Measuring the ROI of Social Media

I’m a big fan of the work that Forrester does. I buy its reports, use its data, subscribe to its blog and use a lot of the frameworks it has developed in our everyday consulting at com.motion. In a lot of ways, Forrester is the pre-eminent thought leader in our space with the research capabilities to provide marketers with the data they need to make informed decisions about their target audiences and the technologies that can be used to reach them.

So I was a little disappointed to read the latest blog post on risk Avoidance and the ROI of Social Media, Insurance, Guitars and Tires. In particular, this part was hard to digest, in the context of ROI:

In 2009, what was the ROI of your investment in life insurance? The vast majority of you paid your premiums and filed no claims (or you wouldn’t be reading this). You received a negative ROI, so clearly that means you’re suspending your life insurance in 2010, correct?

Followed by:

Social Media is like corporate reputation insurance. You pay premiums in the form of building relationships, listening, responding, creating widgets, and building communities.

Now, I completely agree that the best crisis communications strategy is a proactive one – see my com.motion University: Crisis Communications presentation below. However, to argue that a major social media engagement is being undertaken in the off chance that an all-encompassing crisis overtakes a brand or organization is not something that many brand marketers I work with will sign off on.

However, I do agree that there are two ways to measure ROI – both of which directly affect the bottom line:

Sales and cost avoidance.

Both are important, both need to be measured but it doesn’t benefit our industry to focus on one and ignore the other, especially with analogies like the one Forrester is using.

What do you think? Am I off base? Does the life insurance analogy hold up and will your clients (internal and external) “buy it”?

via Risk Avoidance and the ROI of Social Media, Insurance, Guitars and Tires.

One Response to Measuring the ROI of Social Media

  1. I think the Forrester conclusion does have some logic to it. I don’t see it as simply crisis management though–you can have multiple small, daily negative mentions that might not rise to the level of a crisis, but are still important to be addressed from a reputation perspective.

    I work at CustomScoop–a monitoring and analysis firm. There are a lot of ways to use monitoring, from sales leads to competitive analysis and so on. But a lot of businesses just monitor from a reputation perspective. Risk avoidance is a big deal to companies, but how do you measure what *doesn’t* happen? (Answer: you can’t.) So, if you are a company that is diligently monitoring social media, responding, and engaging, etc. and you are able to directly respond to a consumer who posts (for example) a damaging rumor in a public forum, quickly stopping the rumor before it’s repeated–what have you gained? You can’t measure how much bad PR you might have gotten, because you’ll never know if the rumor would have taken off. You’ve nipped it in the bud. There is no way to measure that, yet it’s a good, solid business reason to be engaged online.

    Sorry for the long comment! Interesting questions.

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