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The Paine
of Measurement

Establshing the ROI
of Social Media
It's in bottom line benefits and improved relationships.

All this week Twitter has been the scene of furious debate, later picked up in conferences and in blogs, over how to establish the ROI of social media. One side says that without a solid monetary return, it's all just "pixie dust." The other side says that social media is all about building relationships, credibility and trust -- things that don't necessarily translate into bottom line benefits.

I argue that both are right.

To assume that there is no bottom line benefit to improved relationships is simply wrong. Vince Hazelton's team at Radford College demostrated in their paper from the 2006 IPRRC that improved internal relationships lowered operating costs and legal fees, and increased efficiencies. Sandra Duhe in her seminal paper on the impact of CSR (given at the IPRRC 2004) showed that there was a direct connection between an organization's relationships with its community and its financial performance.

And beyond the academic literature there are a ton of additional current examples:

• In a field known for its notoriously high employee churn, Best Buy measures the ROI of its internal "Blue Shirts Nation" community in terms of lower turnover rates.
• The National Association of Manufacturers measures the ROI of its blog in terms of greater access to the halls of Capital Hill. What's the value of that access? I suppose you could calculate it in terms of LFEs (Lobbyist Fee Equivalent), but I bet they don't bother.
• Dell measures the success of its IdeaStorm community both in terms of lower support costs and in the number of new ideas generated. How much is a new idea worth? Technically, it probably depends on how much revenue it ultimately brings in. But you could calculate a "consultant fee equivalency." Just calculate what you pay to outside consultants to creatively solve your problems, I bet it's a lot higher than $100 per idea, which is less than what Dell's costs are.
• SeaWorld reached out to roller coaster enthusiasts with its social media program and measured its ROI in terms of lower outreach costs as well as tickets sold.

Monitoring vs. Measurement

There's been too much confusion of late between monitoring and measurement. It's great that companies like BuzzLogic and Radian6 can calculate your share of discussion, or even that KDPaine & Partners can calculate your tone, positioning, prominence and dominance. That data tells you which programs work and don't work in terms of improving your messaging and positioning. But we need to get our calculators out to go beyond those easy numbers and start calculating the impact social media is having on organizational mission and the bottom line.

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