There is an ongoing discussion whether Return on Investment (ROI) should be used on Social Media. One camp argues that the primary reason ROI should not be part of Social Media is because the development of Social Media is so recent that the key performance indicators (KPI) used to calculate the ROI have not yet been defined. Moreover, this camp also argues that there is no reason to slow down the work on Social Media due to lack of ROI metrics. The metrics will be found at some point.
The other camp argues that even though social media is a recent phenomenon, the fundamental businesses principles still apply – when you invest, you expect a return. The idea that something is so recent, so new, so different that you cannot calculate the ROI is simply hogwash, the argument goes, while pointing the finger back to the Internet bubble of 1990’s.
These postings will try to open up and clarify the discussion. We’ll discuss that there are different types of ROIs used for different purposes, and that there are a different ways of calculating an ROI based on different sets of metrics, and we will follow up with a conclusion.
In a marketing campaign, you expect your return to be higher than the amount you invested within a pre-determined time frame. This type of ROI is used when you are trying to make more money.
On the other side, you also use the ROI calculation when you are trying trying to lower costs. For instance, in product support, you use an ROI calculation to see the estimated savings on a new product or procedure. Even though you are not making money, you are still lowering your support costs, with other words, you might still have a positive ROI.
In addition, when calculating the ROI of social media, you need to include risks. Until FDA releases guidelines on a pharmaceutical company’s responsibility with respect to adverse event and off-label promotions on a company-sponsored social network or community forum, the pharmaceutical industry, in general a very risk-adverse vertical, will be resisting using Social Media.
As there are different ways of calculating the ROI, there are also different types of social media marketing campaigns, short term, long term and always ongoing, and there are also non-marketing campaigns like the above example of product support.
Next posting will talk about ways of calculating the Social Media ROI. Links will be posted to Jeremiah Owyang and Charlene Li of Forrester Research, Bill Johnston of Forum One Communications, and Lithium Technologies and Powered Social Marketing.
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