I just finished an interesting article by Steve Woodruff who asked the question “ROI in Social Media – Where Does it Belong?”  He launched his article by writing:

“What’s the ROI of Social Media?” I hear that question all the time, and it drives me crazy.

Huh. What drives me crazy is wondering why anyone would fail to provide a social media valuation to their executive team (just as you would for any other corporate initiative).

Steve wrote,

Social Media/Networked Communications are a fact of life. And, there are some things we do because we know that, in the long run, they make business better….

[T]hat’s why we should instantly dismiss the question, “What’s the ROI of Social Media?” It’s exactly the wrong question. Should companies be involved in networked communications? In every way that makes sense, yes – because it’s smart, it’s right, it’s where the people are. Now – what specific strategies are best, and what measurable tactics should be employed? That’s when we move into ROI territory (and that’s when you start reading The Brand Builder on ROI…).

Yeah, okay I buy that social media will become as standard as having a call center in the near future. But speaking as a business owner and former senior manager working for other companies, I still want to know the value of any capital expenditure before I open up my checkbook.

 

Lead with objective and strategy

There are a few points where I’m in wholehearted agreement with Steve.

Start by defining your corporate objective.  Companies need to look at their holistic needs and opportunities.  And really, social media should be part of a larger social business objective and set of strategies.  Remember too, social business/media is about much more than marketing (which is the only focus Steve mentioned).  It’s also valuable for  sales, customer service, and internal collaboration (or with partners) to name but a few.

Then you dive into tactics and the infrastructure you’ll need to support social business (as well as your other initiatives).

 

Why you need social media valuation

It’s not free

Here’s the thing. If a company is small and their social media strategy involves some tweeting here and Facebook posting there, then maybe they don't need to dive into an ROI analysis. Most of their costs will be 1 part-time person so the cost won't be high.

For a company like this, social media is a modest expense.

However, for a medium- to larger company the story can be different. For a comprehensive social media activities to support a social business strategy, the price tag will be much higher.

 

Personnel still cost you

First there's the personnel costs. In a medium-sized to large company a social media team can consist of:

• Executive with strategic responsibility,
• Manager with tactical responsibility,
• People to participate or monitor social media activities,
• IT to support technical infrastructure. 

Add it all together and you can be looking at looking at an annual loaded payroll cost (pro-rated salary + bonus + benefits) of $100k - $200k...or more.

And if these folks are doing social media-related activities to support a company initiative, then they aren't working on other projects. What's the opportunity cost of those resources?

 

Technology costs for an comprehensive social strategy

The technology infrastructure to support a comprehensive social media strategy (beyond just involvement in Facebook or Twitter) will include any or all of the following:

• Incremental CRM seats,
• Social business platform (e.g., Jive, Lithium, etc),
• SCRM add-ons (e.g., Helpstream),
• Premium analytics (e.g. Radian6).

Implementation costs will be capital expenditures for many companies and ongoing usage costs can climb well above $100k per year for medium to large companies.

Mind you, there are lower cost community solutions that a medium-sized company may choose that will keep the annual costs below $50k per year – but it’s all relative. That will still be a high enough cost to pay attention to.

 

Time to get real

Steve makes a comment towards the end of his blog post…

"Then again, you can always take comfort in the return on doing nothing…"

Not engaging in social media initiatives is a perfectly valid corporate decision...especially if your company execs deem they can gain more value from other initiatives.

However, the only way to know that possibility is to determine a social media value in the first place.

All this takes me back to my original question of why wouldn't you expect a company's executive team to want to know a ROI they can expect to gain from initiatives that will cost them >$200k per year?

It's an unrealistic expectation to think company executives wouldn't a valuation on any corporate initiative that will carry chunky price (whether you're talking about social media, an investment in a new call center phone system, or expanding a manufacturing plant or what have you).

 

Coming soon

In the next week, we’ll release a comprehensive social media ROI tool that will allow companies to determine the ROI on their social media initiatives. It will take into account:

• Gains (revenues and cost savings),
• Costs (personnel and technology).

Stay tuned.  If you’d like to be notified of the release (and a pending seminar to overview a social media ROI methodology), then be sure to register for an alert.