something of value in return. Sometimes it needs to be direct sales. But other times it can be about things that deliver other benefits.

    I guess, for me, ROI doesn’t have to be revenue – but it does have to be some type of return I deem to be valuable and acceptable.

    Again, great post – looking forward to more comments!
    Pat

    • http://www.thefutureorganization.com jacobmorgan

      Hi Pat,

      Thanks for the comment and of course you make a point I agree with. ROI is a metric but doesn’t need to be THE metrics for judging success. When you invest in a stock you look at various metrics and variables and not just at one, so why should investment into a strategy or technology solution be any different?

      Thanks for the comment Pat!

  • http://friendiversary.com/ Friendiversary

    I’ve been fortunate enough to work for a company where the ROI on social campaigns is measurable and significant. It’s easy to defend the social marketing efforts when it converts into dollars.

    • http://www.thefutureorganization.com jacobmorgan

      I’d be curious to hear more about the measurable and significant ROI you have seen thus far and what you have done to measure it. Do tell

      Thanks for the comment

      • http://friendiversary.com/ Friendiversary

        We’ve been able to track it in both Google Analytics and paid analytics tool we use to measure the revenue by channel (Facebook, Twitter, PPC, Organic Search, etc). Our social revenue is still a small portion of the total revenue…BUT…it has tripled in the past 6 months, which was very nice to see!

  • http://blog.relenta.com Dmitri Eroshenko @Relenta

    Right on Jacob! I wonder if someone ever measured ROI on email. I am sure that was a big question in 1994.

    Like email, social networks generate an enormous amount of (often useless) work. Activity doesn’t equal action. Social networks make it real easy to kill 9-5 time while sounding important:

    “What did you do all day?”
    “Researched our customers’ social graphs!”

    Depending on the company people and culture, the same ROI formula without a doubt would yield dramatically different results.

    • http://www.thefutureorganization.com jacobmorgan

      Thanks for the kind words Dimitri. I’m certainly not claiming to be right on this, heck I very well might be wrong, but it’s certainly interesting to think about. I’m sure some people out there will disagree :)

  • Anonymous

    I think there will always be some value that is perceived and measured whether quantitatively or qualitatively for specific campaigns or new products. When it comes to social media there will come a time when it’s so ingrained (like email or the telephone) that is part of standard business process. It would be like teasing out the value of a white paper or a meeting. The social exchanges won’t necessarily drive the value or be the key indicator of value, it will be how effectively are we using the information we are deriving from social engagements, how well are we filtering and organizing our resources. Maybe the ROI won’t necessarily be measured by likes or follows but rather by how the data is collected and used to drive new ways of doing business.

    Great, thought-provoking post. I think I still need to mull on this one!

    Thanks!

  • http://www.quantmleap.com Shim Marom

    I can’t see how comparing an individual’s decision to purchase a smart phone can be compared to a company investing in unsubstantiated or unproven ROI activities. When I buy a smart phone I derive pleasure from having it. This pleasure represents my priority list and is directly linked to my personality and psyche. Companies cannot operate on a similar scale. I would not invest in a company whose decision making process is based on the CEO feeling good about it. I will certainly look for some tangible evidence that ROI is likely to occur within a certain band or uncertainties.

    Executive’s job is to manage risk. Would you invest in social media knowing that no financial benefit will derive as a result – most likely not! Is the competition investing in social media engagement without expecting any financial returns – who cares – as while they waste their scarce resources on unproductive investments our company will invest in technologies and services that will provide real returns to our share holders.

    Am I wrong?

  • http://www.mactonweb.com Web design London

    I think social media should be a part of a strategy enabling companies to delight their clients. That is change from product/service oriented to real customer focused.

    web Design london

  • http://www.chitownbootcampsblog.com/chicago-weight-loss chicago weight loss

    If it doesnt make sense why bother investing in it.
    ROI does matter and you should not get into a thing in which you didnt see any profit or return. You should start exploring other investment opportunities.


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