You Can Count Your Money...and You Can Count Your Leads...

...but you can't count on how much money your leads will turn into.  At this morning's Social Media Breakfast the topic was ROI in Social Media. Brian Halligan of HubSpot and Matt Cutler of Visible Measures gave great presentations about how they track social media efforts.  Andrew McAfee, however, dropped a bit of a bombshell in saying that ROI from enterprise software cannot actually be calculated. Not that enterprise software in not valuable mind you...just that its value is too complex to effectively calculate with models.

This was a very interesting line of thinking for me for a variety of reasons. 

First, with the financial meltdown there is a lot of conversation swirling around about whether there was enough good old fashioned experience and intuition governing the big financial firms or whether they had become subserviant to their models which, apparently, told them that lending to people who couldn't pay them back was a good idea.  I'm being a bit cheeky here and I can't begin to know all the factors that led to the crisis but it has started a conversation around the use of models in decision-making and management.

Second, I spent a number of years benchmarking the supply chain and product development performance of Fortune 500 technology companies.  It was a fascinating exercise and from it I brought away two primary lessons.  One, benchmarking can be incredibly useful.  Two, people misuse and misunderstand the use of metrics quite a bit.  The metrics won't tell you what to do they will just show you where you've been and how that compares, directionally, to others.  It is one piece of information to use in decision-making but it should not be used alone to make decisions.

Third, I've build enterprise software ROI models.  There are a lot of assumptions you build in and a lot of exceptions that you have to ignore (and unfortunately for the models...business is mostly about managing exceptions).  I've also build system dynamics models which are incredibly cool and handle behaviors better than your standard database models.  However, the important lessons that good models provide are not the results.  Good models help you test changes to assumptions and see the relative/directional implications.  They will not give you an accurate projection.

So...where does that leave us? For Andrew McAfee, he suggests measuring what you can but trust that business decision makers are wiser than to trust any enterprise software ROI analysis.  But here's what I think.  Business is about relationships and the better the relationships you have, the more stable and secure your business will be...but you may sacrifice growth because scaling good relationships is difficult. 

The real value of social software is that it helps develop and maintain closer relationships with more people than you could without it.  The business leaders that have really succeeded get the relationship angle...if they can see clearly how social media can increase their ability to maintain more relationships, the ROI will be obvious.  But not calculable.

Comments

[Crystal King]

I do think that social media can be measured for ROI, albeit not in the traditional ways. Comparing links in vs. time spent to build the links and match that to a past adwords or advertising campaign for example. In fact, Brian Halligan talked specifically about how they measured many pieces of their social media strategy--links from Twitter that turn to leads, etc. Rather than looking at ad dollars, we need to look at manpower in light of cost per hour.

My company (very large, so we have more leeway than an SMB) is using social media primarily for additional reach and to drive people back to the website and other, more measurable, ways of tracking leads. Fortunately we're looking at it as an extension of PR/Communications vs. marketing, so the scrutiny over ROI isn't as much of a big deal (can be more intangible) in the same way as it might be for a colleague in field marketing.

[Chris Selland]

No offense, but how can ROI be 'obvious' but not 'calculable'?

Yes ALL marketing has soft, intangible benefits - but at the end of the day all marketing also needs to be producing a pipeline of opportunities. Including Social Media. And at least that part is VERY calculable.

The first marketer who tells their boss that they are 'intellectually bankrupt' (quoting McAfee) for asking for ROI on Social Media will be the first one in the unemployment line.

[Rachel Happe]

Just to clarify, if I didn't make it clear. I am not suggesting - nor was Andrew McAfee - that you don't measure and improve and track spend vs. measurable benefits. What I am suggesting is that it is impossible to measure the lifetime value of a customer with whom you have a deep relationship with vs. one in which you do not.

In big companies particularly each customer is touched so many times by so many people that the costs are hard to calculate. Similarly, their willingness to do case studies or be a reference or recommend you (which you may not ever see) or help with product development is impossible to really calculate. There are direct and indirect revenue impacts from each customer you have..and many of those impacts are impossible to measure making overall ROI impossible to calculate with any degree of accuracy.

Also, just to be clear, I am not talking about tracking just social media efforts to leads (I agree...much easier to calculate and you should).

Thanks for visiting and adding to the dialog!

[Rich Sands]

I think metrics are fine, as long as you don't imagine that there is any way to directly measure say, the connection between a Twitter interaction and a purchase order. I liked Brian's approach - it generates actionable information. The danger with metrics I think is that companies that need to measure everything and see those correlations are going to miss out on some opportunities that aren't measurable, but that could help position them for success.

[bubsy seo test]

i agree all the comments they said!!

[Debbie]

Hey Rachel, we have SMB in Singapore too!